Impact of COVID-19 on the Housing Markets – Part 6

This post is Part 6 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 Part 5, I discussed what we need to be watching for now to move to the next stage of investing in housing.

In this blog, I will talk about what we plan to do after we feel confident that the government has stopped supporting people and businesses and that the housing market can let the forces that impact supply and demand play out and get back to a natural balance that we can rely upon.

Once the government stops supporting people and businesses that have been negatively impacted by COVID-19 and the resulting economic shut-downs, then we need to start watching for all the impacts that I discussed in Parts 3 & 4.

As we discussed in Part 3, when the government stops providing support, income will no longer be stable for a significant percentage of the working population; likely over 10 million and possible over 20 million.

This will lead to a significant decrease in the ability to pay monthly rents and mortgages. This will lead to

  1. renters moving down scale to lower priced rentals,
  2. homeowners selling and becoming renters,
  3. banks foreclosing on houses, if owners don’t sell and stop paying mortgages,
  4. investor/landlords selling properties where they didn’t properly manage cash flow,
  5. and, finally, an overall decrease in demand to buy houses.

Additionally, as we discussed in Part 4, all these activities discussed in Part 3 will lead to an oversupply in the market place. Banks will own more homes and they will sell as quickly as they can. People that can’t afford to pay their mortgage are more likely to sell. Landlord/investors that didn’t manage cash properly will sell out.

All of these activities will lead to an over supply while demand is also decreasing.

So, what do we watch and do?

Here is our list, but this is only after the government stops supporting the economy:

  • We will be watching for foreclosure activity to increase and then stabilize or start to drop.
  • We will watch for bank sales of houses; we expect banks to sell houses in packages and possibly through auctions.
  • We will watch data on where people are moving – by this I mean what cities are seeing outflows of people and what cities are seeing inflows of people.
  • We will keep updating our data on cities as I described in my blog series on how to determine what cities to invest in.

We are already starting to network with bankers in positions at banks to manage real estate owned. We are developing relationships with these people so that we can stay knowledgeable about foreclosure activity and be able to buy directly from banks as we see great deals.

What will you be doing?