DIY renovation projects offer the best return to homeowners — but there’s a catch


Thanks to the coronavirus pandemic, Americans have a lot more time on their hands — and they’re spending that time at home.

Earlier in the health-crisis, economists predicted that spending on renovation projects would actually dip across much of the country. But recent data show that there’s been a definite surge in interest in certain home improvement projects.

Just look at the lumber market: There’s now a shortage of pressure-treated lumber used to build decks across the country.

Meanwhile, the housing market has recovered well from the start of the pandemic, with home sales rising considerably thanks to pent-up demand among buyers fueled even further by record-low mortgage rates.

As a result, many homeowners may be considering the benefits of fixing up their home to make it more appealing to potential buyers — and a nicer place to live in the era of social distancing. And they may be thinking about going the do-it-yourself route, given the extra free time many people have this summer.

“They’ve been sitting at home for a few months, and they want to just spend a little bit of money, invest in their house, and make it a little bit better,” said Steve Cunningham, owner of Cunningham Contracting in Williamsburg, Va., and vice chair of the National Association of Home Builders (NAHB) Remodelers.

But not all DIY home improvement projects will offer homeowners a solid return on their investment. Here’s what homeowners need to consider before breaking out the toolkit.

To start, know your limits

Remodeling Magazine produces an annual list tracking the cost of various improvement projects versus the percentage that was recouped in the home’s resale value. Many of the projects at the top of the list are not for the faint of heart — or someone who isn’t a trained professional.

No. 1 on Remodeling Magazine’s list: Adding a manufactured stone veneer to the outside of your home.

“Their only limitation would be their skills,” Cunningham said. “These DIY shows, they show a person starting, and then you go to a commercial and come back and it’s ready to use. They show you just a portion of the process that’s needed to do it correctly.”

Getting in over your head can prove extremely costly. Take, for instance, retiling a shower. If a homeowner doesn’t know how to properly waterproof under the tile, their work could lead to leaks. And by the time they notice the leak, they could be looking at thousands of dollars’ worth of damage in terms of rotted wood and replaced tile, Cunningham said.


‘These DIY shows, they show a person starting, and then you go to a commercial and come back and it’s ready to use. They show you just a portion of the process that’s needed to do it correctly.’


— Steve Cunningham, owner of Cunningham Contracting in Williamsburg, Va., and vice chair of NAHB Remodelers

Same goes for anything involving plumbing. In these cases, hiring a professional is often the cheaper route in the long run.

The projects that pay off

Many projects that add value to a home aren’t as complicated as retiling a shower, though.

A fresh coat of paint can do wonders, particularly if you choose the right spot and color. “Paint the front door,” said Amanda Pendleton, Zillow’s
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+3.74%

home trends expert. “A glossy coat of exterior paint can really amp up your curb appeal.”

When it comes to paint, though, the devil is in the details. Painting your front door black, in particular, could add as much as $6,000 to your home’s sale price, according to Zillow’s research. Similarly, blue bathrooms can add nearly $3,000 to a home’s sale price. Throughout the rest of the house, aim for modern neutrals like gray and taupe to boost a home’s appeal. Plus, paint is relatively affordable, adding to the ROI of these changes. On the other end of the spectrum, a home painted yellow sells for $3,600 less on average than similar homes.

Another relatively simple change a homeowner can make is to replace lighting fixtures with smart lights. “Not only are you going to save money on your power bill, but you’re going to sell your home seven days faster,” Pendleton said, citing additional research from Zillow.

There are also cheaper, easier alternatives to major home improvement projects such as replacing the flooring in your home. A Zillow survey found that 87% of real-estate agents suggest cleaning the carpets before listing a home. Many homeowners will switch out the carpet anyway, so rather than investing in installing a new one, a homeowner can rent a carpet cleaner from their local home improvement store and refresh their carpets on the cheap.

