How Have Central Banks and Governments Responded to the Global Pandemic?
The COVID-19 pandemic has created one of the most unprecedented global financial events in modern history. The human and social costs of the virus have been vast. The financial costs threaten economies worldwide.
Central banks have played a central role in mitigating the damage of the pandemic, with fiscal policy helping to offset a drop in consumer spending and the resulting decrease in gross domestic product.
Central banks, and their respective governments, have used several financial tools to help stabilize economic slowdown.
Stimulus in Major Economies
The European Union has created one of the largest stimulus packages in history to help offset the impact of the global pandemic. A $2.21 trillion (USD) package has been approved by all member states except Poland and Hungary. The package includes a long-term budget for Coronavirus recovery that would run from 2021 to 2027. It includes more than $815 billion (USD) that will go directly to recovery programs and reform in member nations.
Central bank rates, which influence the cost of borrowing at an institutional level (with a trickle-down effect on corporate and personal borrowing) have also been lowered during the pandemic .
- In the United States, the rate is held at 0.250%.
- In the United Kingdom, the rate is held at 0.100%
- In Japan, there is a negative rate of -0.100%, intended to stimulate borrowing to prop up the economy.
All of the world’s major banks have implemented historic-low interest rates in 2020, excluding China and Russia. China’s central bank rate is currently maintaining at 3.850%, while Russia’s is at 4.250%. China was the first nation to be impacted and the first to recover from the pandemic, with its vast manufacturing economy helping to drive growth towards the end of the year.
The United States has also offered direct stimulus in the form of aid to businesses, as well as payments of $1,200 to individuals earlier in the year. The CARES Act was passed into law on March 27 and contained more than $2 trillion (USD) of economic relief .
The United States Congress is currently negotiating the terms of a new stimulus package which could include direct payments and unemployment subsidies for people who have been impacted by the pandemic. It is also likely to include paycheck protection loans for businesses that are struggling in 2020.
Keeping small businesses from failing during the pandemic is a key strategy for recovery in all developed nations.
Gaining Insight from Government Bonds
Government Bonds are an important measure of the current economic situation. Long-term interest rates on government bonds are implied by the prices of bonds as they are traded. Repayment of bonds is guaranteed by central governments, giving them strength, even in periods of economic uncertainty.
The lowering of global bond interest rates throughout 2020 is somewhat related to central bank rates, but they do deviate. Lower long-term rates can attract investment, helping to stimulate economic growth.
The following charts show government bond interest rates for members of the Group of Seven (G7), a highly influential group of nations with some of the largest regulated economies in the world . Australia is included as a non-member but key global economy.
Global Economy is Still in Crisis
The global pandemic is far from contained, and major institutions predict that the global economy will decline, especially in emerging markets. Major economies have managed conditions well so far, but it’s yet to be seen how far interest rates, issuing of government bonds, and direct stimulus will go towards supporting a recovery.
- Global Rates Central Banks – Summary of Current Interest Rates – https://www.global-rates.com/en/interest-rates/central-banks/central-banks.aspx
- U.S. Department of the Treasury – The CARES Act Works for All Americans – https://home.treasury.gov/policy-issues/cares
- OECD Data – Long-term Interest Rates – https://data.oecd.org/interest/long-term-interest-rates.htm
GDP and Its Relationship with the Stock Market
The performance of the United States stock market and GDP (Gross Domestic Product) are two key financial indicators that can be used to aid decision making. While investors are often reminded that the stock market isn’t the economy, it does have a close relationship with economic performance. GDP is a direct measure of the economy. Performance across both indicators isn’t always aligned.
How Can the Stock Market Affect GDP?
The stock market has a small direct impact on GDP, but it is still a factor.
When stock market confidence is high, it can have a trickle-down effect, increasing consumer confidence and leading to an increase in consumer spending. When the stock market hits new highs, the news is featured in the major headlines. Even people that don’t follow the stock market can have their spending patterns swayed by the news.
The stock market also creates value for the economy in terms of investor returns. Returns through stock sales, trades, and dividends can inject more spending money into the economy. At an institutional level, big stock gains can lead to more capital for companies that then spend on products, services, and expansion outside of the market.
