Lab 029: The Roof is on Fire!

So we asked y'all on Twitter if you were tired of hearing about the coronavirus, and some of y'all said yes, and some of y'all said no.

We're going to talk a little bit about coronavirus, but not directly.

I mean, honestly, no matter what we talk about, it's impossible to escape this pandemic that's going on all around us.

Like that is our backdrop. We can't not.

Talk about the pandemic, but we can talk about things that are kind of like Corona adjacent.

If the health crisis and the economic crisis run enough for you. We're also facing a housing crisis and that's a result of COVID nineteen, of this pandemic. I'm TT and I'm Zachiah and from Spotify. This is Dope Labs. So I was watching on Twitter where some folks were protesting in New Orleans and they were physically blocking a landlord from submitting eviction papers for one of the tenants.

I just can't believe this.

Every day I wake up and there's a new headline, there's something else that the pandemic is affecting, And I'm just like, how.

Much more can we take this? Is crazy.

One of the latest headlines I saw was that by the end of September or October, we're expecting almost forty million Americans to be evicted or be in danger of eviction.

That is a huge chunk of people. And I feel like we aren't talking about this enough.

It's definitely not getting enough light.

Yeah, I mean, especially with the election season coming upon us, we need to know what we need to be asking these politicians for.

Yes, what's the plan. Let's get into the recitation.

So what do we know?

I mean, we know that the coronavirus spread has put folks in a tough situation. People are losing their jobs, so they don't have a lot of money to pay their rent or mortgage.

I think another thing that we know is that the unemployment rate is really really high right now, like it reached record levels. I don't know if you remember back a few months ago, there was that long car line of people just trying to get food.

Yeah, food banks. People were lining up at food banks, and the food banks were running out of food and there were just so many people lined up and it.

Was like miles of cars. And it's because people were losing their jobs and didn't have a way to make money, so that everybody was lining up trying to get some type of help.

I think the other thing that we know is, even pre Corona, the United States suffered from a housing deficit. So there are many states where there are more families in need of housing than there are available housing units.

Wow.

And so when you take those things together.

This isn't a new problem.

This is just a problem magnified, right.

And I also feel like we know that this is not over. We're not getting out of this whole situation with social distancing and quarantining and all that. For a while, it looks like, yeah, so what do we want to know?

Well, I think we want to know how this housing crisis came about. How do we get to the point where forty million people are in jeopardy?

Right?

I want to know specific things that went down, like a timeline to get us to where we are right now.

And I know it's in some way tied to the recession. And we've had a housing recession, you know, we've had that type of market collapse in the past. Is this the same as that? And if we know it's the same, when is it going to be over? How can we fix it or is it different?

And I want to know these forty million people. Who are they? Who is most likely to be in that forty million?

And if you are housing insecure or in danger of losing your home, what are your options. Let's get some answers. Let's jump into the dissection.

Our guest for this lab is Michael O'Neil.

My name is Michael Neil. I am a senior research associate in the Housing Finance Policy Center here at the Urban Institute.

Michael's career in economics, finance, and policy has spanned the last twenty years, and he's worked on Wall Street, Capitol Hill, and the Federal Reserve. More recently, his focus has moved to housing and he spent time at the National Association of home Builders and Fannie May. He's the perfect expert for this episode.

Michael's day to day is really a mixture of a lot of different things. There's engagement with press and media, so he's doing interviews just like this one, where he tries to communicate economic concepts in ways that are easy for people to understand. He's also doing a lot of data analysis where he's running statistical programs, checking results and reporting those results. But there's a third piece, and that part of his job is what we wanted to focus on today.

Which is how do you engage with people on the ground who are actually making the economic decisions. And I think that's a key part of this that you know, whether you're talking to homebuilders, or you're talking to home buyers, or you're talking to anyone who's making any kind of decision on how they're going to allocate their resources, you know that has implications for the economy.

We're all trying to make better, more informed decisions to navigate our current crisis, right and that starts with a good foundational understanding of what's going on. So let's just start with the basics. Economics is really just understanding how resources are dispersed and used.

