In this Real Estate News Brief for the week ending April 25th, 2020… the staggered reopening of the U.S. economy has begun, two small business rescue programs are being refunded, and the home sale slump could be reversing.
We begin with economic news from this past week, and plans, by some states, to slowly restart their economies. The state of Georgia is taking the first steps with the cautious reopening of some businesses on Friday, April 24th. While states, like Georgia and South Carolina, are planning to ease stay-at-home restrictions, others are extending them because modeling shows they are still at risk. A model maintained by the University of Washington shows that Montana could safely reopen on May 1st, and that Alaska, Hawaii, North Carolina, Vermont and West Virginia could do so on May 10th. At least half the states should wait until May 25th or later. (1)
Congress has approved another $484 billion dollars in rescue funding that includes $60 billion for the Economic Injury Disaster Loan or EIDL, and another $310 billion for the Paycheck Protection Program or PPP. The EIDL is a small business loan that’s best for most solo real estate investors. The Paycheck Protection Program is for small businesses with employees, which may also apply to some people in the real estate business. And you can apply for both. So, if you missed your opportunity during the first round of funding, you should submit your applications. The money ran out quickly before and there are plenty of small business owners who haven’t applied yet. The funding package also includes $75 billion in grants to hospitals, and $25 billion to expand coronavirus testing. (2)
The real estate industry has been deemed essential by the federal government, so sales activity has continued, but social distancing requirements, and nationwide layoffs have impacted the results. The Commerce Department reported this last week that new home sales were down 15.4% in March to a seasonally adjusted annual rate of 627,000 homes. February sales were also revised down to 741,000, from a previously reported 765,000.
As for existing home sales, the National Association of Realtors reported a decline of 8.5% in March, and that decline will likely continue in April, but home prices are not expected to follow suit. (3) NAR’S chief economist Lawrence Yun says: “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”
There’s also word that the sales decline may be turning a corner. Zillow says, pending home sales are about 32% lower than they were a year ago but week-over-week pending home sales have turned positive. They were up 6.2% during the seven days that ended April 19th.
Zillow says, it has also seen an increase in page views for listings and requests to hook up with real estate agents. Zillow can’t explain the sudden increase but suggests that people could be more interested in getting their plans back on track, or maybe they are just looking for things to do at home.
Sales activity in Seattle offers another example of a potential bounce back. The Wall Street Journal reports that buyers are pouncing on new listings and that multiple offers, bidding wars, and all-cash offers are typical. Buyers say that even when their offer is close to the asking price, they are getting outbid and rejected. Data from the Northwest Multiple Listing Service shows that Seattle home sales during the first week of April were higher than they were at the same time a year ago.
Consumer sentiment stabilized toward the end of April. The University of Michigan index actually went up a smidge from 71 to 71.8. That’s after a big decline in March, and job losses for more than 26 million Americans. Unemployment is currently about 15%.
Mortgage rates went up slightly. Freddie Mac says the current average for the 30-year fixed-rate mortgage is 3.33%.
In other news making headlines…
Mortgage Bailout Grows
The number of homeowners requesting forbearance on their mortgage payments rose another 477,000 last week. That brings the total number of borrowers with stalled mortgage payments to 3.4 million, or about 6.4% of all home loans. According to mortgage data firm Black Knight, the number of home loans in forbearance represents $754 billion in unpaid principal.
More than 5% of loans in forbearance are backed by the GSE’s Fannie Mae and Freddie Mac. The Federal Housing Finance Authority which regulates Fannie and Freddie announced that they would only be responsible for covering four months of unpaid mortgages, which will limit their liability to investors. But even with that cap, they may be forced to advance as much as $7 billion, given the number of loans currently in forbearance.
The Mortgage Bankers Association says, lenders need a liquidity facility to make sure payments are covered beyond that cap, and that services with non-government-backed loans can continue making payments. Ginnie Mae has already set up a liquidity facility for FHA loans.
Lender Rollback on Mortgage Requirements
The recent tightening of mortgage underwriting requirements has made it more difficult to get a loan, but one lender is doing the opposite. Movement Mortgage announced this past week that it will lower the minimum FICO credit score to 620 for FHA and VA loans. The company also says it will retain the servicing on most of those loans, so loan officers can offer more competitive prices and expand their reach to more borrowers. (4)
Buyers Have Pets in Mind
A new survey by the National Association of Realtors shows that 81% of home buyers are animal lovers, and will choose one home over another because of pet-friendly features. Those features could include the kind of flooring in the house or fencing around the yard. They also want to be near pet-friendly amenities like dog parks and places to walk their dogs. These sentiments also apply to tenants looking for a place to rent. And, it’s important to note, there could be many more people with pets as we emerge from this pandemic. Pet shelters have reported a surge in pet adoptions as people deal with the isolation of stay-at-home policies, and adopt a pet to keep them company.
(1) Reopening Businesses: CNBC
(2) Increased Funding for Small Business Aid: CNBC
(3) Existing Home Sales Slump: MarketWatch
(4) Lowering Minimum FICO Score: HousingWire