Question

Contrasting the widespread foreclosures and bursting of the real estate bubble before the Great Recession ten or twelve years ago, conditions in 2020 suggest that:

Group of answer choices

the market is less exposed now, with lower housing inventories, tighter credit standards and families demanding more suburban homes in light of Covid.

an even worse collapse in suburban real estate values is possible now, than occurred in the Great Recession.

residential values across small towns and suburbs in the US are now moving lower, and a "new" real estate crisis may already be underway.

housing starts and inventories are at all-time highs, and a dramatic fall in single family home prices is expected.

Answer 1

Real Estate Bubbles:

In 2007, real estate bubbles had existed in the recent past or were widely believed to still exist in many parts of the world

Then U.S. Federal Reserve Chairman Alan Greenspan said in mid-2005 that "at a minimum, there's a little 'froth' (in the U.S. housing market) … it's hard not to see that there are a lot of local bubbles.

The Economist magazine, writing at the same time, went further, saying "the worldwide rise in house prices is the biggest bubble in history

In France, the economist Jacques Friggit publishes each year a study called "Evolution of the price, value and number of property sales in France since the 19th century" showing a high price increase since 2001. Yet, the existence of a real estate bubble in France is discussed by economists.

Real estate bubbles are invariably followed by severe price decreases (also known as a house price crash) that can result in many owners holding mortgages that exceed the value of their homes. 11.1 million residential properties, or 23.1% of all U.S. homes, were in negative equity at Dec. 31, 2010

Commercial property values remained around 35% below their mid-2007 peak in the United Kingdom. As a result, banks have become less willing to hold large amounts of property-backed debt, likely a key issue affecting the worldwide recovery in the short term.

By 2006, most areas of the world were thought to be in a bubble state, although this hypothesis, based upon the observation of similar patterns in real estate markets of a wide variety of countries was subject to controversy. Such patterns include those of overvaluation and, by extension, excessive borrowing based on those overvaluations.

The U.S. subprime mortgage crisis of 2007–2010, alongside its impacts and effects on economies in various nations, has implied that these trends might have some common characteristics

Market indicators:

In attempting to identify bubbles before they burst, economists have developed a number of financial ratios and economic indicators that can be used to evaluate whether homes in a given area are fairly valued. By comparing current levels to previous levels that have proven unsustainable in the past one can make an educated guess as to whether a given real estate market is experiencing a bubble.

Indicators describe two interwoven aspects of housing bubble:

1 Valuation component and

2 Debt (or leverage) component.

The valuation component measures how expensive houses are relative to what most people can afford, and the debt component measures how indebted households become in buying them for home or profit and also how much exposure the banks accumulate by lending for them.

Housing affordability measures:

The price to income ratio is the basic affordability measure for housing in a given area. It is generally the ratio of median house prices to median familial disposable incomes, expressed as a percentage or as years of income. It is sometimes compiled separately for first-time buyers and termed attainability.this ratio, applied to individuals, is a basic component of mortgage lending decisions.

According to a back-of-the-envelope calculation by Goldman Sachs, a comparison of median home prices to median household income suggests that U.S. housing in 2005 was overvalued by 10%. "However, this estimate is based on an average mortgage rate of about 6%, and we expect rates to rise", the firm's economics team wrote in a recent report.

According to Goldman's figures, a one-percentage-point rise in mortgage rates would reduce the fair value of home prices by 8%.

Housing ownership Measures:

Bubbles can be determined when an increase in housing prices is higher than the rise in rents. In the US, rent between 1984 and 2013 has risen steadily at about 3% per year, whereas between 1997 and 2002 housing prices rose 6% per year. Between 2011 and the third-quarter of 2013 housing prices rose 5.83% and rent increased 2%.

The ownership ratio is the proportion of households who own their homes as opposed to renting. It tends to rise steadily with incomes. Also, governments often enact measures such as tax cuts or subsidized financing to encourage and facilitate home ownership. If a rise in ownership is not supported by a rise in incomes, it can mean either that buyers are taking advantage of low interest rates or that home loans are awarded more liberally, to borrowers with poor credit. Therefore, a high ownership ratio combined with an increased rate of subprime lending may signal higher debt levels associated with bubbles.

