MReport June 2020

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20 | M R EP O RT COVER STORY L ooking at housing through the lens of COVID-19 is reminiscent of looking through the lens of an old View-Master toy. With each click— each passing day—a new picture is presented. Each click represents a new normal, a new outlook, and new challenges to overcome. The housing affordability crisis, which had worsened prior to the virus, has only escalated as more than 36 million Americans have filed for unemployment due to the pandemic. More than 4 million people have entered into forbearance plans to either defer or pay reduced amounts on their mortgages. All the while, home-price growth shows no signs of stopping. An April article by Business Insider said more than 95% of Americans were under stay-at-home orders, and this virus has led to greater housing inequality, housing insecu- rity, and homelessness. MReport spoke to leaders at the Inlanta Mortgage, TD Bank, and the American Enterprise Institute's Housing Center, as well as economists from Freddie Mac, First American Mortgage Solutions,, and more to discuss the state of affordability in America, tightening lending standards, further inventory strain with a possible suburban boom, and just how long the virus' im- pacts could last. The Affordability Conundrum M edian-home prices across the nation continue to ascend. CoreLogic's Case-Shiller Home Price Index revealed home prices rose 4.2% in February—an increase from January's 3.9% rise. Additionally, the National Association of Realtors (NAR) found home prices in 174 in 181 of the cities studied rose in Q1 2020. The median-home price during Q 4 2019 was $254,900 and jumped to $274,600 during Q1 2020. Paul Buege, President and COO, Inlanta Mortgage, said COVID-19 has impacted "virtually everyone," and each person has been affected in different ways— just like the mortgage credit market. "With rates at or near all-time lows, consumers who are still working and continue to have favorable credit profiles will find that mortgage financing couldn't be more affordable or better right now," Buege said. "Those in that position should absolutely consider taking advantage by financing the purchase of a home or refinancing a current loan." He added that credit availability has fallen for consumers with less than strong credit or for those seeking finance options that are considered nonconforming. "The costs associated with financing a home will be more expensive for these folks, both in rates and fees. At the same time, some loan programs are simply no longer available," Buege said. He added that mortgage credit will likely improve with the economy, but it's important for consumers to do everything pos- sible to protect their credit now. "Having a positive credit history is always central to getting a mort- gage approval," he said. Steve Kaminski, Head of US Residential Lending for TD Bank, observed that when discussing af- fordability, it is important to look at the consumer's financial position. "It was at a very strong point coming into the pandemic. The ratio of debt service to dispos- able income was at historic lows, unlike prior to the liquidity crisis of the Great Recession, where there was a lot of stress on the borrower's financial position," Kaminski said. "Comparing the high debt levels of that time versus consumers' current position, which is much stronger, debt was the lowest it's ever been, frankly." He added that while sellers have pulled back and inventory is down, with the declines on the higher end, and there could be a shift in competition—but no decline in home prices. Kaminski said home prices will be important to watch, as values are expected to stay level or decline slightly. "If demand holds and rates stay low, you will likely see a consis- tent position here as Americans get back to work, which is the key to normalizing the economy. The sooner that happens, the sooner things will improve economi- cally and in the housing market throughout the rest of the calendar year," he said. Regarding home prices, Kaminski said values overall have remained stable, despite certain pockets showing movement, as "prolonged conditions" related to the coronavirus have caused little movement. Additionally, prior to the COVID-19 outbreak, housing was strong, with low rates, strong buyer demand, and housing starts rising. However, housing starts, per- mits, and completions all declined in March, as the U.S. Census Bureau reported permits fell 6.8% for the month, completions declined 6.1%, and starts fell off by 22.3%. Every region in the nation posted declines in permits, with the largest drop being the 12.7% drop in the midwest. "Economic conditions were relatively strong, and we were positioned well for a growing purchase market, but April's un- employment results were devastat- ing," Kaminski said. "This is an employment situation here where The Two Sides of Affordability Low-interest rates are giving many a boost in achieving homeownership, however, the spread of COVID-19, rising home prices, and falling inventory are turning the American Dream into a nightmare. By Mike Albanese

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