Originally, some housing industry analysts were concerned that the mortgage forbearance program (which allows families to delay payments to a later date) could lead to an increase in foreclosures when forbearances end. Some even worried that we might relive the 2006-2008 housing crash all over again. Once you examine the data, however, that seems unlikely.
As reported by Odeta Kushi, Deputy Chief Economist for First American:
“Despite the federal foreclosure moratorium, there were fears that up to 30% of homeowners would require forbearance, ultimately leading to a foreclosure tsunami. Forbearance did not hit 30%, but rather peaked at 8.6% and has been steadily falling since.”
According to the most current data from Black Knight, the percentage of homes in forbearance has fallen to 7.4%. The report also gives the decrease in raw numbers:
“The overall trend of incremental improvement in the number of mortgages in active forbearance continues. According to the latest data from Black Knight’s McDash Flash Forbearance Tracker, the number of mortgages in active forbearance fell by another 71,000 over the past week, pushing the total under 4 million for the first time since early May.”
Here’s a graph showing the decline in forbearances over the last several months:
The report also explains that across the board, overall forbearance activity fell with 10% fewer new forbearance requests and nearly 40% fewer renewals.
Kushi also addresses this question:
“There are two main reasons why this crisis is unlikely to produce a wave of foreclosures similar to the 2008 recession. First, the housing market is in a much stronger position compared with a decade ago. Accompanied by more rigorous lending standards, the household debt-to-income ratio is at a four-decade low and household equity near a three-decade high. Indeed, thus far, MBA data indicates that the majority of homeowners who took advantage of forbearance programs are either staying current on their mortgage or paying off the loan through a home sale or a refinance. Second, this service sector-driven recession is disproportionately impacting renters.”
Today, the options available to homeowners will prevent a large spike in foreclosures. That’s good not just for those families impacted, but for the overall housing market. A recent study by Fannie Mae, however, reveals that many Americans are not aware of the options they have.
It’s imperative for potentially impacted families to better understand the mortgage relief programs available to them, for their personal housing situation and for the overall real estate market.
If Americans fully understand their options and make good choices regarding those options, the current economic slowdown does not need to lead to mass foreclosures.
In today’s housing market, it can be a big challenge for buyers to find homes to purchase, as the number of houses for sale is far below the current demand. Now, however, we’re seeing sellers slowly starting to come back into the market, a bright spark for potential buyers. Javier Vivas, Director of Economic Research at realtor.com, explains:
“Seller confidence has been improving gradually after reaching its bottom in mid-April, and now it appears to have reached an important recovery milestone…After five long months, sellers are back in the housing market; while encouraging, the improvement to new listings is only the first step in the long road to solving low inventory issues keeping many buyers at bay.”
Even with the number of homes coming into the market, the available inventory is well below where it needs to be to satisfy buyer interest. The National Association of Realtors (NAR) reports:
“Total housing inventory at the end of June totaled 1.57 million units, up 1.3% from May,but still down 18.2% from one year ago (1.92 million). Unsold inventory sits at a 4.0-month supply at the current sales pace, down from both 4.8 months in May and from the 4.3-month figure recorded in June 2019.”
Houses today are selling faster than they’re coming to market. That’s why we only have inventory for 4 months at the current sales pace when in reality we need inventory for 6 months to keep up. But, as mentioned above, sellers are starting to return to the game. Realtor.com explains:
“The ‘housing supply’ component – which tracks growth of new listings – reached 101.7, up 4.9 points over the prior week, finally reaching the January growth baseline. The big milestone in new listings growth comes as seller sentiment continues to build momentum…After constant gradual improvements since mid-April, seller confidence appears to be reaching an important milestone. The temporary boost in new listings comes as the summer season replaces the typical spring homebuying season. More homes are entering the market than typical for this time of the year.”
A good time to enter the housing market is when the competition in your area is low, meaning there are fewer sellers than interested buyers. You don’t want to wait for all of the other homeowners to list their houses before you do, providing more options for buyers to choose from. With sellers starting to get back into the market after five months of waiting, if you want to sell your house for the best possible price, now is a great time to do so.
It can be challenging to find a home in today’s low-inventory environment. If more sellers are starting to put their houses up for sale, there will be more homes for you to choose from, providing a better opportunity to find the home of your dreams while taking advantage of the affordability that comes with historically low mortgage rates.
