Mortgage Market Sends Wrong Message

The housing market isn’t as strong as it seems. Photographer: Joe Raedle/Getty images.

The housing market isn’t as strong as it seems. Photographer: Joe Raedle/Getty images.

The Covid-19 pandemic arrested the plans of millions of Americans to purchase a home. But what if you lock someone down in a home they had already mentally moved out of? Might they pour their energy into touring homes online to produce a short list of targets? And might they get preapproved for a mortgage so it’s a simple matter of income verification once the economy reopened and they’d submitted an offer on a home?

Of course they would, which helps explain the huge surge in the Mortgage Bankers Association of America’s index tracking applications for loans to buy homes. That gauge has risen for nine straight weeks to reach its highest level since the start of 2009, which defies logic when you consider that more than 44 million Americans have filed for unemployment benefits since mid-March. No doubt that some of this is tied to the minor exodus from densely populated cities. After all, long commutes are less of an issue now that we’ve seen the efficacy of working from home play out in real time.

Big Rebound

Consumers have been applying for mortgages to buy homes at a pace not seen since 2009.

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But don’t let mortgage applications fool you. Entering into a deal to buy a home now could prove unwise. Much of the real estate market remains in a deep freeze, with listings down nationwide and borrowers struggling to meet debt payments. Black Knight Inc. reports that 4.73 million mortgages, or 8.9% nationwide, are in forbearance. “During the Great Recession, it took more than two years for the national delinquency rate to increase by the 3.1% seen in April 2020 alone,” Black Knight noted in a report.

Including the emergency programs in the CARES Act, 29.5 million Americans are receiving unemployment benefits, up from 1.7 million in early March before the Covid-19 pandemic took hold. The extra $600 a week many are receiving from the government is set to end July 31. Fresh data from the Federal Reserve showed that Americans’ net worth fell by a record $6.55 trillionin the first quarter to $100.8 trillion, the largest drop in records back to 1952.

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This article originally appeared in Bloomberg Opinions — June 17, 2020

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