Similarly, rather than installing new tile around the house, a homeowner can safely regrout their flooring instead. “You could even switch the color out,” Pendleton said. “If you’ve got a beige that’s gone yellow, you could put in a gray grout and it’s going to look a lot more modern.”

Cunningham recommended DIYers think about the finishings around their house, including kitchen backsplashes and bathroom faucets. “It does so much for the look of something to make a little update,” he said.

And if money is of concern, it’s good to prioritize the spaces buyers care about most. “I love my remodeled kitchen, the kitchen is the worst place to spend your money,” Pendleton said. Instead, focus on the main bathroom of the house, which often holds a lot of appeal with buyers.

Don’t forget the outdoors

With crowded public spaces representing a threat in the age of COVID-19, home buyers are much more interested in buying a home that offers outdoor living space they can enjoy safely.

“Good landscaping is proven to help homes sell faster, so get to work on making your yard look pristine,” said Rachel Stults, deputy editor at Realtor.com. “Gardening has become a hot trend during quarantine, so why not show buyers what they can do with your space by starting a small vegetable garden?”

Sprucing up one’s outdoor space doesn’t need to be difficult. Cutting back overgrown trees, edging the lawn and planting colorful flowers goes a long way. “

Homeowners who want to kick things up a notch though might want to consider installing a fire pit. Homes with fit pits mentioned in their listing description sell for nearly 3% more than similar homes.


‘Good landscaping is proven to help homes sell faster, so get to work on making your yard look pristine.’


— Rachel Stults, deputy editor at Realtor.com

Home offices aren’t a foolproof investment

Millions of Americans have suddenly been forced to work from home because of the pandemic. And companies like Twitter
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-0.18%

have even suggested that their workforce may remain remote even after the coronavirus outbreak has ended.

Indeed, listings featuring a home office fetch a 3.4% price premium and sell nine days faster than listings without one, according to Realtor.com data. “Buyers are going to be looking for well-appointed home office space now more than ever,” Stults said.

(Realtor.com is operated by News Corp
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+0.78%

subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

But home-office projects have their pitfalls. Many people’s first instinct is to convert their unfinished basement into a workspace, Pendleton said.

“What we found from our Zillow research is that you only get about 50 cents in resale value for every dollar you invest in a basement remodel,” Pendleton said. “And at the end of the day, even if you’re working from home, you don’t want to do it in your dark, dingy basement.”

Plus, people are very particular about their home office needs. Some people will want space for multiple computer monitors, others will want larger bookshelves. Making a space too tailored to your current needs could alienate buyers down the road. “Each client is a little bit different — it’s not one shoe fits everybody,” Cunningham said.



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Redfin CEO: Vacation real-estate markets are ‘toast’ because of the pandemic as Airbnb owners rush to offload their homes


The Seattle-based brokerage said Thursday that its RedfinNow segment, which provides instant offers to home sellers to purchase their properties, would resume home-buying activities. In doing so, Redfin joins fellow iBuyers Opendoor and Offerpad in re-entering the housing market. Zillow
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+3.56%

also said Thursday that it would slowly relaunch its iBuying arm, Zillow Offers, in the coming weeks.

So-called iBuyers represent a small but growing share of the overall real-estate market. Nearly 7% of homes sold in Raleigh in the third quarter of 2019 were bought by iBuyers, according to a December report from Redfin, more than any other market nationwide.

Despite the coronavirus outbreak causing a downturn in home sales and listing activity through March and April, Redfin managed to beat expectations with its first quarter earnings as the company posted a net loss of $60 million. A year ago, Redfin had reported a larger net loss of $67 million, for comparison.

Read more: Mortgage rates rise from record lows — and signs are emerging that Americans are preparing to re-enter the home-buying market

The company’s CEO, Glenn Kelman, has said that the company’s tech offerings — including virtual home tours and open houses — will help it weather the pandemic. But while signs are starting to emerge that Americans may begin to re-enter the housing market, the speed of the recovery is far from certain. Fannie Mae
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+1.50%

reported that consumer confidence in housing had fallen to the lowest level since November 2011.

