Things are so good in the housing market, that the data from May for SoCal home sales hit an all-time record low. That is right, this was the worst performing May in recent memory in terms of sales volume. This is a critical point because sales volume was already very thin even before the pandemic hit. And what is telling is those that are able to buy, older Americans, are the most susceptible group to Covid-19 if it hits them. Case and point? In Orange County, an area where people are at beaches in mass and in most cases not wearing masks, zero people have died between 0 to 24 according to the latest data. However, 87 percent of those dying are 55 or older (56 percent of all housing units in California are owned by those 55 and older). And these are largely the homeowners in SoCal or those looking to sell and buy. It should be noted that in most real estate cycles, first sales go down, then home values. And for those with historical amnesia, after a shock like this, home values tend to lag the sales hit between one and two years. So the cheerleaders overall seem like the anti-fact crowd that want everything boiled down to a two-minute clip. Things in life are just more complicated.

It seemed that 2020 was already turning out to be a relatively challenging year with a massive global pandemic ravaging the world. Now we have nationwide unrest with protests and rioting. Yet somehow with all of this disturbing news, housing values remain strong. Now is this simply a lag factor? Is it because people are stuck at home now for nearly 3-months and are hunkering down? There are many reasons as to why home values remain strong at the moment, but the next few months will be very telling in terms of where things will go. I’ve talked about California becoming a renter’s paradise and how the majority of people that don’t own are not going to continue voting for things like Prop 13 especially when we have such massive wealth inequality in the country. I think many people are living detached in a small bubble and this nationwide unrest is a culmination of anger, frustration, and economic inequality that has created a two-tiered system. In the end, it reflects in our social fabric and housing is the cornerstone of the American Dream. Where is housing heading if only a small portion of the population can even afford to think about the dream?

Let us clear something up regarding the last financial crisis with housing at the center of the market unraveling. The vast majority of the foreclosures that happened in the Great Recession occurred on standard 30-year fixed rate mortgages. There is this mythology that only subprime and NINJA (no income, no job, no asset) loans were the culprit of the entire collapse. This narrative fits into the crony capitalist mentality that somehow, only losers caused the crisis and that of course all of the suckers that got lured into a toxic mortgage somehow deserved losing their homes (while banks of course got bailed out with billions of tax payer dollars). A swift kick to the poor, and corporate welfare for the banks. It almost fits into this modern psychology of dis-information and revisionist history that we are now seeing.  So it should be no shock to rational individuals that now, we suddenly have a whopping 4.7 million mortgages in forbearance (aka not paying their mortgage payment). This is not a good thing. The assumption is that people are going to start paying their mortgages back on time once the virus goes away but is that the case with so many jobs being lost? First, let us show you some data on the previous crisis for those that somehow forgot who lost their homes based on the type of mortgage on the property.

It was only a matter of time until housing, like every other sector of the economy took a big hit.  Of course the housing cheerleaders thought somehow that a global pandemic would keep housing untouched while every other facet of the economy would come to a grinding halt.  So it should come as no surprise that nearly one-third of renters (and soon mortgage holders) are having trouble making their rents. Banks are gearing up for waves of foreclosures.  Only poor areas you say? In affluent Irvine, the Great Park area with a newly built section of homes went to close to zero sales from having steady sales in the past weeks. Did you also know the stay at home order hit on March 19, not even one month ago?