How Does GDP Affect the Stock Market?
Looking at it from the other side, current GDP can have a real and measurable impact on the stock market, although it isn’t always consistent.
Strong GDP performance indicates a strong economy, which can embolden investors. More activity in the markets can lead to share price gains, which then raises the major indexes. If GDP falls, investors have less confidence in the economy which can slow their trading activity.
However, contrarianism is a real phenomenon in the market. Some picks are made in complete opposition to economic signals. Investors can also buy during economic dips with the hope of finding discounted stocks that will recover when the economy picks back up.
Investor sentiment is complex and sometimes investors ignore GDP altogether. An example can be taken from earlier in the year.
Take a look at the following chart published by the U.S. Bureau of Economic Analysis .
It shows that real GDP fell -5% sequentially in the first quarter and then more than -25% sequentially in the second quarter of this year. Those quarters ran from January to July and represented one of the worst economic recessions in American history.
The next chart, which shows the growth of the Dow Jones Industrial Average stock market index, reveals that while there was some correlation of the dip when compared to GDP, it quickly recovered, despite GDP tanking throughout the second quarter .
The Cares Act of 2020 was passed on March 27. It was a $2 trillion economic relief package that included direct support for businesses and workers. It included $1,200 stimulus checks for individuals. This package, despite poor GDP performance, gave investors confidence for an economic recovery.
Should GDP Factor Into Investment Decisions?
The stock market is hitting record highs today. This is happening despite the massive declines in GDP due to the Coronavirus. This can leads to the assumption that the current market prices are more a reflection of consumer confidence then actual market growth.
The stock market has outperformed all expectations this year despite America facing an economic downturn and a deadly pandemic in tandem. How long will this trend continue? It can be assumed that this is closely correlated with the governments ability to inject capital into the markets and provide stimulus to the economy. Major volatility should be expected.
GDP can influence stock markets and the reverse is also true, but the two don’t always have a direct and proportionate relationship.
- Bureau of Economic Analysis Gross Domestic Product Chart – https://www.bea.gov/news/2020/gross-domestic-product-third-quarter-2020-advance-estimate
- Trading View Chart Tool – https://www.tradingview.com/
Asset Prices During the Coronavirus Pandemic
Amidst a global pandemic and one of America’s most severe economic declines, asset prices have increased in 2020. The data shows that asset prices have increased despite many urban rent markets having lost growth momentum in the spring.
Rental Price Growth is Mixed Across the US
In the United States, year over year rent growth was tracking at 1.60% midway through the year, according to data from Zillow . Some locales vastly outpaced the national average, with Phoenix, Arizona seeing a year-over-year rent increase of 6.30% in June. Detroit, Michigan, and Riverside, California saw increases of 4.40% and 4.90% respectively.
Experts believe that economic stimulus could be linked to rental price growth. While it would be logical to assume that rent prices would decrease during the peak of the pandemic while millions of people were out of work, federal unemployment subsidies and the $1,200 stimulus payments would have kept renters in the market.
The relative stability of the rental market during the height of the pandemic has likely contributed to the growth of apartment asset prices towards the end of this year.
Apartment Assets are Worth More
According to the Freddie Mac Apartment Investment Market Index® (AIMI), property price, operating income, and multifamily permits have all increased during 2020 .
Multifamily permit applications are filed by homebuilders and asset owners for compliance reasons. They can indicate growth in the demand for or at least the supply of multifamily properties like apartment complexes in America. According to the latest data, Multifamily permits have increased by 7.5% in the year so far.
Property price tracked by AIMI has increased by 2.8% in the year so far. While this is a decrease from the historical average growth rate of 6.6%, it still shows that apartment property prices have increased across the board in 2020.
Net operating income from apartments has underperformed the other figures. Incomes are up 0.4% in the year so far. This can still be seen as a positive considering the conditions.
Competition May Be Driving Asset Prices Up
The home market is competitive today, with low inventory and increased buyer activity. Mortgage rates are still low, which is driving people to engage in the market. With both move-in buyers and investors competing for a smaller inventory, it’s unsurprising that apartment asset price growth has occurred.
