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Scary Housing Market Stat Is Already Spiking Toward 2008 Crash Levels

Last Updated September 23, 2020 1:55 PM
W. E. Messamore
Last Updated September 23, 2020 1:55 PM
  • The housing market is showing all the makings of another crash.
  • The Fannie Mae housing sentiment index is at an all-time low.
  • And forbearances are now twice that of Q1 2008 delinquencies.

Under extreme stress from the COVID-19 crisis, the U.S. housing market has many of the makings of the 2007-2009 housing crash. But this time around, it didn’t take that fevered overconfidence in rising home prices to fuel a housing bubble.

Near the end of the record, decade-long economic expansion, asset values across all classes soared. Americans became overconfident in ever-rising wages and job opportunities.

As with all growth phases of the business cycle nearing an end, people thought it would always be this way. They forgot that something inevitably goes wrong. In this case, it was COVID-19 that crashed the party.

The scale of damage to the housing market is staggering.

Record Low Housing Market Confidence

Consumer confidence in the housing market fell off sharply in March. But it took an even steeper plunge in April.

The Fannie Mae Home Purchase Sentiment Index gauges consumer confidence in real estate and expectations for home prices over the next 12 months.

housing market data
Overall housing market sentiment took a historic dive in April. | Source: Fannie Mae 

Fannie Mae has taken a measure of home purchase sentiment since 2010. In April’s survey, respondents said they expect home prices to drop 2% over the next 12 months . It’s the lowest expected growth in home prices the index has ever registered.

And the overall sentiment gauge for April is at the lowest level since 2011. Nearly half of respondents said it was a bad time to buy a home, and 65% said it’s a bad time for home sellers.

Doug Duncan, chief economist at Fannie Mae, said :

Individuals’ heightened uncertainty about job security, as registered in the survey over the last two months, is likely weighing on prospective homebuyers, who may be more wary of the substantial, long-term financial commitment of a mortgage.

But added:

We expect that the much steeper decline in selling sentiment relative to buying sentiment will soften downward pressure on home prices.

But thinking it’s a good time to buy a home is not the same as being in a position to take advantage of that opportunity.

This year’s unprecedented blow to U.S. income and job stability will almost certainly spill over into demand shocks for the housing market. A record 20.5 million jobs vanished in April, and the unemployment rate is now 14.7%.

And millions of homeowners have already stopped paying their mortgage notes.

4 Million Homeowners in Mortgage Forbearance

Mortgage data company Black Knight reported Friday that 4.1 million mortgages are in forbearance  as of May 7. These programs allow borrowers to forego payments on their house notes for as many as 12 months without entering delinquency.

That’s 7.7% of active mortgages in the housing market and represents $890 billion in unpaid principal. This is unlike anything the housing market has ever seen.

It’s even more dramatic than when the mortgage bubble burst. The percentage of borrowers in forbearance is double the delinquency rate on single-family residential mortgages in the first quarter of 2008 at the beginning of the Great Recession.

delinquency Rate on Single-Family housing market Mortgages federal reserve
Though still below financial crisis peaks, the rate of borrowers who have halted mortgage payments is already double what it was when the Great Recession started. | Source: St. Louis Fed 

Forbearance will help Americans weather the economic crisis, but it’s not a get-out-of-mortgage-free card. That unpaid principal must eventually be paid back .

And the deluge of mortgage nonpayment is just beginning to upend the housing market. Mark Zandi, chief economist for Moody’s Analytics, said in April that the number of loans in forbearance could swell to 15 million before the crisis is over.

That’s a harrowing indicator of the ability of Americans in this economy to purchase a home, whether or not they think it’s a good time to buy.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered investment advice from CCN.com. The author holds no investment position in real estate or associated securities at the time of writing.