Over the last two years, my wife and I have been stockpiling a bit of cash in hopes of adding real estate rentals into our financial portfolio.
I’ve been doing my best to learn about real estate and have been keeping my eye on the market in hopes of finding a well priced home that I could acquire and turn into a rental. Over time, Jules and I plan to build a real estate portfolio as well as a portfolio of digital investments.
I wrongly assumed that housing prices would start to fall as Covid continues to hurt the local economy, but that hasn’t happened.
The logical assumption is to compare the Covid recession to the great recession of 2008. But the only real relationship between them is that they were recessions.
This recession is not like the last one.
For one, the 2008 recession was a housing crisis, so it’s natural that the housing market would collapse. However, the Covid recession isn’t directly related to the housing market.
Typical recessions aren’t connected to the real estate market in the same way that 2008 was. In fact, the housing market has typically been unaffected in recessions of the past.
This was very interesting to learn. My assumption has always been that the housing market goes up and down in correlation with the economy, but I am learning that the housing market exists in it’s own echo chamber.
With that said, it’s looking more than likely that we will start to see some foreclosures enter the market. It’s tough to speculate whether the foreclosures will trickle in or if they will come in a surge.
For instance, the Inquirer reports…
During the last recession circa 2008-2010, a frenzy of foolish lending, reckless borrowing, and rampant speculation set up the housing market for a wrenching crash. Home prices collapsed, and millions endured the loss of their homes.
Entering this recession, by contrast, credit standards remained tight, and the housing market was healthy. The COVID-19 pandemic will lead to a rise in mortgage defaults and foreclosures. But as the housing market muscles through this economic downturn, it looks as if foreclosures will form a trickle rather than a flood, housing experts say.
However, as Covid 19 continues to be relevant, it also seems as though there could be a crash on the horizon. Many mortgages are approaching the “90 day overdue” status. It could be that the foreclosure crisis hasn’t turned the corner yet. Financial relief has delayed this, but it’s difficult to imagine that we will completely avoid a foreclosure event.
A surge in the share of mortgages 90 days or more overdue in June is a signal the U.S. could be heading toward a foreclosure crisis, according to a CoreLogic report on Wednesday.
The share of loans with payments 90 days to 119 days late quadrupled between May and June, rising to 2.3%, the highest level in more than 21 years, said Frank Nothaft, CoreLogic’s chief economist.
Measuring all loans 90 days or more overdue, including loans already in foreclosure – a gauge known as the serious delinquency rate – the share was the highest since 2015, the report said.
“If there are new government programs, maybe that alleviates some of the risks, but given what we know today, we could be looking at a serious delinquency rate that is four times higher at the end of 2021 as it was before the start of the pandemic,” Nothaft said in an interview.
To be clear, I am not a real estate expert, nor should I be considered credible in my speculation. Here’s what I have observed.
Over the last month, I have seen 11 homes go for sale in my neighborhood. Granted, East Nashville is not an accurate representation of the entire housing market, but I have to assume that at least some of these homes have been put up for sale to avoid foreclosure.
It’s tough to imagine a world where we don’t see more homes go up for sale, and it’s also reasonable to think that many of these home will decline in value as foreclosures and an influx of inventory continue to flood the market.
If you have cash, my recommendation is to hold onto it. It’s reasonable to think that a surplus of inventory will enter the housing market in 2021.