Another Real Estate Crash Is Coming
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Buried among the many provisions there is $75 billion in mortgage relief and $100 billion in rental relief for low-income earners, as well as the ability for all borrowers to claim forbearance for up to a year. The bill also would allow the Fed to lend to mortgage servicing companies and directs it to set up a new emergency lending facility to owners of rental residential properties. The bill also comprises tax cuts primarily benefiting the rich, bailouts for corporate lobbyists and dark money in politics, as well as subsidies for health insurance companies (and not an expansion of Medicare or Medicaid). At its best this bill is little more than a blackmail of the working class into accepting political measures that further tilt the balance of power in favor of the wealthy. While the bill will pass the Democrat-controlled House, its catchall nature will see it rejected in the Republican-controlled Senate for the foreseeable future. The political decrepitude of US capitalism is manifest — while the situation in real estate worsens with each week.
There is little doubt that enormous pressures on rents and returns have already accumulated in the US real estate market as a result of the coronavirus crisis. The loss of thirty-three million jobs and an unemployment rate that is expected to reach 20 percent has led to forecasts of falling apartment rents and rising vacancies. Also crucially important is the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed into law at the end of March. It aims to support families by basing the declaration of mortgage payment forbearance “on the honor system.” In other words, the law makes it easier for borrowers of home loans to postpone mortgage payments without necessarily providing evidence of financial distress and/or lack of employment. Given the bleak prospects of recovery and employment, it is entirely understandable that many people are likely to opt in to this system, even if they have not yet been laid off. It is no surprise, therefore, that by the end of April 7.3 percent of all mortgages were in forbearance.
In all, the residential mortgage market, which totals over $11 trillion, has become increasingly distressed since the start of the crisis. In the commercial real estate market, meanwhile, commercial mortgage-backed securities (CMBS) delinquencies are expected to rise to Great Recession levels. Already from March to April, payments on CMBS loans from retail properties and hotels to reach over thirty days late have ballooned by over 10 and 20 percent, respectively. CMBS that are backed by multifamily residences are also expected to suffer as struggling families forego rent. Thomas Barrack — the most outspoken voice for commercial real estate — has declared that the sector is close to total collapse given the lack of rent payments and the sheer volume of forbearance requests. Although such a figure could be expected to exaggerate the severity of the situation, this time it doesn’t seem like hyperbole.
But three things are clear. First, there will probably be a crash in real estate values in the coming weeks and months, although it is hard to say exactly how severe it will be. Second, barring a miraculous quick passing of the HEROES Act by Senate Republicans, there will also definitely be a mortgage crisis — with the poorest first in the line of fire. Third, the worsening of the mortgage crisis will be followed by some form of a bipartisan bailout for the real estate sector, while funding would also be provided through other liquidity facilities. The Left should immediately start to prepare for the difficult fight ahead to ensure that this time there will also be a bailout for households. This also means using this crisis to start laying the foundations for housing to become decommodified — treating a place to live as a fundamental universal right.
Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction
May 19, 2020 at 12:57 PM #316938jerry611Participant
- Total Posts: 867
Too soon to really tell. In 2008, real estate was at the center of the crisis. This time it is not. The banking system isn’t what’s causing the declines.
The rental market was inflated already and that was a bubble due to pop. And there may be some issues there.
For home sales, it’s going to be peaks and valleys for awhile. And it may differ greatly by geography. I personally think prices will drop later this year. Not just because of mortgages going into default from unemployment. But a lot of people I believe pulled their house off the market when the crisis started. They didn’t want realtors, buyers, inspectors, appraisers walking through their house with coronavirus. Or they thought that people wouldnt be interested in buying right now. So I think a lot of inventory got pulled. In the coming months when things start getting back to normal, inventory will flood the market and at the same time buyers may get skittish. And this will lead to a drop. But if the economy does get moving again, and interest rates stay low, the market will rebound with a recovery.
But like I said, it can differ by geography. In Florida, the governor listed real estate and home construction as “essential.” So real estate transactions and new home construction was allowed to continue. It never stopped all the people in that industry got to keep their jobs. In other states, they forced most of that to shut down. So states like Florida may come out better in that sense.
May 19, 2020 at 8:45 PM #316967
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