Housing outcomes a stacked game in pandemic?

The coronavirus pandemic has created economic winners and losers.

This is especially clear in the nation’s housing market. Higher-income and wealthier households that own their homes and perhaps a second one are big winners. The losers are lower-income households that are more likely to rent or are struggling to hang on as homeowners.

Closing this gap between housing winners and losers on the other side of the pandemic will likely be a priority for the new Biden administration.

It is difficult to imagine a darker scenario than the pandemic that has caused the deaths of hundreds of thousands of Americans and upended the economy. Despite it all, higher-income homeowners have gracefully navigated the crisis. Indeed, there has been no bigger upside economic surprise to me than the strength of single-family housing these past 10 months.

Single-family housing took a massive blow when the pandemic first struck in the spring and much of the nation locked down. However, since things began to reopen, housing has taken off. Even the recent intensification of the pandemic, which is doing increasingly serious damage to the job market and broader economy, has yet to hurt the market.

Home sales are fast closing on the records set during the housing bubble in the mid2000s. But this time the housing market isn’t being juiced up by out-of-control subprime two-year teaser rate adjustable mortgages and rampant home flipping by speculators. Households purchasing homes today have high credit scores and are taking on plain-vanilla 30-year fixed-rate mortgage loans with no plans to resell anytime soon.

Homebuilders are also as busy as they have been since the bubble. But this time, instead of putting up way too many houses, they are scrambling to keep up with demand. The vacancy rate across all types of housing is at a 40-year low and falling fast. The number of new homes for sale has never been lower.

Surging housing demand and a dearth of supply mean house prices have rocketed higher. Prices are up by high single digits over the past year nationwide and by double digits across much of the West. Nowhere are house prices falling. This seemed hardly possible early in the pandemic, when it looked like it would be months before most real estate agents would even be able to show a home.

Putting a floor under the single-family housing market, so to speak, is how well most middle- and especially high-income households have weathered the financial storm. Their jobs have largely been unaffected by the virus, and they are able to work safely from their homes. Because they are stuck at home, they’ve been investing heavily in making it a nicer place to live and work.

Higher-income households renting in big cities have been moving out, fearful of taking

mass transit and questioning why they should stay if city amenities like concerts, museums and ballgames have gone dark. These households have been scarfing up single-family homes in the suburbs, exurbs and smaller cities and towns. New York City residents have streamed out to upstate New York, the Carolinas and Florida, while San Francisco residents have left for Denver, Salt Lake City and Boise, Idaho.

The big-city exodus has been supercharged by the work-from-anywhere phenomenon. Before the pandemic, less than one-tenth of the workforce worked consistently from home, according to the Bureau of Labor Statistics.

In the teeth of pandemic-related business shutdowns last spring, that had risen to more than one-third of the workforce. It has since fallen closer to one-fourth of the workforce and appears to be settling there. Once businesses figure out a few nettlesome problems — such as whether an employee who moves from New York City to Tampa, Fla., should still be paid NYC wages — work-from-anywhere will come fully into its own.

The plunge in mortgage rates facilitates this move into single-family houses. The pandemic recession would have pushed down rates, but the Federal Reserve’s purchases of mortgage securities in its aggressive response to the pandemic have pushed rates to record lows.

Getting a mortgage loan has also remained straightforward, particularly for middle- and high-income households; the bulk of mortgage loans are made by Fannie Mae, Freddie Mac and the Federal Housing Administration — government institutions that have worked hard to support single-family housing through the crisis.

Rock-bottom mortgage rates have also ignited a massive mortgage refinancing boom, allowing homeowners to significantly reduce their payments. This should continue as long as the Fed stays hammer-down on the monetary accelerator, which it intends to do until the economy is safely beyond the pandemic.

As well as things have gone during the pandemic for middle- and higher-income homeowners, they have gone off the rails for lower-income, predominantly minority households. The economy is still down 10 million jobs from its pre-pandemic peak. These were mostly low-paying jobs in the restaurant, retail, accommodation, transportation, recreational activity and health-care industries. The bulk of these jobs may never come back.

Many of these households have been able to cling to their homes only because of government support. This includes extra unemployment insurance and stimulus checks to low- and middle-income households. There has also been a moratorium on rental evictions and, for Fannie, Freddie and FHA loans, a moratorium on foreclosures and forbearance on mortgage payments for pandemic-bruised homeowners.

When this government support comes to an end, the specter of eviction and foreclosure will increase. But it is unclear where displaced households will go. Even before the pandemic, there was an acute shortage of affordable homes for lower- and middle-income households. Homelessness is sure to become an even bigger problem.

The Biden administration will surely focus on the housing needs of lower-income and minority Americans. President-elect Joe Biden often said minority groups need a clear path to homeownership if they are to build wealth and reduce inequities in our society and economy. There’s no better time than now to provide it, given prospects for continued low mortgage rates.

To this end, Biden has proposed scaling up the Housing Trust Fund and Capital Magnet Fund, which were established in the midst of the 2008 financial crisis, to back affordable housing.

The Housing Trust Fund provides money to state housing authorities for development of affordable rental units. The Capital Magnet Fund supports the Community Development Financial Institutions Fund and other nonprofit developers to increase the supply of affordable housing. Both programs have the infrastructure and flexibility needed to scale up and get affordable housing where it is most needed.

Biden also recognizes that the most significant financial impediment to homeownership is the inability to save for an adequate down payment. This has become especially difficult as the lack of affordable housing causes rents to surge, gobbling up what might have been saved for a down payment. Biden has proposed a $15,000 refundable tax credit for first-time homebuyers. The credit also would be advanceable, allowing the home buyer to claim the credit at the time of purchase.

Of course, these proposals can only become law with support from Congress, which given the nation’s vexed political situation may be hard to secure. So, the new administration will surely use all of the tools available to it, including the mortgage lending supported by Fannie and Freddie.

With judicious reform, these institutions can responsibly expand the availability of mortgage loans to lower-income and minority households while ensuring taxpayers are all but insulated from the risk. This is a longer-term effort, but a number of plans offer promising paths forward.

Last year was a rotten year, for some much more than others. Higher-income homeowners managed with little if any financial pain, while lower-income households struggled to stay on the job and in their homes.

But 2021 is sure to be much better for everyone. Prospects are that the pandemic will be winding down, and with the Biden administration at work the economic and housing needs of lower-income Americans will finally get special attention.

Mark Zandi is chief economist at Moody’s Analytics.