And when you think about those resources, there are a lot of different sectors of the economy housing, financial markets, energy, agriculture. But for today's lab like we said, we're going to focus only on housing.

Let's just boom out and take a bird's eye view of what's happening right now.

So we're in the middle of a pandemic and folks are losing their homes. The economy is suffering, and that means that people don't have the means to pay for housing.

These estimates of housing insecurity are changing month to month. They're just going up and up. In June, it was estimated that anywhere from nineteen to twenty three million people could be evicted. In August, it was just changed to thirty to forty million. That is a big jump.

Huge jump in just a couple of months.

And if that estimate is right, that's about ten percent of Americans.

And the Aspen Institute predicts that one in five Americans that are renting their homes are at risk of eviction by the end of September. Now that we understand this, who is affected the most? So we know that the rental market is disproportionately impacted by this.

In part because COVID's impact on the word labor market was disproportionately impacted Renters, people who work in industries like accommodation services, like the retail sector that all that typically tend to be renters as opposed to being homeowners.

And even if you aren't renting, it doesn't mean that you're totally in the clear.

On the homeowner side. There's some evidence to suggest that it's those with lower credit scores, those with higher debt to income ratios, those with kind of more modest credit profiles who are more likely to be impacted, in part because they may work in uh IN in those industries that were hardest.

Had and Michael points out that there are two other groups of people that have been affected.

Second, certainly lower income people, given the industries that have been disproportionally impacted. Number three, people of color, African Americans. Hispanics have been disproportionately impacted for African for African Americans, both in terms of their health as well as their economics.

So let's try to understand how COVID is wreaking so much havoc on the economy and the housing market Specifically.

History is the great teacher and it can also give us some context.

So let's turn back the clock to two thousand and eight and a Great recession.

And if you're listening to this, you were probably alive during the Great Recession, and remember how awful it was.

A recession is defined as a significant decline in economic activity.

And a recession can be triggered by a lot of different things. A financial crisis, an economic bubble bursting, large scale natural disaster or even a pandemic.

In the Great Recession, which was from two thousand and seven to two thousand and nine, real GDP.

That's gross domestic product, and that is a number that determines the economic health of a country.

It fell four point three percent from its peak in two thousand and seven. This was the largest decline in the post war era. The unemployment rate, which was five percent in December two thousand and seven, peaked at ten percent in October two thousand and nine.

For some people, there was a sense after the Great Recession that that was roughly about as bad as things could ever get.

But that's not true.

This recession has eclipsed that. When we look at what we call the macroeconomic variables, things like GDP, unemployment, the unemployment rate you know, peaking to fifteen percent GDP declining on an annuary basis by thirty three percent, just numbers that are incredible.

Do y'all hear that.

If you were alive during the Great Recession and you remember how crazy that was, this is a lot worse.

And this is also different in terms of why it happened. In two thousand and eight, it was irresponsible lending, and it was triggered by the housing bubble burst in two thousand and five.

This time it's a little different.

This is still motivated by a health crisis, very different, I think from the Great Recession.

And Michael says that this recession hit like a natural disaster as opposed to people exploiting the housing market, and that means that there were implications for what kind of policy was prescribed.

And in a world in which the risk really reflects something that happened through no fault of my own, then that's where we really need to think seriously about the degree to which this crisis actually echoes the Great Recession, because the policy response, at least on the mortgage side, seems to be somewhat similar, and yet the source of the impact appears to be somewhat different.

So, knowing that, let's put all of this in context, let's map it right on the timeline, starting from the beginning of twenty twenty.

All I know is that I was minding my business, enjoying the new year, and then all of a sudden, twenty twenty turned into the worst year.

Of all time. By the end of February.

Michael laid out what's happening with housing in stages, and the first three stages can pretty much be summed up as good, bad, then worse. Let's start with the good.

