Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing that the 30-year fixed-rate mortgage (FRM) averaged 2.98 percent, the lowest rate in the survey’s history dating back to 1971.
“Mortgage rates fell below 3 percent for the first time in 50 years. The drop has led to increased homebuyer demand and, these low rates have been capitalized into asset prices in support of the financial markets,” said Sam Khater, Freddie Mac’s Chief Economist. “However, the countervailing force for the economy has been the rise in new virus cases which has caused the economic recovery to stagnate, and this economic pause puts many temporary layoffs at risk of ossifying into permanent job losses.”
30-year fixed-rate mortgage averaged 2.98 percent with an average 0.7 point for the week ending July 16, 2020, down from 3.03 percent. A year ago at this time, the 30-year FRM averaged 3.81 percent.
15-year fixed-rate mortgage averaged 2.48 percent with an average 0.7 point, down from last week when it averaged 2.51 percent. A year ago at this time, the 15-year FRM averaged 3.23 percent.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
The volume of loans in active forbearance, in which borrowers are allowed to delay their monthly payments, fell by 435,000 from the previous week, according to mortgage data firm Black Knight.
That is the largest one-week drop yet.
Roughly 4.14 million loans were in forbearance, representing 7.8% of all active mortgages, down from 8.6% the prior week. That’s the lowest amount since April 28.
A man walks past the U.S. Capitol building in Washington, June 25, 2020.Al Drago | Reuters
The number of homeowners in government and private sector mortgage bailout plans declined for the second straight week, as borrowers who got in earliest saw their plans expire.
More borrowers, however, are getting extensions of those initial three-month plans, proving the pain in the market is not over yet.
As of Tuesday, the volume of loans in active forbearance, in which borrowers are allowed to delay their monthly payments, fell by 435,000 from the previous week, according to Black Knight, a mortgage data and technology firm. That is the largest one-week drop yet.
Roughly 4.14 million loans were in forbearance, representing 7.8% of all active mortgages, down from 8.6% the prior week. That’s the lowest amount since April 28. These loans together represent just under $900 billion in unpaid principal.WATCH NOWVIDEO03:31Covid-19 mortgage bailouts drop by 435,000 but extensions increase
By category, about 6% of all mortgages backed by Fannie Mae and Freddie Mac and 11.6% of all FHA/VA loans are in forbearance plans. Just over 8.2% of loans in private label securities or banks’ portfolios are also in forbearance. The largest drop in forbearances was in Fannie and Freddie mortgages, down by 200,000 during the week
“The reduction of roughly 435,000 was driven at least in part by the fact that more than half of all active forbearance plans entering the month were set to expire at the end of June,” said Andy Walden, an economist with Black Knight. “While the majority of those have been extended, this week’s data suggests a significant share were not.”
More than 26% of loans in forbearance were extensions, according to a count by the Mortgage Bankers Association for the week ending June 28. That share has increased steadily for the past three weeks.
The bulk of the loans in forbearance are government backed and part of the mortgage bailout program in the CARES Act, which President Donald Trump signed into law in March. It allows borrowers to miss monthly payments for at least three months and potentially up to a year. Those payments can be remitted either in repayment plans, loan modifications, or when the home is sold or the mortgage refinanced. For loans not backed by the government, most banks and private lenders have set up similar plans.
While the drop in active mortgage forbearances is encouraging, recent spikes in coronavirus cases in various states, in addition to the expiration of expanded unemployment benefits at the end of this month, present significant risk to the recovery in the mortgage market.
Construction of new homes plunged just over 30 percent in April from the previous month, amid the widespread US lockdowns to prevent the spread of COVID-19, according to government data released Tuesday.
The collapse to just 897,000 units put the annual rate of housing starts 29.7 percent below the same month of 2019, the Commerce Department reported.
The declines were widespread across the country, with the Northeast taking the worst hit — a 44 percent drop in construction starts — while the Midwest saw a relatively small 15 percent decline.
Building of multifamily housing saw the most severe impact in most regions.
Meanwhile, permits for new construction, which in normal times is a sign of demand in the pipeline, fell 20.8 percent compared to March.
But with the ongoing coronavirus pandemic, these are hardly normal times.
“Due to recent events surrounding COVID-19, many governments and businesses are operating on a limited capacity or have ceased operations completely,” the Commerce Department said, adding that the data quality still meet publication standards.
Housing is a critical sector of the US economy and demand was high before the crisis, given low mortgage lending rates, and builders were struggling to keep up with demand while prices were moving higher.
