Oklahoma Real Estate Amidst COVID-19
I know global uncertainty is at the top of everyone’s mind. Yes, things are bad right now, but there is a lot of good going on too that we are not seeing if we are just watching the news or looking at our social media feeds. Fear is contagious, but so is hope. Yes, I am a realtor, but I am not sharing this to promote buying or selling right now. I am sharing this to give a sense of understanding and hope. I was an educator for 14 years prior to going into real estate so that is where my heart is. I love to educate and share information. And I know there are so many questions we don’t have answers to, and there is no doubt we are in uncertain times. People are scared for their health and their livelihoods, but as far as our economy goes, let’s look at history to put things into perspective. Which knowing all this really eases my fears about the state of our future which is why I want to share this information with my friends.
One of my most trusted sources for information is Keeping Current Matters. They are staffed with 25 researchers who provide relevant information without a political agenda. Their most recent webinar gave me much-needed insight and logical information I really want to share and get this message out. So I am going to go through the key takeaways here on this video. This is going to be long, but the information to me is so valuable and shows the hope I want to get out there. So I encourage you to like and share. I will also try to make a few shorter videos with chunks of info for those of you who don’t get super excited over graphs, charts, and data like I do, or maybe have a shorter attention span. So first, I have to preface this with I am not a financial expert or attorney I am simply sharing information I am not giving legal advice.
So one of the questions before the COVID-19 started showing a presence here in our country was the drop in the stock market. There are some people bailing out of the stock market and I was getting the question what does that do for housing? And really it is kind of like we are in PTSD from the 2008 housing crash, so when anything happens most people go back to that memory and fear…which I will address that in more detail as I get further into everything.
Okay, so first let’s look at this slide that shows the relationship between the 30-year mortgage rate and the ten-year treasury rate. So when we see money coming out of the stock market… what its doing is flowing into the bond market. The US Treasury is widely considered to be the safest investment in the world. When we look at the ten-year treasury rate, it is what we look at to predict mortgage rates. Now, this graph goes back fifty years to track the 30-year mortgage rate to the ten-year treasury. And what was found and what we see here is this symbiotic relationship that the two move in together and so while there is a lot of information out there and I know mortgage lenders are getting the questions when the federal reserve lowers the fed’s rate what does that do to mortgage interest rates. We know it doesn’t have a direct correlation, but again it has a similar path. So the interesting thing is while we know that is true. That changed last week and it really changed to the extent there have been other forces at play in the market and as the ten-year treasury rate has dropped mortgage rates have not followed. In fact, we are in a volatile environment right now where we are seeing pricing go back and forth intraday. There are a lot of people that talk about that and now more than ever it is the time to have someone trusted on your side that can give you that great advice as a mortgage professional, but I want to highlight a quote real quick from First American to talk about for just a second… “As evidenced by recent events, often the spread increases because mortgage refinance application processing capacity cannot meet demand, so lender-offered rates don’t follow the Treasury yield down one for one. So lender-offered rates don’t follow the decline in response to the decline in yields, which makes it unlikely to fall by the same magnitude as the Treasury yield…
So it is plausible that mortgage rates fall further if the benchmark 10- year Treasury bonds yield declines further…It’s reasonable to expect that rates fall even further and likely surpass the prior record low, but just not necessarily one-for-one with the 10-year Treasury yield.” Again, that was from the Deputy Chief Economist, Odeta Kushi, from First American. But let’s look at that over the last year from the rate environment. Here is another graph showing the 30 year fixed rate mortgage rate from June 2018 up until this last week. We know that this is volatile and not meant to be an indicator of where the rate is at, I actually know they are up more than that, but this is meant just to show that flow going forward. In the volatility we are seeing a lot of things in the market that is different than we have ever seen but, know that going forward we should be able to look at the ten-year treasury as we look out into the future.