The immediate implication of COVID nineteen was in some ways actually positive for housing activity. We actually saw mortgage applications for purchases and refrising that's refinancing actually spike in that January early February period.

At the beginning of twenty twenty, unemployment was at historic lows, thanks Obama. But markets react to what's going on, and it seemed like coronavirus might be a problem, and if the economy took a hit, they didn't know how bigger small it would be.

So mortgage interest rates dropped because we believe the economy could still hang in there. So houses became more affordable, construction was cheaper, and people's tendency to refinance so take their loan back to get a lower rate and end up paying less each month, that tendency increased.

But then when it became clear that COVID nineteen was going to have a much more a much deeper impact on the economy, as shelter and place orders were put in, and again I definitely want to reiterate that they are definitely key for protecting the health of the public. It's a tradeoff. But as all of those were put in, then you had a situation in which as businesses closed, as people were laid off and they had less income, we saw that. We certainly saw this decline in what we call aggregate.

Demand, and aggregate demand is just like it sounds, just demand for the entire economy. So now we're about in February March, and we've still got lower interest rates, but we also have higher unemployment rates.

But what was also happening is that as the interest rates are down and the unemployment rates started going up, we were also seeing housing prices continue to increase despite applications to buy a home beginning to decline.

So less people were trying to get a home, but the prices for houses are going up.

That doesn't make sense. That goes against everything a lot about demand you have supplied. There is no demand drop.

The price exactly, these houses should be free ninety nine. So some people whose houses were still increasing in value but who were seeing a lower mortgage rate were able to refinance and get a lower rate or a shorter term on their mortgage.

But then as we move on into what Michael calls the third phase of COVID related housing trends. This is about March, April or May, it became clear that many people were not going to be able to pay their mortgage. You only had to look at the unemployment rate continuing to rise in order to understand that mortgages were at risk.

Historically, your ability to pay your mortgage is largely to to whether or not you have a job, and so historically what we see is that the mortgage delinquency rate will track the unemployment rate.

The unemployment rate in April of this year twenty twenty got up to fourteen point seven percent.

That has never happened before.

So as the unemployment rate was rising, we started to see more people not being able to make their mortgage payments, which had serious implications for the mortgage market.

And there you have it, good, bad, and then worse. And then came a fourth stage where, for various reasons, some states started to open up again. This led to a decrease in the unemployment rate.

As well as actually a recovery in purchase applications, suggesting that demand to buy a home was actually beginning to recover, and that really I think culminated with the strong home sales numbers that we saw that we saw in June, where new and existing home sales really rose by something on a north of two twenty percent. But where we are now is indications again COVID being at the center

So that brings us to present day. What emoji would you assign to present day twenty twenty housing the vomit emoji for me.

I don't even know, Like the trash can trash trash can.

Yeah, And so now there is a very real risk that a lot of on what we experienced in February, March, and April could come back.

Let's take a quick break and when we get back, we're going to jump into the path to housing security.

We're back, and.

After everything that we talked about in the first half of this lab refinance and interest rates, mortgage rates, all these things like that, now we need to push all of that to the side and get to the people that are affected by all of this. So we're gonna speak broadly about the different types of people that are involved in the housing equation, just so that you can understand all the different roles.

Let's start with the renters. So people that are renting may be in a lower economic group, so earning less than homeowners and just have less to start with, Michael says. They also may be in industries that are hardest hit, like accommodation services and the retail sector. This jeopardizes their income either way, the rent is due, and unless there are policies to provide income assistance or prevent evictions, they're at risk of losing their homes.

And then you have homeowners. Homeowners and property owners also may be in the group of folks that have lost their jobs or were furloughed and are unable to pay their mortgage. And an owner of a property is responsible for paying the mortgages, even if they're tenants. The runners we just talked about are unable to pay, so the issue starts to compound.

Then there's the lenders. Lenders are banks and financial institutions that lend the money to borrowers to purchase a home. When we think about lenders. They come in a couple different categories. Sometimes your bank can be your lender. So if you bank with Wells Fargo, Bank of America City, they all have like a mortgage branch, they can be mortgage lenders. There are also some online lenders, so Quickened Loans is an online lender. I just read about Guild Mortgage.

