How Lessons From 2008 Are Helping the Housing Market Withstand Covid

Certain technologies, which weren’t around 12 years ago, have played a huge role in maintaining a healthy residential real estate market while much of the country sheltered-in-place.

Existing home sales were up 26.6 percent annually in October, and that real estate momentum isn’t showing signs of slowing down. Given Covid-19’s disruption to business as usual and the subsequent, larger economic uncertainty, this development is remarkable. And it underscores how misguided this year’s comparisons to the 2008 housing crisis have been for the housing market.

The two historical events are starkly different for homeowners. During 2008, we saw declining home sales, falling equity and a tidal wave of defaults—all up against the backdrop of major job losses and borrowers unable to make payments on time. Therefore, many homeowners had to get out of their mortgages or drastically reduce them by selling their property. Not to mention many borrowers had questionable financial circumstances when they bought too-good-to-be-true mortgage products.

In comparison, homeowners today are a picture of financial health. They have a record amount of equity above the 20 percent threshold lenders required, and about 45 million borrowers have tappable equity, representing more than $6 trillion. In the last decade, homeowners have typically purchased responsibly-designed loan products with fixed rates, adjustable-rate mortgages (ARMs), and good credit required. Most importantly, homeowners learned from the Great Recession and took more time to understand their mortgage terms before agreeing to them.

Going into 2021, there could be housing market concerns afoot if the economy suffers more due to Covid-19. The good news is, we’ve already learned this year that this market is built to not only withstand a once-in-a-century pandemic but also trend upward. It’s come a long way since 2008.

It’s worth noting that certain technologies, which weren’t around 12 years ago, have played a huge role in maintaining a healthy residential real estate market while much of the country sheltered-in-place. Digital apps and websites, geared toward transparency, allow home buyers to search for lenders, compare rate quotes, and apply for mortgages. Further, home sellers can schedule appraisals and home inspections online and close electronically with remote online notarizations in many states

More broadly, America should be heartened by the maturation of its homeowners. As of this writing, 48 percent fewer mortgages are in forbearance compared to May, which was the peak of our economic uncertainty. That statistic indicates U.S. homeowners are doing everything they can to make good now.

Uncle Sam also deserves some credit. Learning from 2008, the government proactively introduced mortgage relief options and protections in March when the impact of the Covid-19 pandemic became apparent. Specifically, the CARES Act prohibits lenders and servicers from beginning a judicial or non-judicial foreclosure against homeowners, or from finalizing a foreclosure judgment or sale. Additionally, if homeowners experience financial hardship due to the coronavirus pandemic, they have a right to request and obtain forbearances for up to one years.

Forbearances are a crucial example of the wisdom gained 12 years ago in the mortgage industry. They were not used then; instead of forbearances, we saw fast-tracked foreclosures. This time around, homeowners are benefitting from being more educated on how to avoid foreclosure. However, even with these relief offerings in place, more than 400,000 homeowners have needlessly gone delinquent on their mortgages despite the forbearance options. This data reflects an exigency to provide even better information and education to all homeowners on alternative solutions. After all, as housing goes, so goes the economy.

Thankfully, the lessons learned from the 2008 housing crisis are now showing up favorably. Yet, it’s important that we keep advancing the market to tackle whatever lies ahead.