Economist: COVID crisis could bring ‘significant spike in homelessness’ to Puget Sound

Despite the recession, at least in King County, the median price of homes is going up, while the rental and retail markets are facing possible trouble. Matthew Gardner, chief economist for Windermere Real Estate, told Seattle’s Morning News that the year-over-year increase in home prices is remarkable.

“If you combine single family and condos together, median sale price in July was $670,000. I mean, that’s up by over …  7.2% year-over-year, which is really is quite remarkable,” he said.

It’s even better in Snohomish and Pierce counties when you include condos, and even more so if you just look at single family homes, Gardner said. As to the explanation for this trend, it has to do with supply and demand.

“It’s really still a classic supply, demand imbalance. If you look at the number of homes on the market for sale, let’s say in King County, we’re down by over 32% year-over-year, we’re down by almost 50% in Snohomish, and almost 40% in Pierce. So you’ve got very little in the way of inventory,” he said. “I think a lot of would-be home sellers that postponed listings until they believe we’re getting through the COVID-related pandemic are still hanging on the sidelines.”

“At the same time, we’ve still got very significant demand, and we know that if you look at pending sales, even though there’s a very limited supply, they are up across the board as well,” Gardner added. “So when you have more people competing for fewer homes, what does that do to prices? Obviously increases them, but more important is mortgage rates. We broke south of 3% on a 30-year fixed mortgage. That’s enticing a lot of buyers.”

The rental market, however, is a different case altogether.

“The rental market — it obviously is very distinct from the ownership market. … If anything keeps me up at night, it’s really not the ownership housing market in our area. Affordability is still a big problem, and I think that’s going to continue,” Gardner said. “But on the rental side, if we end up finding that Congress cannot get its act together in keeping up the increased unemployment payments, as those expire, it’s quite possible we could see a very significant spike in homelessness, as people end up not being able to pay their rent and being forced out.”

For those with mortgage payments, Gardner thinks a fallout will be avoided in the ownership market due to the forbearance program.

“What forbearance means is if you have been laid off or you can’t pay your mortgage, you can enter a program, which, in essence, means you don’t have to pay your mortgage for a period of time, up to one year,” he said. “You’ve got to play catch up afterwards, but because of that, that really means that people are not going to be foreclosed upon, at least if they are in that program. So I think it’s certainly a better position for home owners than it is for renters.”

Gardner says just shy of 8% of all homes with mortgages in the United States are in forbearance today.

“That number has been dropping back over the last several weeks as those people go back to work and they feel more confident,” he said. “So again, I think the ownership market is still in pretty good shape. But it’s the apartment world, which is clearly a problem.”

Dave Ross said that it feels like another shoe is going to drop as housing values are increasing at the same time that the small business economy and retail seem to be in a shambles.

“When you have a situation like this, which obviously is remarkably unusual, we haven’t seen it in 100 years — when you close down an economy, and not just because the economy is going bad but because you have to, that is going to hit certain sectors far more than others,” Gardner said. “And the two that it’s hitting more than any other today are the retail industry … [and] the leisure and hospitality industry.”

Hotels, bars, and restaurants are suffering across the country, and those account for 20% of all jobs, Gardner says.

“When you look at it from an ownership housing standpoint, it’s a bit different,” he said. “A lot of people who have lost their jobs or been furloughed are in those lower income thresholds. In essence, they’re service industry workers, and they tend to be renters rather than homeowners. And most people who own their homes today are still working.”

The rental market and home ownership market are two distinct economies.

“It’s going to be interesting to see how long — I mean, … you think about the grocery, online retail, obviously, as we all know, Amazon is doing great things and will continue to do so. Not worried about that. Grocery stores, again, I’m not worried there. Apparently we need a year’s worth of supply of toilet paper at any one time,” Gardner said. “So I think grocery is going to be fine, but it really is that mom-and-pop, that Main Street retail.”

“They are hurting and they’re hurting a lot because if you think about it, in reality, you’ve got to stock your shelves. Therefore … you’ve got a cost outlay to do that. If there’s no money coming in, then you’ve got this big debt behind you, which is the product you’re trying to sell, doing nothing, gathering dust. That’s only sustainable for a certain period,” he added. “And so I do worry a lot about our Main Street retail. Certainly the smaller mom-and-pop retail stores out there who are are in need of our support.”

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