MarketWatch spoke with Kelman ahead of Redfin’s earnings release to discuss how the pandemic has affected the U.S. housing market and what will change about iBuying in the wake of COVID-19.

MarketWatch: Redfin has announced that the company’s iBuying division, RedfinNow, will resume operations following the coronavirus-related pause. What drove that decision?

Glenn Kelman: The reason we’re reopening it is because we think it’s a reasonably good time to own a house. Inventory is down 25% year-over-year, and home-buying demand is almost back to pre-pandemic levels. So we’re willing to take a risk again. I think we’ll lower the amount we’re willing to pay for a house, just to give ourselves more margin for error.

It was a harrowing couple of months. We had to ensure that the homes we had bought before the pandemic could still be sold once the pandemic had started, and you just can’t forget that easily. So instead, you just lower your offers a little bit, and that gives you some leeway.

MW: Is RedfinNow introducing any new procedures because of the coronavirus pandemic?

Kelman: I feel like what’s changed about our approach in iBuying specifically is just more about margin. You always knew that you had to have a margin for error — that there was a possibility of a downturn and that every offer you made had to account for that. But it’s another thing to actually go through that. So I think there will be more margin for error, but also less tolerance for a real project. If it’s a piece of work and it’s going to take six months to get it back on the market, you just can’t wait that long to figure out if you offered the right price to the homeowner. The market could change.

If you took a basketball shot, and six months later somebody told you whether it went into the hoop, you’d never get to be a better basketball player, right? So I think we’re just being more disciplined about the kinds of homes we buy. If you make a mistake on five houses, you should not buy 5,000.

MW: Do you think that the pandemic could make iBuying more popular, since it eliminates a lot of the in-person interactions the home-buying process typically requires?

Kelman: That wouldn’t be my guess. The homeowner who might be more anxious to sell their home, we’re going to find out whether more of them take offers in the next few weeks. But the other part you have to consider is the money man. The people who are providing capital for iBuyers may have a different appetite for risk on the other side of this. If iBuyers all come into the market at the exact same margin they were at two or three months ago, I think our acceptance rates are going to be really high.

But my guess is that they’re going to price the risk into their offers. And I don’t know how consumers are going to react. When we make offers, if we give ourselves just a little more room for all the risks that we’re taking, will people still accept it?


‘It used to be that working class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege.’


— Glenn Kelman, CEO of Redfin

MW: You mentioned earlier that there’s been a resurgence in home-buying demand — what is driving that?

Kelman: Probably the bifurcation of the American dream. It used to be that working-class folks could reasonably aspire to buy a house. And now I think buying a house has really become a privilege, and the privileged class is doing better in this pandemic than the people who work in restaurants and perform other in-person services. So unemployment is going to be bad for one part of America; for another part, it isn’t as bad. And so that’s the part that’s buying a house.

And maybe the other dimension of this is just that there’s been an affordability crisis for so long. There’s structural reasons that there aren’t enough homes for enough homes in America. There is just a large number of people who have been trying to buy a house for two, three, four years, especially in really expensive markets. And if this pandemic is an opportunity to do that, with less competition, you’re going to take it.

Also see: Home prices could fall by as much as 4% because of the coronavirus pandemic, Zillow says

MW: What’s your take on the state of secondary markets and vacation markets right now?

Kelman: Toast. Those are going to be in tough shape. There’s a whole economy that was built around the liquidity there that Airbnb provided. You could get pretty deep into debt and still have somebody pay your mortgage every month because Airbnb and other travel websites were so good at finding someone to rent it out. And I don’t think many of those folks have the reserves that Marriott
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+16.31%

or that Hilton
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+8.71%

does.