And truly interest rates are still low from a historic standpoint. So people are still getting a great rate, but maybe not that unbelievable rate…that 2.9 percent that was just a few weeks ago. The reason interest rates came down so much is that the stock market had two of the worst weeks it has ever had. So again, the question…when the stock market goes down as quickly as it is…doesn’t that have an effect on home prices? So back to that question will this be like 2008 all over again? So here are a couple more visuals to really help see what is going on. This graph compares the housing and mortgage crash of 2008 to the S&P correction at the same time and so when we look at that we see the S&P correction 51% over that span of time and then we see home prices depreciating just under 20% during that same time. This is really like scar tissue when we hear slow time when we see the stock market reacting…we think oh gosh are we about to see the home prices depreciate. So let’s put this in perspective. Here is a quote from economist Dave Rosenburg, and what it shows is there is a lot more in common with 9/11 than there is with 2008 when we start to look at these crises we faced. …”What 9/11 has in common with what is happening today is that this shock has also generated fear, angst, and anxiety among the general public. People avoided crowds then as they believed another terrorist attack was coming and are acting the same today to avoid getting sick. The same parts of the economy are under pressure – airlines, leisure, hospitality, restaurants, entertainment- consumer discretionary services in general.” I am sure we have all looked at this and understand that there are people being impacted very hard… and my heart truly goes out to all the people adversely affected both those that are in fear of losing their livelihood and those brave men and women that have to put themselves in harm’s way to keep our country going. But looking at this from happening from an event makes this much more like 9/11 than like 2008. This graph shows the dot.com crash and 9/11… and looked at housing as well. So when we look at that we can see the S& P correction and we can also see the housing market. The S & P correction you see there at 45%, but then we know cumulatively over the same time housing appreciated almost 24% so very different the way housing reacted at 9/11 and the dot.com crash vs. what housing did in 2008. So that is one thing I really want you to see. In today’s environment, a picture is worth a thousand words. So really see this.
So basically what this shows very visually is that if this time we are in is a lot more like 9/11 than it is like 2008 then the housing market is a lot more likely to react as it did after 9/11 and the dot.com crash than it did like the 2008 crash. So what we can see here friends is that annual home price appreciation vs. the stock market reacted very well during those times. And as far as housing goes there was a tremendous start to the year, the existing homes report just came out and showed we had the highest amount of homes sold in the past thirteen years on an annual adjusted basis. With everything that is going on now we know that those numbers are going to go down right now as we are forced to slow up or shelter in place. BUT when this is over AND it will someday be over! When that time comes I think everything will come roaring back. So these numbers are not unreasonable to expect to take place even though we are in a stock market situation.
Now there are serious worries about our economy and if we are headed into another recession. And what does that mean? We have talked about the likelihood of a recession expecting it in the future and in a different way, but the reality today is we can all see the slow down we can feel it, we can see it in our Oklahoma towns that are asking businesses to close, and other states doing the same, or that are requiring sheltering in place. We know this is AND is going to continue to have an impact on economic activity. So the interesting thing is when we talk about this… a recession IS a slowdown in economic activity. When we hear and think about a recession we all have these immediate fears and thoughts about what the prior recession was. And that is really just the reality of the world we live in. Now if we talk about an economic slowdown that is very different and is critical to keep that in mind. Let’s again look at what the experts are saying. Here is a quote from Bill McBride with Calculated Risk…”With the sudden economic stop, and with many states shutting down by closing down schools, bars, and restaurants…my view is the US economy is now in a recession (started in March 2020, and GDP will decline sharply in Q2 (as Goldman Sachs is forecasting). The length of the recession will depend on the course of the pandemic.” So what is Bill saying there?…certainly we are seeing that and feeling that economically right now…we are feeling a slowdown and we can see that this is going to go on through the course of this pandemic. So using analogy’s to show 2008 vs. where we are today… You know 2008 was like a tornado came through the country and ripped apart buildings, ripped up phone and electric lines that had to be slowly rebuilt over time. In the analogy with what we are experiencing today is more like a heavy, heavy snowstorm… it is shutting things down, but what we know as time goes on and that snowstorm starts to let up things will reopen. The courthouses will reopen, restaurants and bars will reopen, we will be able to go to concerts and sports games, and really the biggest thing there will be can you get tickets to those games and seats at restaurants because everyone is going to want to go out there and do that. People are going to want to get out of there home and go and have a nice dinner, go out and have drinks with friends. Graphically speaking Goldman Sachs starts to show this V of a recovery vs. a U like what we saw in 2008. A sharp decline with further sharp gains going into 2021. Looking again towards the experts Wells Fargo agrees as well here in this quote, “We do not expect a repeat of the severe recession of 2008-2009, because the virus and oil shocks are not endemic to the financial system but are rather, external. Once the virus infection rate peaks, we expect a recovery to gain momentum into the final quarter of the year and especially into 2021.”