The price-to-earnings ratio or P/E ratio is the common metric used to assess the relative valuation of equities. To compute the P/E ratio for the case of a rented house, divide the price of the house by its potential earnings or net income, which is the market annual rent of the house minus expenses, which include maintenance and property taxes.

Foreclosure Consultant

Concept 1:

A foreclosure consultant is (1) any person, located out-of-State or within the State, who, directly or indirectly, for compensation from an owner, makes any solicitation, representation, or offer to perform, or who performs, any distressed property service that the person represents will in any manner do any of the following in relation to the owner's distressed property:

1 prevent or postpone the foreclosure sale of the property

  

2 obtain any forbearance from any mortgagee

  

3 assist the owner in exercising any right of reinstatement or right of redemption

  

4 obtain any extension of the period within which the owner may reinstate the owner's rights with respect to the property

  

5 obtain any waiver of an acceleration clause contained in any promissory note, contract, or mortgage evidencing or securing a debt in relation to the property

  

6 assist the owner in obtaining a loan or advance of funds to pay off the promissory note, contract, or mortgage evidencing or securing a debt in relation to the property

  

7 avoid or ameliorate the impairment of the owner's credit resulting from default on the promissory note, contract, or mortgage, or the conduct of a foreclosure sale or offer to repair the owner's credit.

Foreclosure Consultant :

Concept 2:

Foreclosure consultant generally means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following:[1][2]

Stop or postpone the foreclosure sale.

Obtain any forbearance from any beneficiary or mortgagee.

Assist the owner to exercise the right of reinstatement.

Obtain any extension of the period within which the owner may reinstate his or her obligation.

Obtain any waiver of an acceleration clause contained in any promissory note or contract secured by a deed of trust or mortgage on a residence in foreclosure or contained in any such deed of trust or mortgage.

Assist the owner to obtain a loan or advance of funds.

Avoid or ameliorate the impairment of the owner's credit resulting from the recording of a notice of default or the conduct of a foreclosure sale.

Save the owner's residence from foreclosure.

In some jurisdictions a foreclosure consultant must be licensed by the government

2020 Review:

2020 will be a challenging year for the housing market.

On the one side, there’s a Covid19 and strong US economy that has driven the unemployment rate to record low levels, boosting disposable income, which makes a bullish case.Then, there are low mortgage rates and housing shortages, which add to the bullish sentiment.

The Dodd-Frank legislation of 2010 attempted to remedy the problems that had led to the housing collapse. It created a new standard for lower-quality loans, which were named non-qualified mortgages (non-QM). These were mortgages that did not meet Fannie Mae or Freddie Mac’s underwriting standards and hence could not be guaranteed by them. The delinquency rate for these mortgages soared during the COVID-19 lockdowns and stood at 21.3% at the end of June.

As for Fannie Mae, $203 billion of the loans guaranteed by them were in forbearance as of June 30. New York, Florida and New Jersey had forbearance rates in double digits. Of the $100 billion in bubble era loans still guaranteed by Fannie Mae, 15% were in forbearance. In its second quarter 2020 10-Q financial report, the agency showed $194 billion of seriously delinquent loans with arrears more than 90 days.

After delinquency rates for subprime mortgages were much higher during the crash of 2008-2010. Furthermore, home prices recovered since 2012 and prices haven’t even started to decline yet

How bad is it now :

Online apartment broker Apartment List publishes a monthly survey of roughly 4,000 renters and homeowners. The most recent survey published in early August found that 33% of those surveyed had been unable to make a full rent or mortgage payment the first week of August. That was up from 21% in April. Heading into August, 32% of those surveyed had unpaid housing bills left over from previous months. For homeowners with mortgage arrears, 13% of them owed more than $2,000.

By extending the foreclosure moratorium until the end of 2020, the FHFA seemed to indicate that it is not prepared to open the foreclosure floodgates. This may be true; they are unwilling to let servicers foreclose while the pandemic is still with us. Yet COVID-related deaths and hospitalizations have been steadily declining around the nation for almost four months. If this trend continues, it is hard to see how states with the most draconian lockdowns — including New York and California — can clamp down much longer.