According to data from ValuePenguin, the average 15 years fixed mortgage rate today is 3.52%, while the average 30 years fixed mortgage rate is 3.99% . Rates range from 2.50% to 8.50% across both classes.
Mortgages are typically low in times of economic uncertainty. America’s economic output has slowed in 2020 and the government and the central bank are working to restore the economy. A central bank interest rate of 0.025% is helping to keep consumer lending rates low, which is good news for mortgage borrowers.
A combination of Factors Contributing to the Current Conditions
It could be argued that asset prices are rising because they are continuing a trend of recent years when the economy was expanding. Although the economy has suffered a major reversal this year, the Coronavirus pandemic isn’t likely to be a long-term factor and the economic recovery is already underway.
Stimulus measures have kept renters in their homes, which has kept demand high. Demand from property investors is also high thanks to low inventory and low mortgage rates.
The slowed pace of growth may represent an opportunity for those looking to invest in an apartment asset. It could also aid sellers by limiting any lost potential in a listing price.
- Zillow – Urban Rent Slowdown – https://www.zillow.com/research/urban-rent-slowdown-27647/
- Freddie Mac Apartment Investment Market Index® – https://mf.freddiemac.com/aimi/
- ValuePenguin – Average Mortgage Rate – https://www.valuepenguin.com/mortgages/average-mortgage-rates
The Central Banks Role in the Coronavirus Pandemic
In most developed nations, central banks have been integral to maintaining economies during the Coronavirus Pandemic. In the United States, the Federal Reserve dropped the interest rate right down to 0.250% this year, hoping to stimulate institutional borrowing and bolster the economy. The decision was effective at invigorating both the home and stock markets, but there are other factors at play, such as the $2 trillion of economic relief provided by the CARES Act passed in March.
Other advanced economies, including the United Kingdom and Japan, have also relied on their central banks to lower interest rates and offset the economic downturn. In Japan, the central bank has gone as far as implementing a negative rate of -0.100%. Japan’s economy has weakened during the Pandemic, but it is still fully operational. The strategy of lowering the interest rate appears to be working. Japan also uses mask mandates and has distributed personal masks to help limit the spread of COVID-19. A combined social and economic effort has proven to be effective.
However, there are nations without large central banks or social services in place to support people and the economy during the pandemic. How are these places managing the current conditions?
Nations Without Central Banks
The list of nations without central banks is unsurprisingly small. It includes Andorra, Kiribati, Liechtenstein, Marshall Islands, Federated States of Micronesia, Monaco, Nauru, Palau, Panama, and Tuvalu.
Some nations are simply too small or have made political alliances to eliminate the need for central banks. Liechtenstein, for example, hands its regulatory and central bank policy functions to Switzerland. Panama, a major financial hub, relies entirely on the forces of the free market to maintain its money supply.
How Do Non-Central Bank Nations Respond to the Coronavirus?
There doesn’t appear to be any real relationship between effective coronavirus response and having a central bank.
In Panama, lockdowns were used earlier in the year to limit the spread of COVID-19. The government declared a state of emergency in March, freeing up $50 million (USD) to combat the pandemic . Panama doesn’t rely on a central bank interest rate to stimulate economic growth. It is a country driven by a free market.
It holds vast dollar reserves and uses the dollar as its official currency. The lack of a central bank cannot be viewed as detrimental to its Coronavirus response. Panama is a high-income country but 14.1 percent of the population still live in poverty. It has seen 181,166 confirmed COVID-19 cases with 3,241 deaths. Panama has a population of 4.1 million.
In Monaco, which is an ultra-high income country, there has been no need for widespread lockdowns or quarantines. The nation hasn’t needed to turn to a central bank to support the financial markets. Like Panama, Monaco’s economy relies on tourism and banking. Banking regulations are closely aligned with the European Union. The nation has seen just 648 confirmed COVID-19 cases with 3 deaths.
