The last time I have been in a restaurant without restrictions to prevent the spread of COVID-19 was March 14th. That is just under three months. In my opinion, three months is a good marker for how an event has had an economic influence. I believe over the last three months we have had the chance to see what COVID-19 has done to the banking/lending systems, our consumer pockets and the housing market.
BANKING & LENDING SYSTEM
COVID-19 has had a ripple effect on the lending system. What was once a file that could be approved under pre-COVID conditions, now may not be a file that can be approved. As you can imagine, with 2.8 million Minnesota's filing for unemployment and 20.4 nationally that caused the banking systems to re-evaluate their guidelines as to who would be approved and who would not be approved. To be approved for a loan, Mortgage Advisor, like myself look at the borrower’s ability to repay the loan the borrower is asking to receive. I review the borrowers credit scores, employment history present and past, their cash reserves, other assets and liabilities and any other pertinent information I am given to help me evaluate their overall ability to manage new credit. Then I utilize this information and strategically determine which lending product their creditworthiness would complement their needs and wants best. Due to such a dramatic economic variable like COVID-19 the federal government re-evaluated their regulations. Minimum credit scores were raised, minimum cash reserves on certain products were increased and there were several products that were suspended or completely eliminated as a result. With all of these regulation changes going into effect they had an immediate impact on who could and would be approved for a home loan. As a Mortgage Advisor in the first few days and weeks of COVID I was grateful to have the margin to simply digest all the new changes. No files were canceled and I also was able to celebrate the borrowers I had who were headed toward closing that their finances were strong enough to endure the regulation changes.
Where am I at now, at the start of June 2020, as a Mortgage Advisor? I am encouraged. Yes, I see that unemployment is still at a staggering and unfortunate high which is really sad for anyone who is out of work. I truly do feel for you and pray that your place of work would reopen in a safe and timely manner. However, I am thankful that the lending regulations have come back in just a bit. It is my belief that homeownership is an achievement. I believe that homeownership should be recognized through hard work financially and professionally. Having the regulations tightened up a bit awards consumers who have done the hard work.
COVID-19's economic impact resulted in historical highs of Americans filing for unemployment due to losing their jobs which in turn allowed these same people to collect unemployment and, even some, an extra pandemic relief unemployment cash deposit (the CARES act). I heard it said many times over the past 3 months that Americans were making more on their unemployment than they were making at their jobs, which was preventing them from wanting to go back to work. Although I can understand that temptation, it is not what I understand the program to be for. All though the unemployment from an income perspective has been a blessing it has caused an impact to many individuals and families who were planning on purchasing a new home. As a Mortgage Advisor our regulations outline that our borrower’s income needs to be the same at time of approval as it is at time of closing. With this guideline in place anyone who has lost their job or been laid off or furloughed would need to wait until their compensation is back to their pre-COVID compensation before they would be allowed to close on a new loan. This for sure is discouraging to borrowers who had a 2020 summer plan to sell and buy or purchase a first time property or maybe an additionally property, now they may need to wait.
HOUSING MARKET (The following information is supplied by Spencer Hutton a licensed Real Estate Advisor with Engel and Volkers MN)
It's still a little "yet to be determined" as to what kind of affect COVID-19 is going to have on the housing market. Early on during the "Stay at Home" orders we for sure saw the number of showings drop off dramatically. However, at the sub $500,000 price point we were still seeing multiple offers and still seeing homes sell rather quickly. It seemed that COVID-19 really just took tire kickers out of the market, and just increased the quality of the showings. Some people had deals fall apart due to job losses, however, many of these deals came back together with other buyers. As the weeks have gone on, number of showings have increased and actually passed the trend of last year a couple of weeks ago. We are back to seeing numerous showings, multiple offers and sellers getting significantly over asking price (at the sub $750k range). As of right now, the housing market in the Minneapolis Metro area seems to have kept on rolling as if not much has changed. There is Low Supply and High Demand, no shortage of buyers ready to pull the trigger on their next house.
With that said, I still believe the housing market will feel some effects of the shutdowns at some point here. As relief acts start to dry up and companies potentially make more layoffs after their Paycheck Protection Loans dry up it is possible, we could start to see a swing in the market. We could see some sellers come on the market who need to sell their home due to job loss, we could see less buyer's able to be in the market place due to stricter lending practices, which may not have been in place for their file prior to COVID-19 (and job losses themselves). So, I think it is possible that come late fall and through the Winter in Minnesota we could start to see a swing in the market. It could be a delayed repercussion from COVID-19.
On the other side of the equation, there may be a silver lining as to the timing of this event that may help our housing market service this due to supply and demand factors. COVID-19 is happening at a time period where we have the two largest generations in the history of humankind (Millennial and Boomer) fighting for houses at the same time. The Boomers are at a place in life where the economic factors aren't going to hit them quite as hard, at the same time Millennials are at a time where they have been at peak earning age as well as Millennials have shown a propensity to pay off debt and save (thanks you 2008!). As a result we have a lot of Millennials in the position to purchase an entry level, starter home for their growing families at the same time that you have Boomers wanting to downsize into a more entry level home that requires less maintenance and frees up capital to travel or invest in hobbies.
Because of all of these factors, despite a global pandemic and the resulting potential economic impacts, we have a large demand of buyer's fighting for the same low supply of houses. So, although it's likely we will see some balancing in the market, it's still possible that we could continue to have a market that rolls on despite the economic factors that have hit the economy as a whole. We'll know more in the coming months, but there are reasons to be cautiously optimistic that the housing market will weather the season fairly well. Although, as I always say, I personally am still planning for the worst while hoping for the best.
WHAT DOES THIS MEAN
It is hard to know for sure what this all means, but I can confidently say that my approach to finances has not changed even during a Pandemic. I will always say that it is critical to be a wise steward of your household’s finances. My Dad always told me, Amber plan for a rainy day because some day it will start raining! Well it is raining and the rain looks a lot like a Pandemic. My encouragement to you is to continue to do the right next thing. Pay your bills on time, spends less than you make monthly, make a budget and track your spending, do not take out debt if you can avoid it, and be responsible to your family and your employer as you continue to better yourself and our overall society.
"What I can preapprove you for is different than what you can afford."