Real Estate Market Pulse: On Capital Flow, Housing Discounts and Buyer Profile
Email sent on 20 April, 2020
Dear Clients and Friends,
My second update on what’s happening in the real estate market (if you missed the first update, read it here) are notes summarized from online seminars, town halls and investors’ meetings.
They feature
Dr. Lawrence Yun, PhD, Chief Economist and Senior Vice President, Research from the National Association of Realtors®;
David Stevens, former commissioner of the Federal Housing Administration and president of the Mortgage Bankers Association; and
Respected figures from the Black Diamond Real Estate Investors network.
Here are 3 common themes and their impact on the market.
1. Capital is scarce and expensive. Tightened credit shrinks Buyer pool.
1.1 Banks are squeezed with the rush in refinancing, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which has enabled mortgage forbearance, and are still figuring out the Paycheck Protection Program.
1.2 Equity providers are requesting extensions on transactions. Capital providers are waiting to see what effects are cascading. No one is enthusiastic about closing transactions now.
1.3 Hard money lenders are nervous. Where they would previously lend up to 75% of the after rehab value of a flip, that is now about 65%. Lending is limited to small projects - 3 months ideal, no gut rehabs. No large projects; definitely no lending to projects that require zoning board approvals.
Buyers:
Know that banks have tightened their credit lending criteria. JP Morgan Chase for example, requires a credit score of at least 700 and a down payment of 20% of the home’s value.
Smaller, limited credit lending criteria will affect - and shrink - pool of new buyers.
Check in with your mortgage loan officer. While there are still loan products with 3% downpayment, some other loan products have been removing from offering.
Check if your pre-approved loan product - and letter - is still valid.
2. This will not be a housing crisis. There are purchase opportunities now, but don’t expect a major discount in the short term.
2.1 Housing crash in 2008 was a credit crisis created by subprime lending that allowed buyers to overstretch their budget. There was also an excess supply of new construction in the market- 1.5 million new homes are required the meet the needs of population growth; in the period up to 2008, builders built over 2 million new homes for consecutive years creating oversupply.
2.2 Sellers are currently not panicked. According to last week’s survey of Realtors®, 72% said Sellers have not reduced prices to attract buyers. Conversely 63% said Buyers are expecting a decline in home prices owing to less competition in the current environment.
2.3 There is still buyer activity in good towns. Take Acton, Boxborough and Harvard for example: since MA declared state of emergency on 10 March, of the 62 single-family homes listed since, 28 listings - 45% - are pending/under agreement.
Buyers:
Housing shortage is not felt now as both inventory and demand are low. Price reductions possible, but unlikely below 5%.
Entry level homes are not going to have a big decline. Larger homes - McMansions - expected to stay on market longer and see price declines.
Investors:
It will be a while before deals through foreclosures happen. Moratorium (which lasts 120 days from April 20 or 45 days from the lifting of emergency declaration) has paused all non-emergency eviction proceedings, including notices of eviction.
3. Expect rebound in Q3. Millennials will drive home purchases through 2028.
3.1 Q2’s 30% GDP contraction expected to be contrasted by a V shape rebound in Q3, followed by a continued upwards trajectory in 2021 and 2022.
3.2 Fiscal stimulus expected to cause home prices to rebound higher than before. When Hurricane Katrina hit New Orleans, unemployment went from 5% to 15 %, but home prices rose after fiscal stimulus. Same effect mirrored in NYC after 9/11.
3.3 The millennial generation — those born from 1981 to 1996 — has overtaken baby boomers as the largest adult population group in the US. They are in prime purchasing years and will to drive purchase up till 2028.
Buyers:
The enthusiasm for homeownership has not changed. Builders are still backed up; there is shortage of inventory and extraordinary demand.
Buyers with good jobs - and cabin fever - will swamp to purchase and take advantage of rates whilst they are low.
Sellers:
Know your target audience. Purchase expectations and information consumption of Millennials are different.
I’m a Millennial, speak to me! 🙋🏻♀️
If you’ve read to this end, thank you for your time :) Know if I’m an email/text/call away if you ever need to discuss real estate specific to your needs.
Stay safe, folks!
Yours,
Joan
Sources
Dr. Lawrence Yun | PhD, Chief Economist and Senior Vice President, Research, National Association of Realtors®.
MAR’s second Town Hall meeting on April 16
David Stevens | Former commissioner of the Federal Housing Administration and president of the Mortgage Bankers Association
Webinar hosted by Fairway Mortgage on 17 April
Black Diamond Real Estate Investors | One of the best real estate investing network in MA with the highest percentage of seasoned investors.
Meeting held on 14 April
Want to stay updated with the latest insights? Leave your name and email below to get on my mailing list! :)