If the Great Recession never happened, how would potential homebuyers be looking at today’s housing market?
After all, the giant cohort of potential homebuyers now in their late 20s and early 30s was also the generation fresh out of college trying to find a job as the market was crashing in 2008. They remember the struggles of trying to find a job, and they remember the large swath of inventory on the market that made home prices drop lower and lower.
So when it comes to deciding whether or not to buy a home in the middle of a recession, it’s difficult not to pull in past memories from the Great Recession. But this is a very different kind of recession, and, as Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, said: “No housing analyst alive has seen the housing market perform during a pandemic.”
McLaughlin noted that in this economic downturn, policy plays a much larger role in what’s going to happen with the health of the housing market than fundamental economics.
Back in April – during what should’ve been the year’s busiest home-buying season – McLaughlin talked about whether or not it was a good time to buy a home. At the time, he noted that the largest group of first-time homebuyers, Millennials, are going to be the most susceptible to recency bias when it comes to recessions. “They basically only went through one, the Great Recession, and that sample size of one just happens to be the worst economy for the housing market since the Great Depression,” said McLaughlin.
Since that interview three months ago, the housing economy has proved to be extremely resilient to the current crisis, thanks to some significant actions by the government.
For starters, five months ago, the Federal Reserve started a bond-buying program again, something it did during the financial crisis. Since launching the program, the reserve has purchased about $892 billion of agency mortgage-backed securities, pushing mortgage rates to an all-time low.
These low rates continue to fuel refinance demand, as the Mortgage Bankers Association’s refinance index continues to increase year over year, with last week marking the thirteenth-straight week of year-over-year gains.
Then, there’s the CARES Act, which Congress passed in March to offer economic relief to those affected by the shut-downs, expanding unemployment benefits and offering mortgage forbearance to homeowners with mortgages backed or insured by the federal government, including Freddie Mac, Fannie Mae, VA and FHA. Under the CARES Act, homeowners can ask for forbearance from their mortgage servicer and suspend payments for up to 12 months.
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