Housing Activity Slowed – May 2020 Edition

The housing data released this week confirmed that the anticipated massive decline in activity in April took place. However, there also were several encouraging signs that a substantial rebound already has begun. Daily volatility in mortgage markets remained low, and the change in rates for the week again was small.

In April, existing home sales fell 18% from March to the lowest level since September 2011 and were 17% lower than a year ago. Total inventory of existing homes available for sale was 20% lower than a year ago, while the median existing-home price was 7% higher. Housing starts in April declined by a record 30% from March to the lowest level since February 2015. Similarly, building permits fell 21% from March to the worst level since January 2015.

While the results for April were as bad as expected, the indicators which reflect more current data contained more positive news. The May sentiment index of builder confidence from the National Association of Home Builders (NAHB) rose to 37 from 30 last month. In addition, the Mortgage Bankers Association (MBA) reported that mortgage applications to purchase a home have increased for five straight weeks. At their lows, purchase applications had been down around 35% on an annual basis, but they are now at nearly the same level as they were one year ago.

To provide relief for those hurt by the pandemic, the government initiated the forbearance program in late March to allow people to postpone making their mortgage payments. The program did not address some important questions, however, including how to qualify borrowers with loans that are in or had been in forbearance. On Tuesday, the FHFA, the regulator of Fannie Mae and Freddie Mac, provided some additional clarity. It announced that borrowers in the forbearance program and those who have left it may now refinance or purchase a home with a new mortgage. The main condition to qualify is that the borrower must have made at least the last three consecutive months of payments, while previous guidelines required being current on their mortgage for at least a year, or have repaid the full amount of any payments missed.

Looking ahead, the coronavirus will remain the main focus. Investors will continue to watch for news about medical advances, Fed actions, government stimulus programs, and plans for reopening the economy. Beyond that, New Home Sales will be released on Tuesday and Durable Orders on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will come out on Friday. Mortgage markets will be closed on Monday in observance of Memorial Day.

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