Since the pandemic hit, the Federal Reserve has slashed the benchmark interest rate to zero, which could be expected to help support home buying. But with 30 million jobs lost to the pandemic — at least temporarily — the outlook remains uncertain.
Still, Ian Shepherdson of Pantheon Macroeconomics said, “Housing construction likely has hit bottom.”
“A steep drop in activity was inevitable given the lockdowns, but we think these numbers will mark the floor; May will be better, and June better still,” he said in an analysis, noting that mortgage applications had picked up, recovering more than half the pandemic-related declines.
The Mortgage Bankers Association’s latest Weekly Application Survey shows a 0.3% seasonally adjusted decline in loan application volume from the previous week. The Refinance index decreased by 1% from the previous week and was 225% higher than it was the same week one year ago. The Purchase Index increased 2% from one week earlier but was 31% lower than it was the same time a year ago. The MBA notes that the pandemic-related economic stoppage has caused some buyers and sellers to delay their decisions until there are signs of a turnaround. This has resulted in reduced buyer traffic, less inventory, and March existing-homes sales falling to their slowest annual pace in nearly a year. Most importantly, the economic stoppage has halted the momentum in the housing market generated by young, would-be homebuyers, mostly from the millennial generation, preventing them from entering the market.
With the federal government’s recent passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, not only did qualifying individuals receive economic impact payments, i.e., stimulus checks, but small businesses were also extended emergency advances of up to $10,000 as part of the Small Business Administration’s economic injury grant. With these measures in place, expanding businesses and families’ balance sheets to accommodate for more real estate is less of a priority than keeping their existing assets afloat. The CARES act also provides options for mortgage forbearance. As can be seen from the above figure, year-over-year gains in refinancing skyrocketed in the middle of March and continued their upward trajectory towards the end of the second week of April. Year-over-year purchasing changes, however, slipped into negative territory for that period, posting a year-over-year decline of 31% in the latest week. The National Association of Realtors cites that lender credit standards such as higher down payments and credit scores would likely deter home sales’ bounce when the pandemic is over. Before the outbreak, foreclosure rates were at historic lows.
The U.S. economy reported a plummet of 701,000 nonfarm payrolls in the early part of March, according to new data posted Friday by the U.S. Bureau of Labor Statistics.
This marked the first decline in payrolls since September 2010. As a result, the unemployment rate increased by 0.9 percentage point to 4.4%, the greatest over-the-month increase since January 1975 and the highest unemployment level since August 2017.
The number of unemployed persons spiked by 1.4 million to 7.1 million in March, with the BLS citing the COVID-19 crisis for the statistical mayhem. The number of unemployed persons who reported being on temporary layoff more than doubled in March to 1.8 million while the number of permanent job losers increased by 177,000 to 1.5 million.
It’s important to note that this BLS report does not take the entire month of March into account. And recent data shows that nearly 10 million filed for unemployment in the last few weeks, meaning the BLS figure will rise significantly in next month’s report.
“This report reflects the initial impact on U.S. jobs of the public health measures being taken to contain the coronavirus,” Secretary of Labor Eugene Scalia said in a statement. “It should be noted the report’s surveys only reference the week and pay periods that include March 12; we know that our report next month will show more extensive job losses, based on the high number of state unemployment claims reported yesterday and the week before.”
The leisure and hospitality industries were particularly hard hit with a loss of 459,000 jobs, and other industries experiencing acute declines included health care and social assistance, professional and business services, retail trade and construction.
Within the mortgage and housing industry, there was a grim acknowledgment of an unprecedented economic crisis – yet several thought leaders tried to find bright spots in the dismal data.
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, noted the report “showed almost an additional 1.5 million households now working part-time when they would rather have full-time hours. The decline in the participation rate already indicates that some workers are stepping back from even looking for a job as the pandemic crisis continues.”
Fratantoni predicted next month’s employment numbers will record higher levels of job losses, which would lead to “a drop in demand for purchase mortgages,” although refinancing activity is expected to remain vibrant. He also noted one small bright spot in the new data regarding home construction.
“Although construction employment declined last month, there was a small increase in residential construction, with the decline driven by non-residential builders,” he continued. “When housing demand recovers later this year, we will once again be facing a supply shortage, so it is good to see that homebuilders are continuing to hire.”
Lawrence Yun, chief economist at the National Association of Realtors, also acknowledged that the residential side of the construction industry was stronger than the commercial property side, adding that residential construction jobs “were steady and higher by 27,000 from a year ago for actual building construction and higher by 44,000 among general contractors. We had a housing shortage before going into the crisis and home builders were gearing up to relieve the inventory tightness.”
