A startling number of American households are currently not paying their mortgages. This number is at 4.1 million and this data was before we entered what now appears to be a second shutdown as cases of the Coronavirus spread across the country. Yet somehow, people think the housing market is going to be perfectly fine. The reality is, there are massive systemic shocks that are hitting the system and housing is always a lagging indicator. In California, the unemployment rate is at 16.3 percent which is the highest since the Great Depression. The forbearance issues run deep since missed payments are now compounding on top of each other meaning many households now owe multiple payments to keep up. Many missed a payment because they are unable to make one payment so now that people need to make 3, 4, or more payments all at once, there will be challenges. Yet more importantly, think of places in Los Angeles with good schools. Many are moving to online delivery of coursework this year so that premium on good schools is not worth it if you are essentially paying for a virtual learning model where your student is taking classes from their laptop. The housing market is facing challenges but you wouldn’t know that by simply looking at price.

Things are so good in the housing market, that the data from May for SoCal home sales hit an all-time record low. That is right, this was the worst performing May in recent memory in terms of sales volume. This is a critical point because sales volume was already very thin even before the pandemic hit. And what is telling is those that are able to buy, older Americans, are the most susceptible group to Covid-19 if it hits them. Case and point? In Orange County, an area where people are at beaches in mass and in most cases not wearing masks, zero people have died between 0 to 24 according to the latest data. However, 87 percent of those dying are 55 or older (56 percent of all housing units in California are owned by those 55 and older). And these are largely the homeowners in SoCal or those looking to sell and buy. It should be noted that in most real estate cycles, first sales go down, then home values. And for those with historical amnesia, after a shock like this, home values tend to lag the sales hit between one and two years. So the cheerleaders overall seem like the anti-fact crowd that want everything boiled down to a two-minute clip. Things in life are just more complicated.

It seemed that 2020 was already turning out to be a relatively challenging year with a massive global pandemic ravaging the world. Now we have nationwide unrest with protests and rioting. Yet somehow with all of this disturbing news, housing values remain strong. Now is this simply a lag factor? Is it because people are stuck at home now for nearly 3-months and are hunkering down? There are many reasons as to why home values remain strong at the moment, but the next few months will be very telling in terms of where things will go. I’ve talked about California becoming a renter’s paradise and how the majority of people that don’t own are not going to continue voting for things like Prop 13 especially when we have such massive wealth inequality in the country. I think many people are living detached in a small bubble and this nationwide unrest is a culmination of anger, frustration, and economic inequality that has created a two-tiered system. In the end, it reflects in our social fabric and housing is the cornerstone of the American Dream. Where is housing heading if only a small portion of the population can even afford to think about the dream?

Let us clear something up regarding the last financial crisis with housing at the center of the market unraveling. The vast majority of the foreclosures that happened in the Great Recession occurred on standard 30-year fixed rate mortgages. There is this mythology that only subprime and NINJA (no income, no job, no asset) loans were the culprit of the entire collapse. This narrative fits into the crony capitalist mentality that somehow, only losers caused the crisis and that of course all of the suckers that got lured into a toxic mortgage somehow deserved losing their homes (while banks of course got bailed out with billions of tax payer dollars). A swift kick to the poor, and corporate welfare for the banks. It almost fits into this modern psychology of dis-information and revisionist history that we are now seeing.  So it should be no shock to rational individuals that now, we suddenly have a whopping 4.7 million mortgages in forbearance (aka not paying their mortgage payment). This is not a good thing. The assumption is that people are going to start paying their mortgages back on time once the virus goes away but is that the case with so many jobs being lost? First, let us show you some data on the previous crisis for those that somehow forgot who lost their homes based on the type of mortgage on the property.