If recent polls are any indication, the coronavirus pandemic has pushed consumer confidence into a free-fall.
Consider these examples: The Fannie Mae Home Purchase Sentiment Index fell 11.7 points to 80.8 in March, its lowest reading since December 2016. The University of Michigan’s consumer sentiment index fell from 101 in February to 89.1 in March to 71 in April – the latter decline marked its most severe plunge in 11 years. The Conference Board’s consumer confidence index tumbled from 132.6 in February to 120 in March, its greatest decline since 2011.
And early indications suggest this lack of confidence has seeped into housing. On April 16, the National Association of Realtors released a poll that found 90% of member respondents citing decreased homebuyer interest at this time, with 44% reporting buyer interest fell off by more than 50% in their market.
“If you see our latest weekly mortgage application survey, we’ve had four weeks of declines year-over-year,” said Joel Kan, Mortgage Bankers Association’s associate vice president of economic and industry forecasting. “And we’re down 35% on purchase activities. That’s a pretty telling sign of what to expect for the next few months in the housing market.”
To be certain, the statistical picture of today’s economic environment is grim. But will this new wave of consumer pessimism damage the housing market for the remainder of 2020? Some housing industry experts question doom-and-gloom forecasts, pointing to ongoing activity in the mortgage space.
Paul Buege, president of Inlanta Mortgage in Pewaukee, Wisconsin, observed that the crisis is having “an impact on some of the first-time homebuyers that are in the lower credit spectrum,” yet he also pointed out those most impacted by current economic mayhem are not driving the market.
“We’re starting to see the people that have been impacted have pretty much pulled themselves out of the market for the moment,” he continued. “The remaining population of buyers are still there. They’re still interested. And they’re all working in this new normal for the moment of remote employment and they’re still making money. Our purchase business continues to be very, very strong. A lot of our Realtor partners say the difference right now versus a month and a half ago is that there would be 10 potential buyers of property at the end of the driveway competing to buy a home and now there’s two.”
Jeff McGuiness, chief sales officer at Embrace Home Loans in Hauppauge, New York, is also handling a continued interest in purchase loans.
“We made a decision early to put a priority around purchase activities and to make sure consumers that are committed to that path were hitting their closing timeframes,” he said. “We do not want to put our customers in any position of undue stress. And even in this tidal wave of refinance opportunities, we understood that purchase opportunities for our consumers was unique.”
Mark O’Dell, residential loan manager at Chicago-headquartered Alliant Credit Union, is witnessing a situation similar to McGuiness’ experience.
“Well over 80% of the activity is in the refinance area, but we are certainly still seeing purchase applications every day,” he said. “We’re doing our best to make that happen. But a lot of it depends on where that property is located, and the timing of those things, and refinances.”
Gary Acosta, CEO of the National Association of Hispanic Real Estate Professionals, also sees the situation as serious but not lethal.
“We’ve seen transactions in the last 30 days drop by about 30%, and I think that’s expected,” he said. “But it hasn’t dropped to nothing. It’s hard to sell a house right now, it’s hard to show a house and it’s hard to close a transaction. But transactions are still happening.”
Acosta added that the NAHREP members were “notoriously optimistic just by nature” and were up to the new challenges, albeit “providing there’s not a widespread change in terms of mortgage availability.”
Still, there are more than a few challenges bedeviling the housing market. Brandon Kekich, a Realtor with RE/MAX Dream Properties in Northville, Michigan, complained that his state’s edicts in response to COVID-19 are damaging his business.
“It’s a little different in Michigan,” he said. “I know in a lot of states real estate has been deemed essential and would have limited showing possibilities. Michigan’s governor gave very strict and very clear guidance that we are not to leave our homes for anything related to real estate. So, I can go to my vacant listing and get on Zoom or FaceTime with you and show you my house. I can’t have a photographer come in to video my vacant listings. Our sellers are not allowed to go to their vacant homes if they’re not listed as their primary residence and do the tour or the pictures for us.”
As a result, Kekich continued, “a lot of buyers have been taken out of the market. More buyers have been taken out of our market than sellers because of that strict lockdown. Buyers aren’t even allowed to go to their walkthroughs before closing here. And a lot of sellers are taking their homes off the market – they’re not trying to sell them virtually. We have a lot of sellers that we signed listing agreements with and they said, ‘We’re going to wait this out, probably a year or so, and see what happens.’”
Ben Mizes, founder and CEO of Clever Real Estate, noted the ongoing financial problems facing many Americans is already chipping away at lenders’ viability.
“From the lender standpoint, when they have to mark their loans to market and a huge percentage of their loan base says they can’t pay suddenly, they’re in in a lot of trouble because they’ve got to hedge money to make up for that,” he said. “This is not good for the consumers, but for the lenders this is an unprecedented thing when huge percentages of loan portfolios are asking for forbearance and unable to pay. It’s really screwing over everyone in different ways, but it seems like there’s not many industries that haven’t been hit by this.”
Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America, predicted that many Americans will be dealing with their financial trauma when the pandemic abates and will consider homebuying later rather than sooner.
“Even after the economy starts back up and stay-at-home workers are reduced, people are going to focus on repairing the economic damage that they’ve been subjected to,” he said. “We are resilient and we do recover – that is part of our culture. You can’t keep us down.”
Alain Pinel, founder of California’s Alain Pinel Realtors, observed that the stress that goes into homebuying may not be the right activity for many people in these emotionally and financially difficult times.
“Buying a home is a major investment and it is only normal that people think twice about making the jump,” he said. “They don’t want to overpay or be stuck with mortgage payments if their job is not stable. As for sellers, they will prefer to wait until the horizon clears up rather than risk losing a sizeable equity in a down market where prices are seriously challenged. As a result, the number of sales during the first half of the year is going to be rather dismal.”
Yet Pinel did not see the pandemic as being a permanent crisis.
“I truly believe that the economy is anxious to start cranking again and should turn at full speed by year-end,” he said. “And it is probable that the real estate activity will be the engine that will produce the new momentum, just as soon as we will feel secure enough to start breathing normally again. I am confident that the 180-degree change will happen in September and will only become stronger in October and the balance of 2020.”