And let’s just look at this again, I have posted it on previous market updates because this is such an important visual. But looking back at the last five recessions going back to 1980… and what we know is that in three of those last five recessions home prices actually increased, in one recession back in 1991 we saw a slight decrease of 1.9%, but what we remember is 2008 when we saw a significant decrease of almost 20%. I do feel like this is so important to get out there that a recession does not equal a housing crisis. A recession is an economic slowdown. We can see it right now. We see things closing down…it makes a lot of sense that we would be going into a recession.
Now again let’s talk about 2008 because 2008 devastated our economy and our country. Families were having to leave their houses, and tell their kids they could no longer be in their homes. There were some serious hurt and tears shed during that time. We do need to compare what is happening today bc there ARE some currents that are similar to 2008. So let’s talk about this. Look at this announcement from the FHA, The federal housing administration indicated it is enacting an “immediate foreclosure and eviction moratorium for single-family homeowners with FHA-insured mortgages” for the next 60 days. The Federal Housing Finance Agency announced it is directing Fannie Mae and Freddie Mac to suspend foreclosures and evictions for “at least 60 days” So what are we seeing right here? We are seeing things that in 2008 we got wrong.. Your seeing government respond to the needs that the people have. So we can say how do we not have that happen again. There is a lot more to be written as far as how banks carry this out. But action like this we start to look at that and that is very different than 2008. There are also structural differences in the process that are very different than 2008 as well. Hopping to a couple of slides here…so let’s think about where we were in 2008? Back in that time, you can see here 824 Billion, that’s billion with a b in cash-out refinances AND people were largely using their houses as an atm machine, taking cash out and harvesting equity from their home, a lot of the time putting those in depreciating assets and thinking this was going to go on forever. But when we start to look at today in the past three years we can see that cash-out refinances are a fraction of what they were leading up to 2008 with a total of only 232 Billion. That is nearly three quarters less than what we saw leading up to 2008. So really the underlying storyline there is the country learned their lesson and people are not doing what they did in the past with the equity in their homes. We know today that the equity position across the country is very different than it was in 2008. We know over 50% of the homes in this country have over 50% equity. People aren’t walking away from that. In 2008 people started walking away from their homes when they had negative equity…when they were in situations where they owed more than the home was worth. We are in a very very different situation in this country today than we were then.
Now, let’s take a look at another aspect. Let’s talk about income for a second. Look at this slide… As we started out this year we were seeing a market where income was rising and mortgage rates were falling. And what that has created is a drop…you know historically 21.2% of someone’s income would be dedicated to their mortgage and right now what we are seeing leading into this was that number dropped to 14.8% significantly lower than the historic norm speaking specifically to the leverage of the consumer relative to housing.
So there are definitely several positives with the structure of our economy right now that will help us as our country is going through this together. I would encourage everyone to support local small businesses. I would love to feature your small business on a zoom call so we could highlight how we can still do business in the midst of social distancing. This is a scary time, but fear doesn’t change the outcome, we have to pull together, we have to embrace and get through what is happening in our world, and KNOW that we will get through this and come out stronger.
I also understand that some people are in a position to where they have to sell or buy right now, and can’t or don’t want to wait on the sidelines…if that is the case and you want to talk through some options. Please feel free to call, text, or message me.