How homeowners have gained a financial advantage during the pandemic

Amy Scott Sep 10, 2020
Heard on: Marketplace
A house for sale in South Pasadena, California, in April. Home owners have several advantages during the pandemic. Frederic J. Brown/AFP via Getty Images

How homeowners have gained a financial advantage during the pandemic

Amy Scott Sep 10, 2020
A house for sale in South Pasadena, California, in April. Home owners have several advantages during the pandemic. Frederic J. Brown/AFP via Getty Images

Four years ago, Gina DeSantis bought her first home, a cozy, century-old Colonial in Lakewood, Ohio, outside Cleveland. At the time, the mortgage was very affordable — just $900 a month.

The pandemic changed that. DeSantis runs a pottery studio, where she sells her work and offers classes. In mid-March, along with much of the country, she had to shut down.

“There was a month with absolutely no income,” she said. “Then there was about five figures worth of refunds I had to do.”

DeSantis, 40, called her bank and asked about mortgage relief.

“I was able to get that deferred originally for three months and then found out they actually extended it for six months, which has been amazing,” she said.

The technical term for amazing is forbearance. Congress has made it available to anyone with a federally-backed mortgage. Right now, according to data firm Black Knight, nearly four million mortgages — about 7% — are on hold, for up to a year. Borrowers don’t have to make up the missed payments until the end of the loan, which could be decades from now.

That makes homeownership “a piggy bank like none other at this moment in time,” said Susan Wachter, who teaches real estate finance at the Wharton School.

Forbearance is just one piece of the homeowner advantage. With house prices continuing to rise during the pandemic, homeowners have more equity to fall back on. Those with good credit may have the option to refinance at record-low interest rates, reducing their monthly payments. Also, as always, that interest is tax deductible.

“And by the way, there is another advantage to being a homeowner, and that is, you’ve got a home,” Wachter said. “You’ve got space, probably, to wait out the pandemic.”

Cynthia Gaines bought her house in Mountain City, Tennessee less than a year ago. She has chronic leukemia and had to stop working at the local power company. Because Gaines has a mortgage backed by the Federal Housing Administration, she qualified for forbearance.

“I missed my June payment, July, August, now September,” she said.

Gaines is 65, and gets by on social security checks. If she’d been renting, she said, “I’d be homeless, or living with friends or family.”

Protecting homeowners has become a priority in light of the Great Recession, housing experts said, when home prices collapsed and 10 million people lost their homes.

“I think we learned from the foreclosure crisis that it just causes massive economic calamity to have so many people lose their homes,” said Jacob Rugh, an associate professor of sociology at Brigham Young University. “The real threat today is evictions, to those who are renting.”

That’s another calamity in the making, Rugh said. Before the CDC issued a national moratorium on evictions, through the end of the year, an estimated 30 to 40 million renters were at risk of being forced out of their homes, according to the Aspen Institute. When that moratorium lifts, all the back rent will still be due. There’s no 30-year deferment plan for renters.

“And of course, a higher share of Americans rent their homes now than a decade ago, especially, people of color,” Rugh said.

Even as homeownership has grown since the housing crash, only about half of Black and Latinx households own their homes, compared to three-quarters of white households. And ownership doesn’t pay off equally. In Black neighborhoods houses tend to appraise at lower values and appreciate more slowly, Rugh said, creating less equity.

The crisis could end up widening the wealth gap for people of color, said Michael Neal, a senior research associate at the Urban Institute.

“They were entering this recession already more vulnerable, because of those structural barriers,” he said. “Then the recession hits, and that could potentially just wipe them out.”

COVID-19 Economy FAQs

With a slow vaccine rollout so far, how has the government changed its approach?

On Tuesday, Jan. 12, Health and Human Services Secretary Alex Azar announced changes to how the federal government is distributing vaccine doses. The CDC has expanded coronavirus vaccine eligibility to everyone 65 and older, along with people with conditions that might raise their risks of complications from COVID-19. The new approach also looks to reward those states that are the most efficient by giving them more doses, but critics say that won’t address underlying problems some states are having with vaccine rollout.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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