The Monaco government has implemented social programs to limit the spread of the pandemic, including a home patient follow up care team that helps to limit the strain on hospitals and clinics . Monaco’s resident population is less than 40,000.
Is A Central Bank Necessary During the Coronavirus Pandemic?
In large regulated economies, central banks already have control over target interest rates. They have intervened with debt purchases and lowered interest rates to keep their respective markets afloat.
In smaller nations that lack central banks, the need for fiscal policy intervention is not as severe. Smaller countries such as Panama and Monaco have manage to navigate the virus without central bank intervention.
- CNN – Panamá declara estado de emergencia nacional y anuncia medidas contra el coronavirus – Panamá declara estado de emergencia nacional y anuncia medidas contra el coronavirus | CNN
- Monaco Tribune – The little-known body getting Monaco through the pandemic – https://www.monaco-tribune.com/en/2020/12/the-little-known-body-getting-monaco-through-the-pandemic/
The Covid-19 Crisis and Rental Delinquencies
Rental delinquencies have become a major problem during the COVID-19 crisis. Delinquencies put renters at risk of losing their homes, and landlords at risk of failing to service their mortgages.
Take a look at what the government is doing to intervene, along with statistics and expectations for the weeks and months ahead.
Did President Trump Stop Evictions?
A federal eviction moratorium was enforced up until the end of July. However, the protections are no longer enforceable.
President Trump announced earlier this month that he was stopping evictions through an executive order. However, the wording of his order only directs the government to research whether a moratorium is necessary. Currently, renters don’t have federal protection enforceable by the courts.
According to a whitepaper published by academic figures from various public groups and universities , America could be facing an eviction crisis with up to 40 million people at risk. The social impact of this would be huge, with families and individuals losing their homes. Low-income earners are the most at risk, especially those who reside in apartments and similar dwellings.
Of course, missed rent payments are not just a problem for the renters. Property owners lose income, and if they are renting mortgaged properties, they risk not being able to cover their mortgages. According to the whitepaper, 65% of properties with up to 4 units and 61% of properties with up to 19 units are mortgaged.
Delinquent rent can lead to delinquent mortgages, compromising the entire mortgage and housing market.
Some States May Act Independently
States could act independently to protect renters during the COVID-19 crisis. Kentucky has already done this with its Healthy at Home Eviction Relief Fund. Announced by Governor Andy Beshear on Monday, August 25, 2020, this executive order ensures two key provisions for renters.
- Renters are entitled to 30-days notice when a landlord intends to begin eviction proceedings.
- During the 30-days, the landlord and tenant are required to meet and attempt to make payment arrangements.
- Landlords cannot add late fees, penalties, or interest to delinquent payments, dating back to March 6.
Other states could follow Kentucky’s lead, especially considering that Congress has stalled with its effort to provide a second round of Coronavirus relief.
How Bad is Rent Delinquency Today?
The statistics often show a different side of the story when compared to the news headlines. The National Multifamily Housing Council (NMHC) collects data from around 11.5 million apartment units each month to report in its rent payment tracker .
Here’s what the data says about payments made by rental households over the last five months.
- 2% made payments in April compared to 93.3% last year.
- 8% made payments in May compared to 93.0% last year.
- 2% made payments in June compared to 92.2% last year.
- 3% made payments in July compared to 93.4% last year.
- 0% made payments in August, compared to 92.1% last year.
Aside from June, the data shows that there has been a notable decline in rental payments made. Looking at the trend, it’s likely that payments in June could be down as much as 2% compared to 2019.
How Long Will It Take for the Market to Stabilize?
With the COVID-19 crisis uncontained in the United States, it’s impossible to predict just when the rental delinquencies will stabilize. A repeat of widespread economic shutdowns appears unlikely under the current administration. The job market lost 22 million jobs in March and April, but 9 million were added back in the past three months. 16 million people remained unemployed in July , and 8 million people were working part-time after working full time before the pandemic.
Rental delinquencies are linked to economic performance and employment figures. Lenders and landlords are likely to see a noticeable reduction in delinquencies as the economy recovers.
