“A US housing crisis is coming,” says Danielle DiMartino Booth on Bloomberg. The American mortgage market was at the centre of the 2007 financial crisis, but house prices are now up by 117% from their pre-crisis peak. This time the problem is not “rampant speculation or subprime mortgage fraud”.
Instead a wave of forced sellers could crash prices once social-distancing restrictions are lifted. Heavy losses in the stockmarket could precipitate a “silver tsunami” as older homeowners are forced to downsize early. Yet surging unemployment means there will be few buyers to meet the supply surge.
Massive state intervention should provide a backstop to the residential mortgage market, says The Economist. The Federal Reserve will buy unlimited amounts of mortgage-backed securities. Yet the same cannot be said of commercial property, where leveraged real-estate investment trusts (Reits) cannot afford for rent payments to dry up. “Commercial real estate and social distancing don’t mix,” says Stephen Wilmot in The Wall Street Journal. Reits have taken a beating on both sides of the Atlantic, even though their balance sheets are in better shape than in 2008. While retail space is the obvious casualty of social distancing, a deep recession will also be grim for office and warehouse landlords. “For all its reassuring familiarity,” property is “a surprisingly risky business.”
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