And that leads us to the investors that are securing the loans, and a mortgage investor is the party that purchases the mortgages from the lenders. In most cases, the investors are actual government entities like Fanny May and Freddie Mac or government sponsored enterprises like FAJA or the VA, and they purchase your home loans, so your lender is able to continue selling new home loans, and those investors want their money, and this is why we need a life raft for everyone.

The policy prescription should then take into account the fact that people may not be paying their mortgages or may not be able to pay their rent through no fault of their own.

So there were already some efforts. Back in March, the Cares Act was passed, and this included an additional six hundred dollars in unemployment benefits and a one hundred twenty day moratorium on evictions. This means you can't evict someone who's unable to pay their rent for one hundred twenty days.

And that relief only applied to federally backed mortgages, so mortgages from lenders that are funded by the government like Fannie May, Freddie Mac, and the FAJ.

While that's a great program, the Urban Institute says that only accounts for about twenty eight percent of renters.

The moratorium on evictions expired July twenty fourth, and the six hundred dollars additional stimulus benefit payments stopped on July thirty first, so this leaves a lot more people unable to pay their rent or mortgage.

On August eighth, Trump signed for executive orders, one of which was billed as a federal eviction ban, but it's not technically a ban. It doesn't even extend the moratorium from before. Instead, it allows agencies to consider eviction protection and it allows them to look for sources of funding to assist people that are renting, but it doesn't mandate that they do anything.

So they can help you, but they don't have to help you.

Another part of the care is act that we didn't mention is forbearance.

One of the things that I think that the data is clear on is that forbearance has certainly helped homeowners, particularly the most vulnerable homeowners, remain in their homes.

And this basically allows you to push off your payments until a later date when you will hopefully be in a better financial position.

Forbearance has been key to helping people to maintain their homes even when they can't make their mortgage payment. But on the renter side, forbearance is also important because somebody owns the building and so property owners also get forbearance, which is going to be important for them because they take the income that renters pay and turn around and pay whatever mortgage that they have on the property.

So allowing homeowners to go into forbearance is the best way to ensure that the market remains somewhat stable.

But the other side of the coin is that forbearance. While forbearance gives relief to borrowers, it does not give relief to the mortgage holders.

And that's because the mortgage holders are still on the hook to move those mortgage payments from borrower to investor.

So you know, there's this chain, there's the money chain. Your money has to go from borrower to your mortgage servicer to the lender, and then the lender has to turn it over to the investor. Now, sometimes a lender and the servicer are the same, usually if you have a bank backed mortgage. But either way, as a borrower, you have to pay. And this has affected a lot of smaller lenders who are now on the hook to deliver four to six months of mortgage payments to investors.

So I mean, hearing all this, you think, oh, forbearons, that's great, But there is another side to it, another side that can negatively affect people who want to take advantage of the housing market right now. So if people buy a house and then immediately lose their job, then request for barans, which is the right thing to do. Lenders can see that coming from a mile away, that there's going to be a lot of people that are going to be requesting for bearans. So then they may say, oh, well,

The Urban Institute says that it's significantly harder for borrowers with less than pristine credit to qualify for a mortgage today than it was just four months ago because of forbearance. Basically, they're estimating that these new penalties because of forbearance will limit home ownership and refinancing opportunities for about two hundred and fifty five thousand credit worthy borrowers. And the folks disproportionately affected by this you already know.

And so that's kind of the dual of forbearance is on the one hand, yes, it has had a positive impact in terms of keeping current homeowners in their home, but there are these other sides of it that do have adverse implications, particularly for people of color.

So we asked Michael, what is the Urban Institute doing to help all these folks who are in danger of losing their homes.

