Impact of COVID-19 on the Housing Markets – Part 5

This post is Part 5 of a multi-part series on the impacts of COVID-19 on the Housing Markets.

In Part 1, I laid the foundation for what we see in the different phases of the typical economic cycle for the housing markets.

In Part 2, I discussed the factors impacting the market today. For context, this was written in August 2020. As we covered in Part 1, pricing is a function of supply and demand.

In Part 3, I discussed why we think demand will drop off in 2021 due to instability of income.

In Part 4, I discussed how we think COVID-19 will impact the supply of housing going forward. Basically, we think that the housing market is facing a huge wave of foreclosures in the tens of millions and we explained why in this post.

In this post, I will discuss what we need to watch right now. The recession in housing isn’t happening yet (August 2020). But there are some clues in the news that we can watch for when the recession will start to occur.

As I mentioned above, in part 3, I discussed that demand has not decreased from pre-COVID-19 levels because the government is providing extraordinary support to those negatively impacted by the pandemic. Additionally, in part 4, I discussed the time periods of the forbearance programs and prohibitions against evictions.

Both of these actions are postponing a rebalancing of the supply and demand picture in the housing markets. For those reasons, those are the programs we have to watch first.

There are elections in November and political officeholders tend to want voters to be happy going into the elections. So, there is a very good chance they will come to some type of agreement on how to extend these benefits and for how long.

As I expect, if they extend these benefits, they will continue to postpone the re-balancing of supply and demand into 2021 at least.

For this reason, I do not have any intention of investing in any housing assets until we can see what the politicians do. If they do extend benefits, then I will continue to wait until those expire to see if benefits are extended any longer. I don’t believe that politicians will extend benefits forever. But until they stop the benefits, I can’t move forward with this type of investment.

The other clue in the news that I will be looking for is vaccinations against the coronavirus fully tested and substantial portions of the population getting vaccinated. I think this is also necessary for the general public to start resuming normal economic activities. This is also a necessary step to moving toward a normal housing market.

To sum it up, these are the questions we cannot answer yet:

  • When will government assistance end?
  • When will forbearance programs end?
  • When will the job market truly start expanding again and hiring people back?
  • When will businesses stop being supported by the government so that we can determine which businesses and industries will survive for the long term?
  • When will the uncertainty end?

If you agree or disagree, I’d like to hear what your thoughts are on this topic.