We are not ready for the next housing downturn
Pandemic-era forbearance and modifications relied on servicer liquidity supported by a refi boom and lower rates. If a downturn arrives amid inflation, policymakers may need new liquidity backstops to prevent servicer failures and borrower harm.
The concern that we're not ready for the next housing downturn is particularly relevant for the lease industry, as it could have a ripple effect on property owners and lessees alike. During the pandemic, forbearance and modifications were made possible by servicer liquidity, which was bolstered by a refinancing boom and lower interest rates. However, with inflation on the rise, it's uncertain whether this liquidity will be sufficient to weather another economic downturn.
If a housing downturn were to occur amid high inflation, it could put a strain on servicers, potentially leading to failures that would harm borrowers and disrupt the entire housing market. This, in turn, could impact property owners who rely on rental income to service their own debts, including mortgages and leases. The lease industry should be paying close attention to this situation, as a downturn could lead to increased vacancies, reduced rental income, and decreased property values.
Policymakers may need to step in with new liquidity backstops to prevent a worst-case scenario, but it's unclear what form this support would take or how effective it would be. As the industry waits to see how things unfold, it's essential to watch for signs of stress in the housing market, such as increased delinquencies, defaults, or servicer failures. The lease industry should also be prepared to adapt to changing market conditions, potentially by reassessing risk, adjusting rental rates, or exploring alternative financing options.
Originally reported by housingwire.com. LeaseNews adds analysis for real estate & property readers.