Joe Doakes from Como Park emails:
Some people believe today’s high housing prices are due to stimulus payments. All those people getting unemployment checks and $1,400 gifts are using them to bid $50-60,000 over the market for houses. I don’t think so. I think realtors are correct: there’s a shortage of houses for sale, about 40% lower inventory than normal. Low supply, high price, basic economics.
A person who lost his job during the Covid pandemic could sell his house and reap the equity, but then he’d have nowhere to live. During the moratorium on foreclosures, he can live in the house rent-free. And there’s always the hope he may get back on his feet, the government may offer an assistance program, he might win the lottery, something might work out that he can keep the house. Psychologically, people in financial distress hang on too long, they end up staying until they’re evicted because they can’t downsize and shed debt fast enough. Their houses are being artificially withheld from the market because of the moratorium on foreclosures.
Even if they did sell, there are increasingly fewer places to rent because landlords can’t evict tenants during the eviction moratorium (recently extended to next June). Fewer available apartments, higher rent, basic economics.
Ramsey County’s normal foreclosure rate is about 300-400 per year in good times (2000-2003 and again 2017-2019): people died, got divorced, lost their jobs, etc. Foreclosures dropped to single digits in April 2020 when the moratorium took effect. There’s a 15 month backlog of ordinary foreclosures and if the economy stutters when inflation causes interest rates to rise, there could be a great deal more coming. Hundreds of bank-owned properties will flood the market in a short period. Banks dump properties cheap. High supply, low price, basic economics again.
Sale prices will drop. Appraisers see the value of comparable sales dropping – appraised values drop. You won’t be able to sell sell your house for what it was worth in 2021 because the appraisal won’t support the sale price. It’s the 2008 downward spiral all over again.
The government knew that its panic reaction to Covid would throw millions of people out of work, making them unable to afford their mortgages, sending them into foreclosure, and exacerbating the homeless crisis. The Band-Aid approach was a moratorium on foreclosures and evictions. But that’s just a Band-Aid, it doesn’t solve the underlying problem of people out of work, unable to repay their loans. There’s a storm coming. It has nothing to do with stimulus payments.
Of course, there is one way housing prices don’t fall:
Shovel pandemic relief money to the politically well-connected who will stash it in safe currencies; continue endless ‘temporary’ moratoria on foreclosures and evictions to keep masses quiet even as landlords go broke; extend/increase unemployment benefits to hide the destruction of the working economy; and allow hyper-inflation to conceal the destruction of middle-class savings/wealth. Your house will be worth a million dollars, which will be just enough to buy a loaf of bread. Zimbabwe, Argentina . . . America?
If I was one of the well-connected people able to stash my wealth to ride out the ensuing global crash, that might actually be considered a feature, not a bug. I wonder who else is thinking that way?
Thinking? Of course.
Able to act?