The Housing Bust Will Take Longer This Time
The comments below are an edited and abridged synopsis of an article by John Rubino
Covid-19 has had a significant effect on major industries. Hospitality has had the worst of it; stay-at-home businesses are doing better. In the middle is housing. Will prices plunge or soar in this new world, and how should buyers and sellers behave going forward?
In the last recession, houses were the epicenter—in fact, the cause—of the crisis, and were going behave the way bubble assets always do.
This time, housing is collateral damage, and it’s going to be ugly. A global pandemic is not conducive to shaking hands with realtors and touching other people’s doorknobs. An equities bear market, meanwhile, generates the kind of negative wealth effect that makes writing a down-payment cheque more painful than usual.
And jobs are evaporating. Anyone in America’s 9 million newly unemployed who was house hunting now has other priorities.
Then there are the people who have a house but virtually no other savings. Once they become unemployed, a government relief cheque won’t prevent them from having to sell their home to put food on the table.
Last but not least are the people who still have the wherewithal to buy a house but understand what’s coming and are gleefully waiting to toss low-ball-offer hand grenades into the crowds of desperate sellers.
The result: A period of rising inventory and falling prices that produces some serious bargains. Housing statistics will start reflecting the coming buyer’s market almost immediately.
So while the top is in, the bottom is probably a long way off. Government mortgage forbearance will allow people to keep their homes longer, thus spreading the pain over multiple months.
Housing will likely go through the denial—anger and resistance—panic—capitulation process, with prices bottoming at maybe two-thirds of their 2019 peaks, but the descent might be slower than last time around.
If you’re a seller, take whatever bids are out there now. If you’re a buyer, be patient. Bargains are headed your way.