Cooling Or Collapsing? Key Factors to Consider About the Housing Market

The question: With the mortgage forbearance program winding down and housing inventory hitting a 40-year low, where is the housing market headed amid dynamics of the COVID-19 pandemic?

Shades of 2008? When the U.S. housing market collapsed in the Great Recession in 2008, Congress created the Federal Housing Finance Agency (FHFA) to regulate the mortgage industry. The FHFA placed Fannie Mae and Freddie Mac into a conservatorship, which led to Fannie and Freddie sending large payments to the U.S. Treasury.

Expert’s take: “This isn’t a crisis of oversupply like in 2008,” says Tim Pagliara (www.capwealthgroup.com), ForbesBooks author of Another Big Lie: How The Government Stole Billions From The American Dream Of Home Ownership. And Got Caught! “It is a crisis due to shortage. We are short 6.8 million single-family housing units while we have static demand for 1 million-plus new homes every year.

“Because of delays in the recapitalization of Fannie Mae and Freddie Mac of their release from conservatorship, the availability of credit has been constricted. As a result, minority home ownership among Blacks and Hispanics has not kept pace. Black home ownership is at a 50-year low.”

Pagliara points out the foreclosure crisis following the ‘08 housing crash was largely due to the fact that millions of homeowners were underwater – i.e., their remaining mortgage balance was greater than their home’s value. Real estate and mortgage experts today say homeowners now are generally likely to have more home equity than those in ‘08.

But will a large sector of would-be buyers be left out without the government giving Fannie Mae and Freddie Mac more help?

“Fannie Mae and Freddie Mac need capital so they can serve their mission of providing long-term fixed-interest housing for the underserved and the middle class,” Pagliara says. “They are the bedrock of the American middle class, the strongest engines of economic equality this country has ever invented.”

Pagliara’s takeaways about the housing market:

• Budget constraints are going to force the Biden administration to be creative.  “By finishing the recapitalization of Fannie and Freddie and the release of their conservatorship,” Pagilara says, “the government can generate over $50 billion in proceeds, which can be placed in a housing trust to assist communities and first-time homebuyers.”
• As the Federal Reserve System tapers later this year, Pagilara says economic activity will need to accelerate – especially the housing market. “A strong housing market has a multiplier effect on many things throughout the economy,” Pagliara says. “Everything from paint to appliance sales benefit.”
• Big real estate investors and asset management firms are factors driving up home prices and making home ownership less accessible to average Americans. One result, Pagliara says, is too many renters who should be owning. “If you can rent a home in a neighborhood where people own, you should be able to purchase that home,” he says.

Tim Pagliara is ForbesBooks author of Another Big Lie: How The Government Stole Billions From The American Dream Of Home Ownership. And Got Caught! Pagliara is founder, chairman, and chief investment officer of CapWealth, an independent, SEC-registered investment advisory firm near Nashville, Tenn. He was named by Forbes as the No. 1 financial advisor in Tennessee in 2020. In 2014, Pagliara founded Investors Unite, an organization representing Fannie Mae and Freddie Mac shareholders after the U.S. Treasury Department placed the government-sponsored enterprises into conservatorship. In 2018, Pagliara was named Tennessee’s top financial advisor by both Forbes and Barron’s. He’s appeared in Barron’s Top 1,200 Financial Advisors in six of the past seven years.