From the start, 2020 was going to be big for American Financing. The Aurora mortgage lender had a major marketing coup: a celebrity endorsement from Peyton Manning, who led the Denver Broncos to a Super Bowl win in 2016.
Then the coronavirus hit.
The 400-plus employee firm was no longer sure TV commercials starring Manning would attract enough business to hire 200 more people this year. To keep existing staff, it applied for a federal relief loan and received one for more than $5 million. But then interest rates plummeted, and demand to refinance exploded. The company began hiring like crazy, and is now at 600 employees (and still hiring). It paid back its federal Paycheck Protection loan.
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“I think there is a silver lining (in the pandemic). People can look to refinance to save themselves some money each month and then take that money and put it back in the economy if they want to,” said Jonathan Payne, American Financing’s vice president of sales. “Good employment with us as well as low interest rates are driving people to refinance, save money (and that’s) a good thing for the mortgage industry.”
But just as American Financing and the homeowners it helped found a way to better themselves amid a harrowing pandemic economy, another part of the mortgage industry fared much worse. The number of Coloradans who didn’t pay their mortgages in July spiked to near record levels, according to new data from the Mortgage Bankers Association. Hardest hit were Federal Housing Administration loans, which are designed for low- to moderate-income households.
“The delinquency rate has risen, and the major reason for it is unemployment,” said Marina Walsh, the association’s vice president of industry research. “If people don’t have jobs, they can’t make their mortgage payment.”
The loss of hundreds of thousands of jobs in the past five months has widened a housing divide that existed in Colorado before the pandemic. In January, the number of people homeless in the five-county metro Denver region had increased from the year before. By July, the demand for housing pushed prices to record levels.
Growth was expected to slow in 2020, according to University of Colorado economists’ forecasts at the end of last year. And the U.S. officially entered a recession in February, a month before Gov. Jared Polis began issuing a slew of executive orders to stem the spread of the strange new virus in March.
As some spots of the state’s economy continue to enjoy growth, life is worsening for the ones that were faltering before COVID-19 struck. And there are signs that a more difficult period is around the corner.
Last month, Denver Homeless Out Loud volunteers counted 664 tents — estimated to be sheltering 1,328 people — on a single night in one part of downtown Denver. That’s about 30% more people than the annual census counted in the city in January (which was at nearly twice the number from a year earlier).
Meanwhile, the National Western Complex was turned into a temporary shelter that was used by roughly 3,000 unique individuals between April and July, said Cathy Alderman, public policy officer for Colorado Coalition for the Homeless.
“The fact that we’re seeing a boom in home purchases and refi’s, it all goes to kind of this widening economic disparity that we have, especially in the Denver area but all across the state, frankly,” Alderman said.
For many people, she added, homes are not affordable. Rents for low-income families were out of reach before the pandemic.
“We’ve had an eviction moratorium in place at both the state and federal level (and) requirements that landlords provide more time for renters to pay back due rent. And those things are expiring or in many cases, have expired,” Alderman said. “I feel like September is really going to be more of our bellwether month for what we consider to be an eviction crisis.”
Behind the low eviction rates of renters
Colorado’s high rate of pandemic unemployment — in the past five months, some 713,241 Coloradans filed for the first time — hit the lowest-wage industries the hardest: retail, accommodations and food service. Many of those workers rent.
States and the federal government stepped in to protect renters who had lost jobs, by delaying evictions. But Colorado’s eviction moratorium and order prohibiting late-rent fees ended June 13, allowing the eviction process to begin. An exception is rentals covered by federal housing assistance, which delayed a landlord’s right to evict to Aug. 11 before giving a 10-day notice, according to the state Division of Housing FAQ page on rents and evictions.
Even so, as of July 20, 93.9% of renters had paid their July rent. The month ended with about 1,139 evictions, or about one-third the normal monthly number, according to the Colorado Apartment Association, which represents 60% of the state’s multi-family units and landlords.
There are several reasons why the eviction rate was so low in July, said Drew Hamrick, general counsel and senior vice president of government affairs for the Apartment Association of Metro Denver. Just because somebody can’t pay rent doesn’t mean they will be evicted.
“When times are good, people expand their demand. They decide they don’t need a roommate, they decide they don’t want to live with their parents anymore, they decide that their spouse is unbearable. All those kinds of things expand the demand,” Hamrick said. “And when times are bad, people start roommating up, they start moving in with parents, they start saying, ‘I don’t need a Class A apartment, I can settle for less square footage and fewer amenities.’”
It’s too early to tell where the rental market will end up this year, Hamrick said, but it’s nonsense to think there could be more than 450,000 evictions in Colorado, as some housing advocates have warned. That would be more than two-thirds of the apartment units in the state, he said.
“There’s never going to be a time when there’s 627,000 rental units and somebody is going to evict 400,000 of them and 400,000 Coloradans are going to be living in parks while there are 400,000 empty apartments,” Hamrick said. “That’s just not the way the market works. What you’ll see is pressure to start decreasing rents and higher vacancy rates.”
Some of that is starting to happen. Average monthly rent in metro Denver decreased about $30 in the second quarter, a period when rents typically increase, researchers at the University of Denver’s Daniels College of Business found.
There’s also evidence that people are still moving to Colorado. Just last week, Amazon announced that it’s added 100 tech and corporate jobs in Denver, where it already has 130 openings for tech workers. Palantir Technologies, whose data analysis technology is sold to governments and private companies, is moving its headquarters to Denver from California, the Denver Business Journal reported.
“With all this work at home, people are saying, ‘I don’t have to live in New York anymore. I can do my job remotely and therefore Colorado is on the table,” Hamrick said. “We’ve got a couple of markets, like Colorado Springs in particular, that have been hot.”