Investors who own Airbnb properties are looking for immediate liquidity. At some level it’s Redfin, Zillow
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+3.52%

and Opendoor picking up where Airbnb left off. If they can’t get cash flow through one website, they’ve got to sell it through the other.


‘There’s a whole economy that was built around the liquidity there that Airbnb provided.’


— Glenn Kelman

MW: Some have suggested that the coronavirus pandemic could lead to a migration out of major cities, especially ones like New York that were hit hard by the outbreak. What’s your take on this?

Kelman: It’s on like Donkey Kong. There’s going to be a major move. That was already underway just because of the affordability crisis. People are leaving New York for Philadelphia and are leaving San Francisco for Sacramento and even Phoenix. Seattle was starting to lose people to Tacoma, which is just down the street.

I think some of it is about consumer wariness where we’re living in close quarters with other people. But most of it’s about employer flexibility. Employers that were really stuck on whether to let people work from home have gotten completely unstuck. And if you can work for Goldman Sachs
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+4.38%

, but not in New York, if you can work for Amazon
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+0.63%

, but not in Seattle, well, why would you pay the premium?

(This interview was edited for style and space.)



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Mortgage rates fall to new record low — here’s why some loan applicants won’t be offered them


Mortgage rates have dipped to a record low for the second time in as many months amid the global coronavirus outbreak.

The 30-year fixed-rate mortgage dropped to an average of 3.23% during the week ending April 30, a decrease of 10 basis points from the previous week, Freddie Mac
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-1.21%

reported this week. This represents the lowest level since Freddie Mac began tracking this data starting in 1971. A year ago, the 30-year fixed-rate mortgage averaged 4.14%.

Previously, the 30-year fixed-rate mortgage hit an all-time low back in early March, when it dropped to 3.29%. Before that, the lowest rates recorded were seen back in November 2012 in the wake of the recession, when the average rate for a 30-year fixed-rate home loan fell to 3.31%.

Meanwhile, the 15-year fixed-rate mortgage dropped nine basis points to an average of 2.77%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.14%, down 14 basis points from a week ago.

Read more:Only 50% of Americans believe it’s a good time to buy a home, an all-time low, Gallup poll says

Freddie Mac’s report is based on a survey of lenders, and it reflects the dollar volume of conventional loans, meaning loans eligible for purchase by Freddie Mac or Fannie Mae
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.
The survey therefore does not reflect movements in rates for loans backed by other agencies, such as the Federal Housing Administration or the Department of Veterans Affairs. It also doesn’t include rates for jumbo loans.

But whether borrowers get a loan featuring a record-low rate will depend on a number of factors. “While some borrowers could be quoted rates close to the lowest they’ve ever been, others either with less-than-excellent credit scores or seeking an atypical loan type — like jumbo or FHA loans — may be offered a much-higher rate,” said Matthew Speakman, an economist with real-estate firm Zillow
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-3.20%

.

In recent weeks, some banks have begun tightening the standards prospective borrowers must meet in order to get a home loan. Mortgage companies have become stingier in terms of who they’ll lend to because of the risk posed by the current economic environment.

There’s an increased chance that a borrower could lose their job soon after getting a mortgage, which would make it much more difficult for them to make their monthly payments. Lenders are eager to avoid that at a time when some 3.5 million homeowners have already requested relief from making their monthly mortgage payments.

Also see:More than half of renters say they lost jobs due to coronavirus: ‘They could face housing situations that spiral out of control’

Nevertheless, in spite of the challenges people may face getting a low-interest rate mortgage, Americans continue to apply for new home loans in droves. “These low rates are driving higher refinance activity and have modestly helped improve purchase demand from their extremely low levels in mid-April,” said Sam Khater, Freddie Mac’s chief economist.

Last week, the volume of refinance applications was more than three times larger than it was a year ago — a reflection of the appeal of low rates, according to data from the Mortgage Bankers Association. The number of Americans applying for loans used to purchase homes, while 20% down from last year, had nonetheless improved after hitting a five-year low.