CMBS Loans and Mortgage Market Performance During the Coronavirus Pandemic
State lockdowns earlier this year and high unemployment figures have affected the home market in the United States. CMBS loans (Commercial mortgage-backed security loans) and even conventional loans backed by Freddie Mac and other organizations are at risk.
Delinquencies are likely to increase, at least according to some experts. The most bearish of analysts have warned that the U.S. market for commercial loans is close to collapsing.
Take a look at the latest facts and data that can help to gauge the market today.
Why Has the Market Stalled?
Liquidity is the biggest problem in the mortgage market today. The COVID-19 health crisis has made it difficult for American businesses to get access to liquidity. This has a knock-on effect of reducing their ability to pay employee wages and benefits.
According to a whitepaper post from Thomas J. Barrack , a prominent equity real estate investor, “The profound impacts of both the COVID-19 pandemic and the public health measures taken in response to it on the American economy have caused high-performing mortgage loans, grounded in solid economic fundamentals, to suddenly and sharply decline in value.”
As a solution, Barrack suggests that REITs, banks, and debt funds must develop a solution that allows flexibility for borrowers so that millions of jobs and the value of the industry can be protected. Repurchasing finance could be an essential element of any strategy implemented in the coming weeks and months.
Today, many borrowers who would have been engaged in the market prior to COVID-19 are now sitting on the sidelines. Even those that can afford to borrow may be unwilling to take risks with the economy underperforming and GDP set to produce its biggest slide in years.
How Mortgage Market Companies are Responding
The larger mortgage corporations understand the fragile position of the market, and they are making changes to ensure that lenders and borrowers are protected. A mortgage market crash would slow economic recovery and cause significant hardship for individuals and businesses.
Freddie Mac, one of the largest secondary mortgage companies in America, has implemented various changes to ensure stability. It has posted regular bulletin updates with temporary provisions to support the market during the COVID-19 crisis.
One of its most recent bulletins includes a change that requires self-employed borrowers to verify that their business is open and operating within 20 days of the note date. This was previously set at 10 days but was extended to provide relief for borrowers and mortgage sellers. This is just a single example of how mortgage market companies are trying to stimulate activity in the sector .
The government also funded extensive protections for homeowners earlier this year. FHA, VA, HSDA, Fannie Mae, and Freddie Mac secured loans were eligible for forbearance and mortgage relief.
Under the CARES Act, lenders and loan servicers have been forbidden from foreclosing until after August 31. Borrowers experiencing financial hardship related to the Coronavirus Pandemic have the right to apply for forbearance for up to 180 days, with the option for an extension of up to 360 days.
Fees, penalties, and additional interest are forbidden under the forbearance program, but borrowers must apply through their lenders. Full details were published by the Consumer Financial Protection Bureau earlier this year .
What Happens Moving Forward?
Congress failed to agree on a second round of stimulus, leaving many borrowers concerned about mortgage relief programs while the COVID-19 crisis still impacts the nation. While lenders are offering some flexibility for commercial and residential loans, there’s now little legislative protection for borrowers to fall back on.
Ultimately, the resilience of the market is likely to rely entirely on how long the economic recession lasts, and how quickly Congress can enact new policies to support the mortgage market.
Mortgage Forbearance During the COVID-19 Crisis
When the COVID-19 crisis broke out in the United States earlier this year, the federal government acted quickly to reassure families and businesses that the economy would be protected.
Almost six months after President Trump declared the Coronavirus to be a national emergency, the economy is in a recession and the home and mortgage markets are on shaky ground.
Federal efforts to protect the economy have mitigated the damage, but some of the most important programs are set to expire. Government-enforced forbearance programs are coming to an end, and this is what could change in the coming weeks…
Mortgage Forbearance Program Expires on August 31st
The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed into law on March 27, 2020. Designed to provide sweeping relief and stimulus measures to the American economy, it featured some special inclusions for homeowners.
People with FHA, VA, USDA, Fannie Mae, and Freddie Mac loans were able to take advantage of a forbearance or mortgage relief program .
