PERSON OF THE WEEK: The pandemic has reshaped the housing market. Millennials who are financially positioned to buy a home are desperately searching among dwindling inventory as home prices surge to historical highs. Those who manage to buy their dream home in 2021 will be considered fortunate.
Meanwhile, many of those who lost their jobs or had their income reduced during the pandemic are struggling to pay their rent or mortgage. Some of these borrowers may fall further behind on their payments resulting in a rising U.S. delinquency rate. And there are social implications for these borrowers – and renters – as affordability factors push homeownership farther from their reach.
And then there are the borrowers a who are in forbearance. Some of these borrowers may exit forbearance and enter a workout plan that will enable them to keep their homes. But many will face a short sale or foreclosure, which is painful for all involved.
To learn more about how the pandemic has impacted the housing market since it began in February 2020, MortgageOrb recently interviewed Abhinav Asthana, business head, fintech products, for software provider Tavant.
Q: The short-term ramifications of the pandemic on economic conditions have been catastrophic. What are some of the long-term impacts on homeownership that are less evident?
Asthana: Two things have become clear as a result of the pandemic: Americans have less money in their bank accounts, and they are getting less money from their paychecks. It’s easy to understand why people have less money in their bank accounts – with so many experiencing some form of employment turnover during the past year. At the end of the day, those are the primary concerns for long-term homeownership.
The U.S. government has taken significant steps to mitigate the economic fallout through financial assistance programs like stimulus checks, limits to forbearance enforcement, eviction protection and other forms of aid. However, these programs will eventually cease, and some of the jobs that were lost during the pandemic will never come back.
I fear that one of the major outcomes of the pandemic will be widespread homelessness. Just think about all of the lives and jobs lost, and how that will eventually translate to mass unemployment and loss of income – maybe not now, but 12 to 18 months from now.
Q: With home affordability more difficult than ever and mortgage rates reaching all-time lows, what can people attempting to achieve homeownership expect?
Asthana: The prospect of homeownership will look a lot different depending on each situation. With mortgage rates being so low, first-time homebuyers will have an advantage at getting in the real estate market. Furthermore, we are already seeing a “mass exodus” out of high-cost neighborhoods to destinations that boast overall lower costs of living and high growth prospects. What I envision will occur will be a leveling effect, of sorts – wherein homeownership will become more possible in places that were previously unimaginable pre-pandemic.
The rise in popularity of work-from-home culture is also a major contributor, as more and more companies are beginning to see the benefits of remote working. The option to live in a different city than the one where your job is located means people can choose to cut down on expenses by moving elsewhere. Since the end of March 2021, San Francisco has seen a 31% increase in departures and a 21% decrease in entrances, meaning net exits have increased 649% year over year. Vacancies will need to be filled; first-time homebuyers will be the main benefactors of the subsequent “flattening of the curve”.
Q: How can lenders make homeownership accessible? Why is it important for lenders that owning a home is achievable and affordable?
Asthana: Owning a home is a cornerstone of the American Dream. As an industry, lenders should desire for this to remain so, because the emotional and financial stability that comes along with it is crucial to families on the fence about long-term homeownership. Community-building is another important incentive as well as the more affordable it is to live in a certain area, the easier it is for families to maintain stable jobs, steady income and solid education programs.
The housing market is a significant driver of the U.S. GDP (gross domestic product), contributing approximately 17.5% of the overall country’s GDP. Lenders don’t just make money when people buy or refinance a home. The money spent to purchase a home is recycled back into communities, in the form of employment opportunities, consumption of goods and services and other forms of financial transactions. Eventually, these improvements canbolster the overall U.S. economy, but it starts first at the community level. It is for that reason that lenders should want to make homeownership as affordable and achievable as possible.
Q: Can lenders in the industry improve affordability measures? What are some of the factors that drive affordability and to what degree can mortgage providers influence these drivers?
Asthana: Affordable housing programs need to become a top priority for lenders, especially when it comes to underprivileged communities. Lending institutions are mandated to follow community re-investment and other affordable housing programs by governing bodies. However, those types of regulatory requirements only go so far. It is on lenders to drive their initiatives, ones that strengthen and build up communities all across the country.
What follows are some initiatives lenders can start to drive affordability:
- Start providing low down-payment financing options and closing cost credits;
- Create diversified programs and offerings for underprivileged borrowers;
- Collaborate with not-for-profit organizations who work within communities to improve understanding of local markets and the people that live in them;
- Empower the communities that need financial assistance the most by contributing to Minority Depository Institutions and other non-profit funds; and
- Challenge policymakers to advocate for affordable housing reforms, such as credits for first-time homebuyers and other FHA policy reforms.
Q: What are some of the societal implications of improving homeownership affordability post-Pandemic?
Asthana: One of the major improvements that come to mind is a decrease in homelessness. It is no secret – America has a homelessness problem, and the widespread loss of employment and income as a result of the pandemic has done nothing but exacerbate this problem into an “epidemic”.
The largest homeless encampment in mainland U.S. is located right in the backyard of Silicon Valley. It is colloquially referred to as “the Jungle” – and that 60ish acres of land can be the home to up to 175 individuals at any given time. If this country is to keep its poorest citizens under roofs and off the streets, then improving the availability of affordable housing and decreasing the overall cost of living in areas like San Francisco and the Bay Area needs to become a priority.
Making the prospect of owning a home more affordable would also play a significant part in reducing the racial homeownership gap that is ever-present in America today. Estimates show that the black homeownership rate is nearly 30 points lower than that of white households. All major players in the lending and real estate industries need to do their part to bridge this gap.
The implications of affordable housing, especially in underprivileged communities, have lasting effects. By removing financial barriers to entry for one generation, successive generations will be able to capitalize off the wealth-building opportunities of homeownership.