But low rates won’t be enough to change the tides in the housing market, experts said. The number of listings of homes for sale continues to decrease as home buyers and sellers across America have grown wary of making such a large transaction given the state of the economy.

“Many buyers — stuck at home and worried about their jobs — have hit the ‘pause’ button,” George Ratiu, senior economist at Realtor.com, said. “With financing less of an incentive and inventory disappearing, we will see a sharp contraction in sales over the next two months.”



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Mortgage rates almost drop to another record low — here’s why a housing market slowdown won’t push them lower


Mortgage rates remained near another record low for the third straight week. If a new low comes, it may not be because the U.S. housing market is struggling.

The 30-year fixed-rate mortgage averaged 3.31% during the week ending April 16, representing a decline of two basis points from a week ago, Freddie Mac
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+10.44%

reported Thursday. A year ago, the 30-year fixed-rate mortgage averaged 4.17%.

The average rate for a 30-year home loan dropped to an all-time low of 3.29% in early March as concerns regarding the coronavirus outbreak began to mount.

The 5-year Treasury-indexed hybrid adjustable rate mortgage fell six basis points over this last week, averaging 3.34%. The 15-year fixed rate mortgage, meanwhile, increased three basis points to an average of 2.8%.

Read more:Are you a homeowner seeking forbearance on your mortgage? Watch out for these red flags

Theoretically, mortgage rates could be even lower if these were normal circumstances, said Danielle Hale, chief economist for Realtor.com. “Under normal circumstances, the high volume of money currently parked in the bond market would have likely led to a drop in interest rates to at least 2%, Hale said. “But instead, rates remained roughly consistent this week.”

(Realtor.com is operated by News Corp
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-5.54%

subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a News Corp division.)

Historically, mortgage rates have roughly tracked the direction of the yield on the 10-year Treasury note
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0.662%

, which dipped below 0.7% in recent days. But investors and lenders have grown concerned about borrowers’ ability to repay loans.

That has limited interest in mortgage-backed securities, which in turn has limited lenders’ ability to lower rates much further than they already have. And with a growing number of Americans losing their jobs or being furloughed as a result of the coronavirus pandemic, lenders are growing stingier in terms of who they will give a mortgage to.

Also see:These U.S. housing markets are most vulnerable to a coronavirus downturn

As a result, lenders may increase loan pricing in some cases to account for the added risk they’re facing right now. Some banks have also imposed more stringent underwriting standards for new home loans, including higher credit scores and down payment requirements.

And borrowers who are looking for loans beyond those that qualify for government backing, such as jumbo mortgages, may face greater difficulty in getting them.

“Limits to forbearance offerings, not to mention high degrees of uncertainty around the credit worthiness of some borrowers, continue to restrict market activity for non-agency and unconventional loans,” said Matthew Speakman, an economist with Zillow
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-7.66%
.
“The outlook for the coming months remains very uncertain, so the appearance of a calmer market of late could be a mirage as the likelihood of a sharp move in financial markets is still quite high.”

But if mortgage rates do move in the weeks and months ahead, it won’t necessarily be because the housing market is struggling. Recent data has suggested that the housing sector has begun to bear the brunt of the coronavirus pandemic’s impact. Economists have forecast a major decline in home sales, and new-home construction has slowed considerably as a result of stay-at-home orders.

“While new monthly economic data are driving markets lower this week, they are a lagging indicator and should be priced in already,” said Sam Khater, Freddie Mac’s chief economist, in Thursday’s report. “Real time daily economic activity metrics suggest that the economy will likely not decline much further. Going forward, the key question is no longer the depth of the economic contraction, but the duration.”



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America’s housing market is showing the first signs of trouble from the coronavirus pandemic


March started out as a strong month for the U.S. housing market — but by the second half of the month, the first indications that the coronavirus pandemic would weigh on home-selling activity began to emerge, according to a new report from Realtor.com.