People affected by the COVID-19 crisis (whether through health problems or economic hardship) could ask their lender to allow up to 180 days of forbearance with reduced or delayed mortgage payments. Within the initial 180 days, homeowners could apply for an extension of an equal period, taking the total forbearance up to 360 days.
Homeowners can still apply for the program, but it will expire on August 31st. Some lenders may not have the resources to process a forbearance application between now and that time.
This creates a challenge for people who are still out of work and unable to pay their mortgages.
The House of Representatives attempted to pass a new law to replace the CARES Act, but it met resistance in the Senate and the Executive Office. Known as the HEROES Act, it would have extended unemployment benefits of $600 per week for people who lost their jobs during the pandemic.
Because the act never became law, it was superseded by Presidential executive order, allocating federal unemployment benefits of up to $300 per week for eligible people.
Without an extension to the forbearance program, and with smaller unemployment benefits, America could soon face a mortgage crisis… at least, that’s what many people expect. However, the data tells another story.
Forbearance Numbers Not as High as Anticipated
According to data reported by Black Knight research , forbearances are now below 4 million for the first time since April. In the second week of August, the number of mortgages actively under a forbearance program decreased by 71,000.
This leaves just 7.4% of all mortgage loans in forbearance. That’s 3.9 million out of a total of 53 million active mortgages.
Foreclosures and evictions will soon resume, but there’s hope that the relatively low number of people seeking mortgage assistance means that the risk of widespread foreclosures is low.
Will Politicians Push for More Forbearance Flexibility?
With Congress failing to reach a bipartisan agreement on a second round of Coronavirus stimulus, it seems unlikely that the federal government will mandate any new forbearance programs in the short term.
This could soon change however, with the Presidential election coming up, both parties will likely reveal new policies aimed at attracting American voters.
As it stands today, homeowners can request forbearance from their lender up until August 31, after which any payment agreements will need to be negotiated without the benefit of a Federally enforced program in place.
The Current Status of Unemployment Benefits and the Impact on the Rental Market
On July 25th, funding for the federal government’s $600 weekly benefit lapsed, leaving millions of unemployed Americans without a subsidy on top of state payments.
The Democratic-majority House of Representatives passed a bill ensuring that the $600 benefit would continue, but it was met with resistance from the Republican-majority Senate and the White House.
Instead, President Trump offered a $300 federal subsidy through an executive order, although eligibility is not as widespread as the earlier benefit. Learn how the benefit works today, and what it means for renters and the wider home market.
Benefit Payments Depend on State Involvement
Under the executive order, states will only be eligible for a federal subsidy if they contribute $100 to the weekly payment. For the unemployed to be eligible, they need to already receive at least $100 of subsidies from the state government.
This leaves many people unable to receive the federal subsidy. According to some states, the disparity is significant.
In Texas, up to 350,000 unemployed citizens won’t be eligible for the $300 benefit. These same people would have been eligible under the previous $600 weekly benefit backed by Congress.
States must apply to receive the additional funding, which will be administered by FEMA (Federal Emergency Management Agency). Up to 30 states have already applied. The states need to demonstrate that they have the infrastructure in place to disperse payments.
The $300 in federal funding is seen as a compromise. Many Republican lawmakers were initially opposed to extending the $600 benefit, claiming that it disincentivized people from looking for work.
However, some academics dispute the assumption. In a July report published by Yale University , researchers found that people receiving the generous $600 weekly benefit had “returned to their previous jobs over time at similar rates as others. We find no evidence that more generous benefits disincentivized work.”
It should be noted that even as some workers received more in federal subsidies than their previous salaries, they lost out on benefits like insurance subsidies, retirement programs, and even non-financial benefits like the opportunity for professional development.
Will Low-Income Earners Return to Work Now That Federal Subsidies are Reduced?
We can see from the most recent unemployment data that people are returning to work. This was happening before President Trump announced the $300 federal subsidy in his executive order.
As state lockdowns have eased, companies have reopened for business, and around 9.3 million of the 22 million jobs lost earlier this year have been returned to the economy, according to data from the Bureau of Labor Statistics .
Most of that figure came back to the economy in June.
Job Numbers and the Real Estate Market
With jobs returning to the economy, the home market has shown some signs of recovery.