While we still have a long way to go to catch up with the current demand, inventory is slowly starting to return to the market. If you’re thinking of moving this year, let’s connect today so you’re ready to make your move when the home of your dreams comes up for sale.
The news these days seems to have a mix of highs and lows. We may hear that an economic recovery is starting, but we’ve also seen some of the worst economic data in the history of our country. The challenge today is to understand exactly what’s going on and what it means relative to the road ahead. We’ve talked before about what experts expect in the second half of this year, and today that progress largely hinges upon the continued course of the virus.
A recent Wall Street Journal survey of economists noted, “A strong economic recovery depends on effective and sustained containment of Covid-19.” Given the uncertainty around the virus, we can also see what economists are forecasting for GDP in the third quarter of this year (see graph below):
Overwhelmingly, economists are projecting GDP growth in the third quarter of 2020, with 5 of the 9 experts indicating over 20% growth.
Lisa Shalett, Chief Investment Officer for Morgan Stanley puts it this way:
“Indeed, the ‘worst ever’ GDP reading could be followed by the ‘best ever’ growth in the third quarter.”
As we look forward, we can expect consumer spending to improve as well. According to Opportunity Insights, as of August 1, consumer spending was down just 7.8% as compared to January 1 of this year.
An economic recovery is beginning to happen throughout the country. While there are still questions that need to be answered about the road ahead, we can expect to see improvement this quarter.
Today, home prices are appreciating. When we hear prices are going up, it’s normal to think a home will cost more as the trend continues. The way the housing market is positioned today, however, low mortgage rates are actually making homes more affordable, even as prices rise. Here’s why.
According to the Mortgage Monitor Report from Black Knight:
“While home prices have risen for 97 consecutive months, July’s record-low mortgage rates have made purchasing the average-priced home the most affordable it’s been since 2016.”
Black Knight continues to explain:
“As of mid-July, it required 19.8% of the median monthly income to make the mortgage payment on the average-priced home purchase, assuming a 20% down payment and a 30-year mortgage. That was more than 5% below the average of 25% from 1995-2003.
This means it currently requires a $1,071 monthly payment to purchase the average-priced home, which is down 6% from the same time last year, despite the average home increasing in value by more than $12,000 during that same time period.
In fact, buying power is now up 10% year-over-year, meaning the average home buyer can afford nearly $32,000 more home than they could at the same time last year, while keeping their monthly payment the same.”
This is great news for the many buyers who were unable to purchase last year, or earlier in the spring due to the slowdown from the pandemic. By waiting a little longer, they can now afford 10% more home than they could have a year ago while keeping their monthly mortgage payment unchanged.
With mortgage rates hitting all-time lows eight times this year, it’s now less expensive to borrow money, making homes significantly more affordable over the lifetime of your loan. Mark Fleming, Chief Economist at First American, shares what low mortgage rates mean for affordability:
“In July, house-buying power got a big boost as the 30-year, fixed mortgage rate made history by moving below three percent. That drop in the mortgage rate from 3.23 percent in May to 2.98 percent in July increased house-buying power by nearly $15,000.”
The map below shows the last time homes were this affordable by state:
In six states – Arkansas, Iowa, Kentucky, Louisiana, Maryland, and West Virginia – homes have not been this affordable in more than 25 years.
If you’re thinking of making a move, now is a great time to take advantage of the affordability that comes with such low mortgage rates. Whether you’re thinking of purchasing your first home or moving into a new one and securing a significantly lower mortgage rate than you may have on your current house, let’s connect today to determine your next steps in the process.
With the strength of the current housing market growing every day and more Americans returning to work, a faster-than-expected recovery in the housing sector is already well underway. Regardless, many are still asking the question: will we see a wave of foreclosures as a result of the current crisis? Thankfully, research shows the number of foreclosures is expected to be much lower than what this country experienced during the last recession. Here’s why.