What could happen when states finally lift their lockdowns?

First, the apparent strength of the housing market in most major metros has been caused more by the plunge in active home listings than by low interest rates. Declining interest rates have led to a record amount of refinancing. Although hundreds of thousands of residents in major metros such as New York, San Francisco and Los Angeles have fled for greener, less disruptive locations, the collapse in listings indicates that most have chosen not to put their home on the market. That will likely change soon. It may already be happening in New York City.

Second, small landlords have been devastated by the lockdowns. The results of the latest survey published by the National Association of Independent Landlords (NAIL) revealed that the percentage of respondents who received a full rent payment from their tenants plunged to 55% in June from 83% in February. Almost 20% had vacant rental properties due to COVID-19, while 60% were in a financial position to offer some kind of payment plan for tenants to pay back rent.

Keep in mind that there are at least 15 million properties owned by these small landlords nationwide. Many were in a precarious financial situation even before the lockdowns began. Unless the job situation of their tenants improves, millions of these investors could be wiped out and compelled to throw their properties onto the market.

US Suburban and Town Market 2020:

Pandemic-weary New Yorkers, eager to escape the confines of city living, may push up suburban New Jersey home prices by the most in 16 years.

That’s the forecast by real estate consultancy Otteau Valuation Group for four counties close to New York City: Bergen, Essex, Union and Middlesex. The firm sees a dip in single-family home prices this year, followed by a 6% jump in 2021, the biggest annual increase since 2005.

Now, three months into the city’s lockdown, those norms are fading fast. New Yorkers no longer tethered to their Manhattan workplaces are free to move -- and those with the means to splurge are seeking big houses, with space for home offices and backyards for socially distant entertaining. Prices at the highest end of the market.

In May, contracts to buy New Jersey homes priced at more than $2.5 million soared 69% from a year earlier, according to Otteau’s data. The increase came entirely from counties just beyond the city.

Housing Market 2020:

Crashing or Recovering

The US housing market is far from crashing in 2020 or 2021. In fact, it continues to play an important supportive role in the country’s economic recovery. The pace of existing-home sales jumped in July to a level not seen since 2006 and, importantly, was followed by strong pending sales, purchase mortgage applications, and construction data.

As Federal Reserve has made clear that it has no intention of raising interest rates in the near future, many households are seizing the opportunity to refinance their existing mortgages. Historically, low-interest rates are also an inducement to buy homes, but slow supply growth continues to result in high levels of home price appreciation, which is offsetting some of the affordability benefits of the lower rate environment

mortgage delinquencies have declined, but improvement is slowing 6.88% of outstanding mortgages were at least 30 days behind on payments in August, down a scant 0.03 percentage points from July, according to Black Knight. If the current rate of progress continues, more than a million loans will be behind on payments when forbearance programs begin to expire in March 2021.

92.2% of U.S. households renting professionally managed apartments paid at least part of their September rent, down just 1.5 points from September 2019. The gap between September 2019 and 2020 payment rates in Las Vegas (-6.5 points), Los Angeles (-4.4), New Orleans (-4.3), and other local markets is far higher.

U.S. rental payment rates appear to be staying afloat. The National Multifamily Housing Council reported that 92.2% of households living in professionally managed apartments made a monthly rent payment by Sept. 27. While that rate is 1.5 points below the share that made payments in September 2019, it’s a far cry from the steep decline in payments many predicted when enhanced federal fiscal assistance expired at the end of July.

Summary 2020 US Market:

All of this shows that with the opening up U.S economy, the key housing indicators have begun to turn around. Yearly declines in newly listed inventory have slowed and listing prices have recovered after reaching their low point during mid-April. The overall move above recovery was much needed and it will need to hold for at least another 10 weeks to make up for the lost activity in the second quarter of the year. However, a sustained seller comeback is uncertain — the fear of the rise in coronavirus cases in the fall season is still looming large. The health & economic crisis poses a real upward hill for housing participants going into the fall