We started the Rental Crisis Working Group, where we are engaging with advocates and stakeholders on the rental side to understand what's going on. And help to formulate policies. The second thing is the mortgage market COVID Collaborative, where we have been engaging with advocates, both industry and consumer advocates to discuss the solutions that need to be had with

It's great to know that there are people who are working and on the job to try and come up with these solutions to help all these people. So what should people do if they find themselves in a really tough spot and they are at risk of losing their home.

I think one of the first things as a renter that that one should do is find out from your property manager whether or not the mortgage for the property is owned by one of the agencies, by FHA, or by Fannie may or Freddie Mack. If so, for those people, that is where the Care is Act actually says that a moratory montuvections.

Michael says, if you've already lost your job, make sure you take advantage of unemployment insurance. If there is no expanded unemployment insurance, he suggests calling your member of Congress and telling them to pass legislation immediately that expands or enhances the unemployment insurance available to you.

Turning over to the to the homeowner side, I think that if they are experiencing again any type of unemployment, that the they find out how to request forbearance and also track to make sure with the credit bureaus that the request of forbearance does not impact their credit score.

Michael says that we can't treat these issues of housing like it's one off. This isn't something that's just specific to COVID and when it's over, we'll all go back to normal. There are real long term consequences if we don't handle this in the right way right now.

The implication is that if we don't deal with this, there are real concerns for growing inequality on the other side of this. That is, those that have been able to keep their jobs through this may be able to save in part because now that they're sheltering at home, they may be paying higher groceries, but their transportation costs are less. Few other costs are less. And what we've

So some people have been able to work from home this whole time and continue to collect a check. They're not driving to work, pay lesson gas, they aren't eating out as much as they were, so they're saving some there, and their savings account it's just growing. But the folks that may have lost their jobs or have to work on the front lines, they're not adding to their savings. This means that the income gap will be wider.

Think about where the stock market is now, and think about where the unemployment rate is now.

The stock market is doing fantastic, but unemployment is awful.

And I think that for me is the telling picture.

I recognize that there was a housing shortage, but I don't think I knew it was this bad, and I didn't realize how all these things were connected.

Yeah, this whole thing was super educational for me because even just being able to understand what some of these words mean and the implications when some of these executive orders and things like that come out, so I can understand what they're saying. I think that that is priceless. And Michael was also able to give us tools or tell us step by step what we should be doing if we do find ourselves in this situation.

I walked away from the conversation with Michael even more furious, right, more furious that there aren't safety nets in place for folks, that people are even in this situation, and that there's commentary saying that we should stop the eviction moratorium, or we shouldn't continue to expand unemployment insurance or housing assistance houseway, how do you not see, no matter where you stand

And the other thing that keeps replaying in my mind is that this is nobody's fault, like we are in a pandemic, This is not the fault of the renter, the homeowner, nobody, and taking away some of these lifelines that they were throwing out. Initially, I'm like, Wow, that's really crazy because nobody is doing anything wrong. Nobody put themselves in this situation like folks are in a really,

On our website you can find a cheat sheet for today's lab, along with a ton of other links and resources in the show notes, and if you.

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Thanks to our guest expert Michael Neil. You can learn more about his work at the Urban Institute at Urban dot org. Also, we love hearing from you. What did you think about today's lab? Do you have ideas for a few labs? Call us at two zero two five six seven seven zero two eight and let us know.

You can find us on Twitter and Instagram at Dope Labs Podcast.

Tt is on Twitter at dr Underscore t Sho.

And you can find Zakiya at z said So follow us on Spotify or wherever else you listen to podcasts. Dope Labs is produced by Jenny radalt Mass of Waverrunner Studios.

Mixing and sound design are by Hannes Brown.

Our theme music is by Taka Yasuzawa and Alex Sugiura, with additional music by Elijah Lex Harvey. Dope Labs is a production of Spotify and Mega Oh Media Group.

And it's executive produced by us T. T. Show Dia and Zakiah Wattley. Now that we have all that, let's take a break.

Hell, we have all that, Let's take a nap.

You can pause us right here and come back when your brain is ready for what's next. The second wave of the Housing crit is sis yes, mm hmm