Yun also maintained a sense of hopefulness for the newly out-of-work, explaining that “the enhanced unemployment insurance checks to make up for a good portion of lost income” and the post-pandemic weeks will be framed by “spending power ready to be unleashed once the all-clear signal is declared.”
Anthony Casa, chairman of the Association of Independent Mortgage Experts, warned that the U.S. economy in general and housing in particular could withstand continued waves of millions filing for unemployment benefits, with small businesses facing an existential crisis because most companies in that sector “do not have the money to shut down for multiple months.” And while Casa praised the mortgage industry for remaining “very strong” thanks to historically low rates, he expressed concern over the real estate industry.
“The longer this goes on, the bigger the impact on them,” he said. “Real estate is in for a tough year if home values decline.”
What do Americans do when so few new homes are being built? Remodel, according to the latest report for Buildfax.
According to the housing data and analytics company, 2019 marked the lowest rate of mobility in the U.S. since the metric was first tracked in 1947. Only 9.8% of Americans moved last year. Though this marks a new low, it’s not terribly far off from the only 10.1% who moved between 2017 and 2018.
Buildfax’s report pointed to new construction as part of the issue. Namely, the lack thereof. While single-family housing authorizations increased 4.82% year over year in 2019, the year did not close out on a strong note. According to the report, authorizations decreased by 2.61% from November to December 2019. Local Motion is a family run business, and we understand what families need when they long distance movers. Our administrative staff stays connected to you on your move day, ensuring every phase of your move is exemplary.
“The U.S. is facing a housing shortage, in part due to the slowdown in housing construction last year. This has been felt in both large metros and smaller cities across the country,” Buildfax Managing Director Jonathan Kanarek said. “Now, even though the economy is showing strong growth and mortgage rates remain low, those who want to buy a new home are experiencing challenges with increased competition on a tight housing supply.”
Instead, the report states, people are remodeling. Buildfax reports that existing maintenance volume and spending increased 9.47% and 16.26% year over year, respectively. In the past, Buildfax has often referred to home maintenance activity as a recession indicator. As this activity increases, Buildfax asserts that recession probability lowers, and vice versa.
That said, in its December Healthy Housing Report, Buildfax states that “maintenance and remodeling increased substantially, potentially fueled by homeowners who feel unable to buy a new home and therefore invest in their existing property.”
As many economists have pointed out, U.S. homeowners have been staying put for a while now. The concept of “aging in place” is not a new one. In August of 2018, AARP revealed that almost 90% of homeowners approaching retirement want to stay in their homes as they age.
And for the most part, they are.
Last February, Freddie Macreleased a study showing that seniors born after 1931 are staying in their homes longer than previous generations. According to the report, this generation held 1.6 million houses back from the market in 2018.
“Americans are staying in their homes longer because the house they have is perfectly suitable for their family’s need,” he writes. “For more than four decades, home sizes have been getting bigger while family size has been in decline.”
Prices paid for goods used in residential construction decreased by 1.1% in June (not seasonally adjusted) according to the latest Producer Price Index (PPI) released by the Bureau of Labor Statistics. The decline broke a four-month trend of increases and was only the fifth month over the past two years in which prices fell.
Over the past 12 months, building materials prices have decreased 1.6%, just the fifth June year-over-year decrease since 2000. The decline is a sharp reversal of June 2017 to June 2018, during which prices increased 8.8%.
The PPI report shows that softwood lumber prices decreased (-1.7%, not seasonally adjusted) in June—the index’s third consecutive monthly decline. Prices remain at their lowest level since February 2017. While weekly prices have been volatile since mid-May according to Random Lengths, the difference between the average prices of softwood lumber in May and June mirrored the PPI data (-1.8% v. -1.7%).
One of the special indexes published by BLS tracks lumber and plywood in one category. Similar to softwood lumber, the lumber and plywood index fell 2.3%. Prices paid for softwood lumber and lumber and plywood have decreased 23.1% and 17.6%, respectively, since June 2018.
The price index for gypsum products continued its downward trend in June, declining 1.9%. In the last 10 months, gypsum prices have only increased twice.
Prices have declined by 6.2% and 10.8% since January 2019 and August 2018, respectively.
Ready-mix concrete prices increased 1.2% in June and remain relatively volatile. Prices have risen by more than 1.0% in two of the past three months, something that has only happened in 18 of the previous 231 months.
