New York Mortgage Data Show U.S. Housing Market is Crashing

April 1, 2020 4:21 PM UTC
The housing market bubble that's been inflated by ultra-low interest rates has finally popped as buyers run for the hills amid recession fears.
  • Mortgage applications in states hit hard by coronavirus fell significantly.
  • Buyers around the country will dry up despite low interest rates as recession sets in.
  • Job losses will force many into selling despite reduced house prices in a few months time.

Coronavirus has already tanked financial markets, but now the panic is moving into the U.S. housing market.

Data out this week show that mortgage applications have fallen dramatically in states that have been hit hard by coronavirus, a trend that’s only going to get worse as the number of new cases in America continues to rise.

The mortgage data paint a grim picture for the future as it suggest house prices are about to come crashing down.

The Housing Bubble that Started it All

Before coronavirus was splashed across the headlines, house prices were near all-time highs. That’s because interest rates were near all-time lows amid a booming economy and a bullet-proof bull market. But the ultra-low interest rates needlessly inflated house prices to unattainable levels. 

Not only were the properties being sold overvalued, but people couldn’t afford them. From 2013 to 2019 average house prices in the U.S. shot up 42%. By contrast, average wages were up less than 20% over the same time period. But cheap mortgages meant people could still ‘afford’ to become buyers. 

But new data show the housing market is about to see a steep decline in home prices that will leave thousands of people paying for equity that’s become worthless. 

Mortgage applications in New York, the epicenter of the U.S. coronavirus crisis, have fallen significantly.

Data from the Mortgage Bankers Association (MBA) show the number of mortgage applications in New York saw a weekly decline of 18% last week—a 35% drop from where they were at this time last year. Similar trends were seen in both California and Washington, where coronavirus outbreaks have been concentrated. 

Mortgage data confirm coronavirus will crash the housing market. |Source: MBA

That’s likely just the beginning, though. An MBA executive noted that purchase applications were down more than 10% after a strong start this year:

The bleaker economic outlook, along with the first wave of realized job losses reported in last week’s unemployment claims numbers, likely caused potential homebuyers to pull back. Purchase applications were down over 10 percent, and after double-digit annual growth to start 2020, activity has fallen off last year’s pace for two straight weeks.

As long as lockdowns are in place, home sales will probably keep falling. States like Illinois, Michigan, Florida and Louisiana are probably next to see a collapse in mortgage applications.

The spread of coronavirus will impact housing purchases despite low interest rates. | Source:The Guardian

Moody’s Chief Economist Mark Zandi says coronavirus is poised to decimate the U.S. housing market despite its perceived strength just weeks before the outbreak. The Fed’s record-low interest rates have buffered the impact somewhat but Zandi believes its only a matter of time before the industry succumbs to the impact from COVID-19: 

Housing is being buffeted by two gale forces moving in opposite directions [low interest rates and an economic downturn] The question is, what’s the end result of all that? In all likelihood, the recession will trump the lower rates.

Missed Mortgage Payments Will Add to Pain

Lost jobs, a weak economy and social distancing norms will cost the housing market this year as the number of available homes on the market jumps significantly. That’s problematic for those paying off a hefty mortgage that they couldn’t comfortably afford before coronavirus hit. 

Before the virus, 38 million American households were spending 30% of their income on housing. Now many of those people have no income at all, or have seen it significantly reduced. That puts a heavy burden on their shoulders that a $1,200 coronavirus stimulus check won’t fix.

In the early stages of a housing market decline, some buyers may be inclined to hold on to their properties to wait for better prices. But in a dire scenario where job losses are forcing people’s hands, many more houses could come on the market and push prices lower. 

Ultra low housing inventories has kept prices propped up, but that could change as recession sets in and people are forced to sell. |Source: St. Louis Fed

Senior economist at Realtor.com George Ratiu says keeping an eye on inventory will offer a picture of the housing market’s health:

If there is a marked economic slowdown accompanied by job losses, that would put a lot of pressure on homeowners. We would see a change in the inventory situation. Instead of a severe shortage, you would start to see inventory ramp up as people get interested in offloading.

 

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: June 12, 2020 6:46 PM UTC

@Laura_h_says

Laura has been working as financial journalist covering US markets for more than a decade. Her work can be found in a wide variety of publications including Yahoo Finance, InvestorPlace, Nasdaq and Benzinga. Visit her website, contact her at lmariehoy@gmail.com, see her LinkedIn profile here, or check her out on Muck Rack. Laura Hoy is a Trusted Journalist.