In the weeks ending March 21 and March 28, the number of newly-listed properties fell by 13.1% and 34% respectively when compared with the same period a year ago, Realtor.com found. This is an indication that home sellers may be holding off on listing their properties right now.

The pace of home-price growth also slowed notably in the latter half of the month, according to the report. Home list prices were only up 3.3% year-over-year for the week ending March 21, and 2.5% for the following week. This represented the slowest pace of listing price growth since Realtor.com started tracking this data in 2013.

Read more:These mortgage borrowers will be ‘the first canary in the coal mine’ for a coronavirus-fueled foreclosure crisis, regulator says

(Realtor.com is operated by News Corp
US:NWSA
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

“Our inventory and listing data can provide some early insight into how housing markets may be impacted by COVID-19, but the situation and reactions to it are still rapidly evolving,” Realtor.com chief economist Danielle Hale wrote in the report.

“The U.S. housing market had a good start to the year. Despite still-limited homes for sale, buyers were buying and builders were building,” she wrote. “The pandemic and virus-fighting measures appear to be disrupting that initial momentum as both buyers and sellers adopt a more cautious posture.”

Real-estate firms have taken steps to brace for the impact of the coronavirus pandemic. So-called iBuyers including Zillow
US:ZG
and Redfin
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that purchase homes from sellers and then sell them for a profit had wound down their home-buying operations in anticipation of an economic downturn. Real-estate brokers, incuding Redfin and Re/Max
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, had also shifted toward virtual home tours as open houses became verboten in the wake of social-distancing recommendations.

And other recent reports have shown additional signs of a slowdown in the housing market. LendingTree
US:TREE
released an analysis of Google
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search data analyzing the popularity of the search term “homes for sale” across the country’s 50 largest metro areas. Searches for “homes for sale” have fallen across all 50 cities in the study from their peak levels in 2020 thus far.

LendingTree estimated that these Google searches could drop some 63% compared with last year if the impact of the COVID-19 outbreak remains substantial for the next two months. A drop in web searches could presage a decline in home sales.

Also see:‘Landlords are just trying to pay bills like everyone else.’ The coronavirus could hit mom-and-pop landlords hard as tenants miss rent payments

Another sign that home sales will slump this spring: Mortgage applications. The volume of mortgage applications for loans used to purchase homes was down 24% compared with a year ago for the week ending March 27, according to data from the Mortgage Bankers Association. That’s in spite of mortgage rates being near historic lows. Comparatively, the volume of refinance applications was 168% higher than a year ago.

Before the coronavirus pandemic flared up, the U.S. housing market was on relatively solid footing. While the number of homes for sale remained low — constraining sales activity to an extent — demand among buyers was still quite high. Low mortgage rates had fueled an early start to the spring home-buying season, with homes selling four days faster in March when compared with 2019 levels, Realtor.com found.

The jump in jobless claims has stoked concerns of a repeat of the Great Recession and the foreclosure crisis that preceded it. But housing economists argue that this is unlikely to be the case.

Dispatches from a pandemic:‘Would you risk your life for a bagel?’ A New Yorker’s 5-point guide to surviving grocery stores during the coronavirus pandemic

“While housing led the recession in 2008-2009, this time it may be poised to bring us out of it,” Mark Fleming, chief economist for title insurance company First American Financial Corporation
US:FAF
, wrote in a report this week.

Unlike in the 2000s, the housing market in the U.S. is not overbuilt, Fleming argued, making it less likely that a large swath of vacant properties will crater the home values for homeowners. Rising home values and stricter lending standards have also meant that homeowners are sitting on historically high amounts of home equity.

“The housing market will not go unscathed, as consumer confidence and a strong labor market are essential in the decision to purchase a home,” Fleming wrote. “Yet, this time, housing is a casualty of a public health crisis turned economic, not the cause of an economic crisis.”



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