The housing market won’t recover much in the second half of 2019, says Capital Economics.
Mortgage interest rates have fallen this year, but that hasn’t spurred much action in the housing market, and things are unlikely to turn around for the remainder of the year as concerns about the economy continue to grow, the economists say.
“The fact interest rates are declining because of concerns that the economy is slowing argues against a strong rise in home purchase demand,” Capital Economics writes in a recent report. “That is reflected in measures of buyer sentiment. The decline in interest rates earlier this year failed to provide much of a boost to the share of households saying now is a good time to buy.”
That said, the report did indicate that rental demand will be solid thanks to strong wage growth and subdued home sales. And, the drop in rates has helped spur refinance activity, with applications jumping in the first half of June and signals indicating the likelihood of an upward trend for refis.
But purchase demand is less sensitive to changes in mortgage rates, the economists say, and home sales have therefore seen less of a lift from the drop in financing costs.
Also, the drop in rates was somewhat offset by tighter lender standards, the report says, including a recent pullback from the Federal Housing Administration that may make it harder for some riskier borrowers to qualify.
But on the bright side, homes are still affordable, the economists say.
“The fall in mortgage interest rates, slower house price gains and the rise in earnings growth have led to a drop in mortgage payments as a share of income,” the report says. “And, based on our forecasts for those variables, the payment burden is set to stay at around 16% over the next couple years, low by past standards.”
But the housing market is plagued by a lack of inventory, and this will prevent any meaningful rise in existing home sales, the report predicts.
“While the number of existing homes for sale has seen some improvement since reaching a record low at the end of 2017, at 1.8 million in May market conditions are still tight,” the report says. “And with interest rates falling back, we doubt existing inventory levels will see much of an improvement over the next couple of years.”
Mortgage rates have steadily declined with the 30-year fixed-rate bottoming out to 3.82 percent, its lowest level since September 2017, according to the latest figures from Freddie Mac.
Digital Risk co-founder Jeff Taylor told FOX Business’ Neil Cavuto that now is the time for new home buyers to take advantage of the bigger inventory on the market.
“If you’re looking to get into the housing market, i.e., you don’t have a house right now, this is literally the perfect time,” he during an interview on Monday. “Interest rates are about a one percentage point less than it was this time last year … that’s a 10 percent savings on a 30-year mortgage a month.”B
The Federal Reservemight cut the federal funds rate twice this year, a move that could cause the 30-year fixed rate to fall even lower.
“If you get two rate cuts at 50 and if you get to 75, yeah, I think you can be back down to three and a quarter [percent], Taylor said.C
Taylor adds that the lower interest rates allow consumers to reach a little deeper into their pockets and “afford more of a house.”
“People are feeling better about their jobs right now and they’ve been saving. It’s a great time to finally to get into the housing market and make a purchase,” he said.
According to a estimates from the U.S. Housing and Urban Development and Commerce Department, single-family starts continued to show weakness in March, despite the recent stabilization in the NAHB/Wells Fargo Housing Market Index (HMI). After downward revisions made to the February data, single-family starts were down 0.4% to a 785,000 seasonally adjusted annual pace in March, the lowest such rate since September 2016.
On a year-to-date basis, single-family construction is 5.3% lower than the first quarter of 2018. NAHB’s forecast, and the forward-looking HMI suggest that future data will show stabilization followed by slight gains due to recent declines in mortgage interest rates. However, single-family permits continued to be soft in March, declining 1.1% for the month to a 808,000 annual pace, the lowest since August 2017. Most of this is because many of the constructions that start of end up being unsuccessful, if you want to avoid this then consider reading these tool box topics to learn what you can use to successfully manage a construction.
On a regional and year-to-date basis, single-family starts are down 21% in the housing affordability challenged West, 20% in the Midwest, 2% in the Northeast and up 5% in the South.
Multifamily starts were unchanged from February to March at a 354,000 annual rate. However, comparing the first quarter of 2019 to the first quarter of 2018 shows a 19% decline for 5+ unit production.
Recent production declines are clear in the current estimates of units under production. As of March 2019, there were 531,000 single-family homes under construction. While this is 4.5% higher than a year ago, it is down from the 543,00 peak count from January 2019. Similarly, there are currently 595,000 apartments under construction, which is more than 3% lower than a year ago and down from the peak count of 625,000 in February 2017. The combination of these declines in current construction activity are seen clearly in the graph below, with declines for total housing under construction for all of 2019.