- 90% of professionally managed rental households have paid rent (in part or whole) so far in August. 70% of independently managed rental households have done the same .
- 2% of mortgages are engaged in relief programs, a decline of 1.35% since June.
- Existing home sales increased by 24.7% from June to July but are down 21.1% annually .
The mixed results reflect the fragile nature of the market today. The COVID-19 crisis has hurt the economy, and it could take years to recover. As jobs return, households will become more confident with spending, and rent delinquencies should decline.
Home buying activity is clearly starting to recover, which is good news for the wider market, including the mortgage market.
When the Coronavirus was first identified and people across the US were required to stay home, there were concerns about how this would affect the housing market. What has happened to the multifamily market, and how has it compared to other asset classes in the country?
Fears Around Multifamily Homes and Coronavirus
When the call to stay home went into effect, this made many developers and landlords nervous. If people were being furloughed or laid off from their jobs, there was a fear that many of them were going to be unable to make mortgage and rent payments. As the situation is so unprecedented in modern times, no one was sure how this was going to play out.
The Effect of Coronavirus on The Multifamily Market
So far, there doesn’t actually seem to be much of a dip in rental payments over the course of the lock down. In April, 84% of renters managed to pay all or part of their rent by the 12th of the month. This is much more than some were predicting, even as many were losing income. In fact, the amount renters making payments is on average the same as this time last year.
This is encouraging news for those in the industry, as it shows that payments are still being made even as the situation is still uncertain. As payments are being processed, multifamily homes are seen as one of the most stable markets right now.
The Effect on The Purchase Market
What is the consensus opinion on how the Coronavirus will affect the purchase market? This is where it appears to be having an impact. Many are finding that with the virus still present, they cannot access the funding to buy their own home so they will need to continue to rent.
This has caused major problems for buyers, because as of now, there is no indication of when the virus will be totally under control. Until then, lenders are placing stricter guidelines on who they can lend too, and how much they can lend out. This will keep them safe for the time being but will tarnish the short-term market. You can expect to see a downturn in profits from mortgage lenders.
It’s not surprising to see that multifamily markets are mostly stable, despite what was predicted. With it being much harder to now buy property, renters are staying put where they are. As the virus stabilizes, they’ll need to stay where they are and wait for lenders to be more willing to help them buy property again.
There’s no denying that people across the US are facing a housing crisis. As a renter, you may well find yourself paying 30% or more of your income just to keep a roof above your head. If you’re looking to buy a home, you’ll see that house prices are rising at twice the rate of wage growth. Just how bad is the housing crisis, and what can be done about it?
Buying Vs. Renting
Ask any renter, and they will tell you that they would love to own their own home someday. The problem is that it’s almost impossible for them to afford a home. In recent studies, a person working 40 hours a week at minimum wage cannot afford a two bedroom home anywhere in the country.
This causes problems, as affordable housing currently favors buyers over renters. You can see this in tax deductions, as they essentially subsidize middle- and upper-class homes, rather than affordable homes. It’s taken the ability to afford a home out of reach of millions of people in the country.
It’s not just the cost of buying housing that has gone up. To build those homes, the cost of materials has gone up too. Right now, lumber alone makes up 5 to 10% of the cost of building a home. With these costs rising, it’s getting harder to build affordable housing.
Restrictive Zoning Laws
Zoning laws have created a lot of problems for those trying to create affordable housing. In some areas, such as Los Angeles and San Francisco, put limits on what can be built. These can include limits on how high buildings can go, requiring a certain amount of parking spaces, and so on. These limits have come into place and have restricted developers in their opportunities to create new housing.
What Can Be Done?
There are certainly ways in which the housing crisis can be turned around. Inclusionary zoning laws have been brought into places like New York, allowing for more affordable housing to be built. With more existing properties being turned into affordable housing, this will increase demand too. With around 7.2 million affordable homes being needed across the US, it remains to be seen whether this will help with demand.
It’s clear that many factors have lead to the US housing crisis. If changes are made in how affordable housing is built though, these problems can be mitigated.