After home prices soared in many parts of the country during and after the coronavirus pandemic, they’ve started to stabilize and, in some cases, drop rather sharply.
As the Wall Street Journal’s Veronica Dagher reports, some Texas cities are on the national short list of places where negative equity is at its worst.
Dagher joined the Texas Standard to discuss her recent reporting.
This transcript has been lightly edited for clarity:
Texas Standard: Tell me a little bit about what happened. It seems like a lot of towns were becoming boomtowns during and after the pandemic, but then everything went upside down.
Veronica Dagher: It’s starting to. This is the beginning. Hopefully it’s not going to go too far down. But people who bought during the peak of the market are increasingly finding they owe more on their mortgages than their properties are worth.
And you might be seeing this in places like San Antonio or Austin that were so popular during the pandemic when everyone wanted to move there, and still a lot of people are moving there. But those prices look like they have generally peaked, and now we’re seeing a slide in some of those prices.
Some are flat, some are actually less than what they were before, and in that case, you might find yourself, if you’re a recent buyer of one of those homes, essentially underwater on your mortgage.
I’m taking a look at this map that you have in the Wall Street Journal, and it’s quite revealing. A couple of states stand out in terms of the worst of the worst here, Florida notably; Cape Coral has the highest number of homes underwater. Where does Texas land?
Texas is probably the second – and I hate to call Texas the worst – but it’s the second worst when it comes to underwater. So Austin and San Antonio, El Paso are there. And so it’s a little tricky right now for some homeowners.
But it’s not just Texas and Florida. We’re seeing people, you know, Colorado Springs, Colorado, and Virginia Beach, Virginia. We’re seein’ that pop up in other parts of the country. Several places in Utah are also seeing this. California. Not so much in the Northeast, like New York or New Jersey yet, but it’s recent fires in some of these other states.
» GET MORE NEWS FROM AROUND THE STATE: Sign up for Texas Standard’s weekly newsletters
How did this happen? Was it fear of missing out as prices were rising, people sort of dove in head first?
Yeah. And then like, as you remember, the mortgage rates were so low a few years ago. So that was really tempting for people.
Also, as you mentioned, the pandemic. And so during that time, people actually were saving a lot of money. You weren’t going out to eat anymore so much, and you weren’t traveling as much. And some people were sitting on all these savings.
So they had the low mortgage rates, they had high savings, and they also had the ability to work remotely more than they ever had in the past. And so they moved out to some of these areas that they hadn’t previously been able to consider and bought up these homes.
And then I think by like mid-2022, home prices in some of those areas had really almost hit the top. And then so if you’re one of those people … who bought near the top, and now when those prices are dropping, you’re kind of finding yourself in the situation where you’re underwater.
So it was kind of a mix of some really attractive factors for buyers, and you see why people bought. But so much of real estate, as you know, is timing and also location. All these things come together along with a broader economy, which most people have like zero control over.
But is there a way out for folks who are upside-down on their mortgages, or are they just going to have to grin and bear it, sit it out, hope that prices will go back up? What do you tell folks?
It really depends on your individual situation. So for most people, if you’re not looking to move and you’re able to pay your mortgage still, luckily – you hopefully still have your job – this really doesn’t affect you day-to-day. Of course, psychologically, it doesn’t feel good, but financially, it really doesn’t really affect you until you want to do something like move.
If you do need to move – maybe you got divorced or you got transferred or your job is in a different state now – then you may be in a situation where you’re selling an underwater property, which basically means when you go to the closing and sell, you’re going to have to make up the difference between what the property is worth and what you owe. You’re going essentially have to bring cash to the closing table: $10,000, $15,000, maybe more, depending on how much you owe, and that hurts.
But also people who are currently in their homes are in a situation where, if you are underwater, it’s very difficult to get something like a HELOC, or a home equity loan, on your property. Most lenders don’t want to essentially feel like you’re throwing good money after bad and aren’t going to probably write you one of those loans if you need that. And we are seeing more people taking those types of loans out.
I think a lot of folks still have memories of what happened in 2008 when the housing market effectively went bust. You had a lot of bad mortgages out there. Is this set to pop in the same way or just a completely different scenario?
It’s a very different time, fortunately. I think one of the things we learned from the financial crisis and what the banks and the lenders all learned or had to learn is that they became a lot stricter with lending standards.
So for the people who do own right now or got recent mortgages, many of them will tell you, sure, you know, like they had to jump through hoops to get that mortgage, all the paperwork, all the verification needs, make sure they’re financially able to handle it.
And so the good news is the people who do own, as long as they keep their job, they’re probably already in a pretty decent financial situation. So the idea of mass foreclosures, like we saw in 2008, that’s very unlikely.
