Yes, you read it right.
Residential Real Estate is SAFE FOR NOW, even when people aren't paying their bills (forbearance).
WE HAVE THE DATA & NUMBERS
If you’re concerned about the alarming spike in forbearance numbers, no need to fret. Here’s why. We’ve got numbers that show you why forbearance now is not as concerning as the global financial crisis of 2007 & 2008. Contrary to all the bad news, residential real estate remains strong.
HOW REAL ESTATE IS AFFECTED BY CONSUMER SPENDING & FORBEARANCE
Sacramento, California has always been the testing ground for major consumer brands, like Pepsi, Coca-Cola, General Mills, etc., for launching their products and measuring success.
The reason is that the general public in the US mirrors that of Sacramento, CA demographically. What does that mean for you? If you follow Sacramento data about the real estate market it’s going to match that of the national market (not perfectly, but still very close).
Nobody really knows that, so when a brand introduces a new whacky flavor, they do it here in Sacramento first. You can apply consumer market research in real estate trends as well as mortgage loan forbearance.
THE NUMBER OF PEOPLE PAYING THEIR BILLS IS HIGH, BUT IT IS NOT THE BIG PICTURE.
In the graph above, you’ll notice that March 2020 saw the number of borrowers who need forbearance on their mortgage spiking due to coronavirus shutdowns. This number remains may, but as of May it looks like the forbearance curve may be flattening.
These are the reports forbearance numbers. It means that there are a lot of mortgages being held in private hands. Thus, much of the debt that is corporately owned rather than bank-owned. As many finance servicers are allowing consumers loan relief through forbearance, the problem is that consumers new to forbearance might think that they don’t have to pay back debts, but you actually still have to pay.
With the CARES Act, the federal government cannot change contracts. They have the power to issue guidelines that request lenders and debt companies to make programs, but the debt is not forgiven.
Contrary to all the bad news… this number is under-reported as private funds, such as Blackstone, the Saudi Wealth Fund, don’t need to report these numbers. As these numbers have begun flattening this month, the national inventory for MLS listings remains low, which means that the market is continuing.
WHY ARE THESE NUMBERS IMPORTANT FOR REAL ESTATE?
Back to Sacramento as the hot-seat of understanding consumer spending.
In 2007-2008, there was a consistent average of around 10,000 listed properties on MLS in Sacramento. Right now, the average is less than 1,000.
By comparing current trends against the crash that happened in 2008 & 2009, we can tell that challenges won’t necessarily be in residential real estate this period. It’s most likely going to come from commercial corporate debt.
What it means to this year’s economy and consumers
With the dip in GDP and consumer spending, residential real estate is likely to remain strong. Residential real estate prices will drop, but not like we saw last time in the residential space. You can schedule a time with real estate business strategists to brainstorm how to best leverage today’s consumer habits and best real estate practices.
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