The Tidwell Report

This week, I felt overwhelmed trying to read, watch, and reconcile all of the real estate and economic news coming out this past week, which is a reflection of how uncertain these times are.

Some clients shared that the emotional and financial toll of living in their current homes has become too much and renters and homeowners alike are reconsidering their spaces.

For homeowners, that usually means a remodel or DIY projects to improve different elements of their homes. Many are telling me that they have no appetite for managing a construction project at home, which would represent one more disruption to their already disrupted lives. For others, they feel that their homes are too old, are too small, or cost too much to maintain.

Then there are the first time home buyers who cringe every month they send in their rent–they are tired of paying their landlord’s mortgage and redecorating has lost its thrill.

I think a lot of people also may want a complete change of scenery or new neighbors, but what’s more important is knowing what is going on right now so you can make informed decisions.

HOUSING RIGHT NOW
According to the Wells Fargo Economics Group, “Housing looks to be the strongest sector of the coronavirus economy. Mortgage purchase applications have more than completed a ‘V-shaped’ recovery, unlike any other major indicator we are aware of.” And Mortgage applications continue to climb even higher than they did last week.

Bond yields were driven higher by last week’s surprisingly good jobs report and it looked like mortgage rates had officially bottomed out. Then rates suddenly reversed course on Thursday and dipped below 3% for the first time ever!

Lower mortgage rates = increased number of people who can qualify to buy a home or increased purchasing power for those who were already qualified to buy a home = increased demand for homes

Coronavirus = fewer sellers willing to allow the public into their homes

Net result = prices will eventually be driven higher in the next few months as the interest rates get baked into the pricing of homes as they sell in bidding wars.

Knowing how to circumvent a bidding war is key to avoid being left out in the cold. Call me if you know anyone struggling to buy a home they love in this market, or if you know someone thinking about selling. A quick chat could help them make an informed decision.

MAY HOME SALES DATA
*to be released next week*
While we know that the number of sales will be down at least 50% from one year ago, we will be looking at sales price data. From what we are seeing we expect a healthy rise in home prices and an increase in the number of homes sold as compared to April home sales. Those figures will be included in next week’s update.

FED TO MAINTAIN LOW SHORT TERM INTEREST RATES
*some mortgage shoppers might think this has bearing on mortgage rates, but it is almost completely unrelated–The Fed Funds Rate applies to overnight loans between large financial institutions and a lower rate encourages business investment, which in theory stimulates the economy*
At Wednesday’s meeting, the Federal Reserve (Fed) left interest rates unchanged and near zero. The Fed projected a slow economic recovery from the recession and, in their first economic projections of 2020, forecasted the unemployment rate to end 2020 at 9.3% and remain elevated for years, coming in at 5.5% in 2022. Gross Domestic Product (GDP) is expected to be 6.5% lower at the end of this year than it was in the final quarter of 2019.

The nonpartisan Congressional Budget Office is forecasting a 5.6% real GDP plunge for this year with hardly any rebound in 2021.

(According to a forecast on Tuesday from Wells Fargo economists, GDP probably will fall 38% in the second quarter before rebounding 24% in the third quarter and 11% in the final three months of the year–an estimated plunge of ~3% since the 2nd quarter dip.)

Based on the stance of the committee members of the Fed, Wells Fargo believes that “…short term interest rates likely will remain at rock bottom” possibly through 2022.

Fed Chair Jerome Powell declared that Fed would continue to deploy the monetary tools at its disposal to support the country “for as long as it takes.” That will make any investor happy.

One reason that Fed officials are comfortable with maintaining loose monetary policy is that the reduced economic activity resulting from the pandemic has caused a sharp decline in inflation. In May, the core CPI price index, which excludes the volatile food and energy components, was just 1.2% higher than a year ago, down from an annual rate of increase of 2.4% in February. Tame inflation has also helped keep mortgage rates low.

FORBEARANCE CONTINUES TO FLATTEN
*Mortgage forbearances fell for the second straight week.*
The CARES Act mandated that Americans with government-backed loans who were economically impacted by COVID-19 be provided with the option to suspend mortgage payments for up to 12 months. Mortgage forbearance in the 3rd week of May. As of May 26th, the number of active forbearances had begun to flatten.

This week, the number of loans with suspended payments dropped to 4.66 million from 4.73 million, according to Black Night, a mortgage data firm said. Measured as a share of all mortgages, forbearances dropped to 8.8% from 8.9% in the prior week, according to the reported data. This decline in total forbearances was only the second weekly drop since the CARES Act was enacted by Congress at the end of March.

Interestingly, 80% of homeowners with a mortgage in forbearance has 20% equity in their home or more. That means they have plenty of cushion before they go upside down, meaning the mortgage amount is greater than the home’s value. “The challenge now becomes handling the upcoming wave of forbearance expirations/extensions, as well as assessing default risk and what comes next for the nearly 4.8 million homeowners in active forbearance plans,” according to Black Night.

Many US banks expect a significant number of borrowers to get back on normal payment schedules once their forbearance deals expire later this month. Based on income patterns of those who secured payment holidays and bank conversations with clients who were granted forbearance measures, the disruptions to payment schedules have not been as bad as feared. But temporary government stimulus measures may have played a role in the fact that around 40% of those who were granted forbearance continue to make full payments on their loans, according to the Financial Times.

CORONAVIRUS WAVE 2?
According to the Wells Fargo Economic Group, “the country is arguably better prepared for a second wave. Testing is more widely available, people have access to protective gear such as masks, and awareness of the virus is just generally higher than it was at the onset of the pandemic. Preparedness itself could, therefore, obviate the need for large portions of the country to re-enter a state of lockdown.”

MORTGAGE DELINQUENCIES
“While delinquencies rose by at least a full percentage point in all of the 100 largest U.S. metro areas and all 50 states, varying impacts were seen across the country… Delinquency rate increases in Miami (+7.2%) and Las Vegas (+6.2%) were both more than 2X the national rise” Bakersfield and Stockton are the only cities in California that made the list of Top 10 Markets with the largest delinquency rate increase.

STOCK MARKETS
*gave up most of last weeks gains*
Last week’s robust jobs report for May propelled stocks to one of the highest percentage gains in years, but warnings from the Federal Reserve of a slower than expected recovery, followed by data showing a surge in new coronavirus cases caused stock markets to have their worst week since March. While stocks suffered steep losses this week it’s important to acknowledge that the major indexes are still higher than they were two weeks ago.

By The Numbers:
The Dow Jones Industrial Average closed the week at 25,605.54, down 5.6% from 27,110.99 last week. It’s down 10.3% year to date.
The S&P 500 closed the week at 3,041.32, down 4.4% from 3,193.93 last week. It’s down 5.9% year to date.
The NASDAQ closed the week at 9,588.81, down 2.3% from 9,814.09 last week. It’s up 6.9% year to date.

US TREASURY BOND YIELDS
The 10-year treasury bond closed the week yielding 0.71%, down from 0.91% last week.
The 30-year treasury bond yield ended the week at 1.45%, down from 1.69% last week.

MORTGAGE RATES
*Rates dropped late in the week. Next week’s surveyed rates will be lower*
The Freddie Mac Primary Mortgage Survey released on June 11, 2020, reported mortgage rates for the most popular loan products as follows:
The 30-year fixed mortgage rate average was 3.21%, up slightly from 3.18% last week.
The 15-year fixed was 2.62%, unchanged from 2.62% last week.
The 5-year ARM was 3.10% almost unchanged from 3.10% last week.

Have a great Monday!

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