According to Black Knight Inc., the number of those in active forbearance has been leveling-off over the past month (see graph below):
Black Knight Inc. also notes, of the original 4,208,000 families granted forbearance, only 2,588,000 of these homeowners got an extension. Many homeowners have once again started to pay their mortgages, paid off their homes, or never went delinquent on their payments in the first place. They may have applied for forbearance out of precaution, but never fully acted on it (see graph below):
The housing market, and homeowners, therefore, are in a much better position than many may think. Much of that has to do with the fact that today’s homeowners have more equity than most realize. According to John Burns Consulting, over 42% of homes are owned free and clear, meaning they are not tied to a mortgage. Of the remaining 58%, the average homeowner has $177,000 in equity. That number is keeping many homeowners afloat today and giving them options to avoid foreclosure.
While ATTOM Data Solutions indicates that there is a potential for the number of foreclosures to increase throughout the country, it’s important to understand why they won’t rock the housing market this time around:
“The United States faces a possible foreclosure surge over the coming months that could more than double the number of households threatened with eviction for not paying their mortgages.”
That number may sound massive, but it is actually much smaller than it seems at first glance. Today’s actual quarterly active foreclosure number is 74,860. That’s over 7.5x lower than the number of foreclosures the country saw at the peak of the housing crash in 2009. When looking at the graph below, it’s clear that even if the number of quarterly foreclosures today doubles, as ATTOM Data Solutions indicates is a possibility (not a given), they will only reach what historically-speaking is a normalized range, far below what up-ended the housing market roughly 10 years ago.
Equity is growing, jobs are returning, and the economy is slowly recovering, so the perfect storm for a wave of foreclosures is not realistically in the housing market forecast. As Odeta Kushi, Deputy Chief Economist for First American notes:
“Alone, economic hardship and a lack of equity are each necessary, but not sufficient to trigger a foreclosure. It is only when both conditions exist that a foreclosure becomes a likely outcome.”
While our hearts are with anyone who may end up in foreclosure as a result of this crisis, we do know that today’s homeowners have more options than they did 10 years ago. For some, it may mean selling their house and downsizing with that equity, which is a far better outcome than foreclosure.
Homeowners today have many options to avoid foreclosure, and equity is surely helping to keep many afloat. Even if today’s rate of foreclosures doubles, it will still only hit a mark that is more in line with a historically normalized range, a very good sign for homeowners and the housing market.
Last Friday, the Bureau of Labor Statistics (BLS) released its latest Employment Situation Summary. Going into the release, the expert consensus was for 1.58 million jobs to be added in July, and for the unemployment rate to fall to 10.5%.
When the official report came out, it revealed that 1.8 million jobs were added, and the unemployment rate fell to 10.2% (from 11.1% last month). Once again, this is excellent news as this was the third consecutive month the unemployment rate decreased.
There is, however, still a long way to go before the job market fully recovers. The Wall Street Journal (WSJ) put a potential date on that recovery:
“July’s payroll growth, at 1.8 million, still leaves total payrolls 12.9 million lower than in February. And yet if job gains continued at July’s pace, that deficit will be erased by March 2021. If payrolls reclaim their last peak in 13 months, that would be remarkably fast. It took more than six years after the last recession.”
During a pandemic, it’s important to differentiate those who have lost their jobs on a temporary basis from those who have lost them on a permanent basis. Morgan Stanley economists noted in the same WSJ article:
“The rate of churn in the labor market remains incredibly high, but a notable positive detail in this month’s report was the downtick in the rate of new permanent layoffs.”
To address this, the core unemployment rate becomes increasingly important. It identifies the number of people who have permanently lost their jobs. This measure subtracts temporary layoffs and adds unemployed who did not search for a job recently. Jed Kolko, Chief Economist at Indeed and the founder of the index reported:
“Core unemployment fell in July for the first time in the pandemic. That’s the good news I was hoping for.”
The housing market has continued to show tremendous resilience during the pandemic. Commenting on the labor report, Robert Dietz, Chief Economist for the National Association of Home Builders (NAHB), tweeted:
“Housing continues to rebound in another positive labor market report. Home builder and remodeler job gains of 24K for July. Residential construction employment down just 56.4K compared to a year ago. Total residential construction employment at 2.85 million.”
We should remain cautious in our optimism, as the recovery is ultimately tied to our future success in mitigating the ongoing health crisis. However, as Mike Fratantoni, Chief Economist for the Mortgage Bankers Association, reminds us: “The pace of job growth slowed in July, but the gains over the past three months represent an impressive rebound during the ongoing economic challenges brought forth by the pandemic.”