The more immediate issue for renters is the fate of federal relief, said Brian Lewandowski, executive director of the Business Research Division at the Leeds School of Business, University of Colorado.
Workers laid off because of coronavirus closures earned an extra $600 a week, which propped up the slashed incomes in the short run. Some of the financial aid, however, has now ended, though new programs have kicked in.
“I’m more concerned about the rental side because I think the federal payments did make a difference for renters,” Lewandowski said. “And if that goes away, I do worry about the strain.”
Lewandowski expects the economy to fully recover, just as it did after the Great Recession. But it could take years. And that could widen the gap between those who can afford to refinance and those who can’t make rent. It’s called a K-shaped recovery, where inequality widens.
“If you picture the K, there’s divergent ends,” he said. “You’ve got the people who have the jobs and maybe have more wealth, and then the people who don’t and are sort of left behind in the recession. And they’re left behind in the recovery.”
The hot-ish housing market
Even as open houses were banned in the spring, prospective homebuyers found their way to signing contracts. They wanted single-family houses.
Statewide, the number of single-family homes for sale dropped in April but picked back up in May, June and July. Last month, 21.3% more houses sold than in July 2019, and the median sales price went up 8.6%. For the year, sales are down 2.8% though prices are up 6%.
Matthew Leprino, a Realtor in Denver, said he thinks people want a larger space. They don’t want to be stuck in a small condo downtown with nowhere to go.
“A buyer who was looking for a property last August may have said, ‘I’m only in my property so often. I don’t care if I buy a one- or two-bedroom condo. I’m only there to sleep and watch some Netflix and then I leave and go to work the next morning or I’m out with friends all weekend,’” Leprino said. “In August 2020, that property needs to be so much more: the gym, the office, the studio. And I think people are willing to pay a little bit more, so that could have something to do with how on fire our market is.”
For single family homes, that seems to be true. Condos? Not so much.
Sales of townhouses and condos have declined every month since March, compared to the same time last year. Median sale prices have increased 4.9% for the year, but sales are down 6% compared to the same time last year. And the supply has been growing, with enough condos for sale to last 2.4 months in July, compared to 1.9 months in January.
Leprino said that two weeks ago, he put a client’s downtown loft on the market that a few months ago “would have sold in a heartbeat because of the demand.” After a week, only one prospective buyer had looked at it.
“I just had a conversation with my clients and said, ‘Hey guys, the demand isn’t there right now. I don’t want you guys to waste days on market. Let’s revisit this in the fall. Let’s see if people are coming back to the city,’” he said. “That would not be the case with a single-family home anywhere in the metro area.”
But this could be a way in for first-time homebuyers who didn’t feel they could buy a home before the pandemic. The slowing price growth for condos combined with very low interest rates means house hunters can afford more house than before, said Payne, with American Financing.
“It’s really good for borrowers,” Payne said. “It’s making a difference for the customers who are saving hundreds of dollars a month or tens of thousands over the life of the loan just by getting that lower interest rate.”
People who can sell their homes and move up during the pandemic appear to be doing so. It’s just those people living off savings and credit cards who will have a rough time in coming months.
“People that are paying their mortgages, own a home and might even be getting mortgage forbearance or mortgage assistance during COVID are probably gonna be OK,” said Alderman, with the Coalition for the Homeless. “We need to support and keep that the way it is because we don’t need any of those people to be falling into housing instability or homelessness.”
But for those who don’t have the means, something’s got to give if coronavirus safety measures continue to limit business operations and a return to full employment.
“Most people over the last few months have been using their savings and credit to pay for things that they normally would have paid for (from an income),” Alderman said. “And those are not sustainable funding sources for people.”
Even low-interest mortgages must be paid
In Colorado, the second quarter saw a near-record rate of folks who didn’t pay their mortgage on time, according to the Mortgage Bankers Association.
At a 6.22% delinquency rate, Colorado is doing better than the nation’s 8.22%. But the numbers get worse if you look at the type of loans borrowers are delinquent on. For FHA loans, delinquency rates jumped to 14.65% in Colorado last quarter, topping the previous high of 11.89% in 2009.
“It’s not great. It certainly is a big uptick in a short amount of time. It’s definitely worrisome to see delinquencies at this level, especially FHA. FHA was at a survey high for delinquency rates, and our survey goes back to 1979,” said Marina Walsh, the organization’s vice president of industry research.
“Usually delinquency follows pretty closely with the unemployment rate and the unemployment rate spiked up more than our delinquency,” she added. “I do believe the stimulus that’s being offered is helping to some extent. But these are not pretty numbers at all. To see a four percentage point jump in the delinquency rate in three months is rather startling, and we’re at the highest delinquency rate overall that we’ve been in nine years.”
Colorado may be doing better than other states because it’s more diverse, with strong aerospace and technology companies that coexist with the ski resorts, hotels and restaurants that were hit hard by COVID closures.
But many of those jobs are not coming back, said Lewandowski, with CU’s business school, which recently revised its 2020 economic update. Instead of adding 40,100 jobs, Colorado is expected to lose 128,500 jobs this year.
Several restaurants have closed permanently, so there’s obviously no plans to rehire staff. Concert venues, convention hosts, entertainment venues and other businesses that rely on large crowds aren’t operating in the same way so fewer employees are needed. Consumers have changed their behaviors by shopping online instead of in person. They’re not splurging on a vacation and plane tickets. They’re spending more on products, instead of services. Businesses will have to adapt.
“I think we’ll regain all of those jobs lost, meaning that we will get back to our peak employment at some point, as we did after the Great Recession,” he said. “There is a resiliency where people do find a new path, and people who want to find a new job will find one. We will regain those jobs lost. But I also think it will take two, three, three-and-a-half years.”
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