The shadow of the Great Recession hangs over the coronavirus crisis and it is easy to see why many assume that Americans will start losing their homes again, especially considering record unemployment and a host of economic problems related to COVID-19.

Housing analysts and economists largely agree though that it will be a long time before banks start selling homes. They say that the fear — or hope — of thousands of homes flooding the San Diego market might be misplaced.

A repeat of thousands of San Diegans losing their homes like we saw during the Great Recession is largely brushed off by analysts because of two key factors: A host of options for loan holders that weren’t available during the last recession and, perhaps most importantly, the median home price in San Diego is high and homes can still be sold.

Unlike the years before the Great Recession when San Diego County had a surplus of homes being built, homebuilding continues to remain at historic lows. High demand for a limited number of houses has pushed the price up to a median price of $590,000 — nearly a record high.

The thinking goes something like this: Why would someone go into foreclosure when they could sell their home for a profit or, at the very least, break even or take a small loss? It’s not like 2008 when home prices dropped 35 percent in a year, leaving many homeowners owing more on their mortgage than their homes were worth.

Additionally, protections under the federal Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, should allow the majority of homeowners in the United States to delay mortgage payments for up to a year.

Even if the pandemic gets worse and drags down the economy, it will likely be a while before we see a notable uptick in foreclosures. After exhausting all the new federal options, it could potentially take years, because of a lengthy foreclosure process, before homes are sold off by banks again.

Foreclosures in San Diego are practically nonexistent at the moment, making up 0.09 percent of homes.

Another key statistic to watch is the delinquency rate, which includes those already in foreclosure or in some type of forbearance. As of May 31, 6.9 percent of California mortgage borrowers were delinquent, said data analysts Black Knight. That’s a 228 percent increase in six months. Still, that is is not as bad as February 2010 when 15.7 percent of borrowers were delinquent.

And California’s current delinquency rate represents one of the lowest in the nation. San Diego metropolitan area’s delinquency rate is similar to the state total at 6.6 percent.

Given this data, as well as unemployment numbers, many economic forecasts predict a small drop in prices, but nothing like what was seen during the Great Recession. Zillow’s economic research team predicts prices will decrease 1.8 percent by October, but recover slowly through 2021.

Options for borrowers
In the Great Recession, there were fewer options for homeowners who were struggling than there are today. For the most part, banks have come to the conclusion it is cheaper to try and work with borrowers to stay in their homes.

Largely a result of efforts begun after several national disasters, many banks had established forbearance programs in place even before the pandemic. Most allow borrowers to take a break in payments for a period of time, tacking those payments onto the end of the loan — so you don’t end up having to pay a lump sum after a few months. Interest still accrues during the time not paying, but it avoids delinquent payments.

Under the CARES Act, most borrowers can go a year without making payments. There are a few caveats. The mortgage needs to be a federally backed loan (most are), but it should still affect most borrowers.

Since banks have different programs, and it might not be clear who owns your loan, a website has been established by Fannie Mae called KnowYourOptions.com. It has information on how to prepare for a call with your bank, as well as a “mortgage loan lookup” to help figure out who owns your loan.

So, what happens after the 12 months and a borrower still doesn’t have income needed to pay? Another option that was popularized after the Great Recession is a loan modification, whereby a bank reviews debt-to-income and other parts of a borrower’s changed financial situation to alter the loan.

Marina Walsh, of the Mortgage Bankers Association, said she is confident it will take a long time before Americans start losing their homes because of the economic downturn.

“This is a multiple-year issue,” she said. “We are not going to have, all of a sudden, a surge in foreclosures.”

The Difference from Great Recession
San Diego County constructed a high number of homes in the years leading up to the Great Recession, but that has slowed considerably.

There were 17,306 housing units constructed in 2004, 15,258 in 2005, and 10,777 in 2006. San Diego County has not built more than 10,000 homes in a year ever since — despite a booming economy the last few years, coupled with high demand and a growing population. In 2019, there were 8,053 homes constructed, said the Real Estate Research Council of Southern California.

The tight housing supply has meant a limited number of homes for sale and has pushed the median home price ever higher. San Diego County isn’t alone in this, with home construction slowing nationally as the population grew during the recovery from the recession.

As of 2018, the United States was building fewer homes per household then at almost anytime in U.S. history, said an analysis of Federal Reserve data by The Wall Street Journal.

Demand for homes in San Diego County has meant price wars for limited supply — even with the coronavirus spreading throughout the nation. In May, after two months of a global pandemic, the median home price remained at record highs, $590,000 — an increase of 3.5 percent in a year.

While the price might drop somewhat, it isn’t expected by most forecasters to take a Great Recession-style dip. This remains the main reason why a wave of foreclosures in California is not expected, considering that those with financial problems could just sell and there will be a market for the home, unlike during the worst of the recession.

The Federal Reserve’s efforts to keep interest rates low for several years will help keep demand up for purchases in the uncertain future. Federal support in the form of mortgage forbearance, increased unemployment and stimulus checks will help keep financially distressed homeowners in their homes without having to face foreclosure or a short sale.

Source: SDuniontribune by Phillip Molnar