The COVID-19 pandemic has distorted, not destroyed, the marketplace for U.S. real estate and mortgages. Lenders, real estate agents, inspectors, appraisers, escrow professionals, and just about everyone involved in a property transaction have adjusted — especially credit union mortgage departments.
Nonetheless, the pace of trend-change is more volatile in the short run because of the virus’s impact on the economy, and industry experts think it will stay this way for some time. Some credit union professionals who gobble up year-over-year trends are now pouring over month-to-month trends as they keep a close eye on where the market may be headed.
What’s happening right now in late summer? Some of the following nationwide phenomena may be hitting home for your credit union right now depending on its local membership footprint. Take heed from these recent U.S. reports as you plan for the rest of 2020:
- The COVID-19 crisis has not changed some powerful homebuyer demographics that just started coming onto the scene before the pandemic hit society. Millennials are still aging into key lifestyle decisions that signal an increase in potential homeownership demand. The difference is, many Millennials are running behind in those big decisions compared to Generation X by about 3 – 5 years. Check out “Pandemic Unlikely to Slow Looming Wave of Millennial Marriages and Corresponding Increase in Potential Homeownership Demand in the Long Run” (First American’s Economic Insight blog).
- The overall market is experiencing a rebound in purchase mortgages compared to the refinance-mortgage boom it’s been seeing since the beginning of 2020. As mortgage rates decreased for a sixth consecutive month, purchase mortgages represented 42 percent of all “closed” loans as of June 2020, higher than the previous month. Also, FICO scores continue increasing on a month-to-month basis. See “June Ellie Mae Origination Insight Report Data Shows Purchase Market Rebounding As Interest Rates Continue To Decline” (PR Newswire) and the “June 2020 Origination Insight Report” (Ellie Mae).
- In many regions, higher priced home values are dropping much faster than houses in neighborhoods that are cheaper, which is skewing the overall price picture. That’s why the median sales price of a home fell 5.5 percent in the second quarter of 2020 to $263,400 compared with the first quarter. June marked the second consecutive monthly decline where the annual growth rate slowed from the month prior (two month-to-month declines). Monthly and annualized price data is noisy right now due to economic disruption. Read “Sales-Price Growth Lags for Second-Consecutive Month” (MReport).
- The average interest rate on a 30-year fixed rate mortgage fell to an all-time record low in July 2020, according to a monthly survey keeping track since 1971. Both Fannie Mae and Freddie Mac think it could fall even lower between now and 2021. However, it remains to be seen whether homebuyer demand will continue if COVID cases rise to the point that it hinders economic growth even more so, which would potentially weaken household formation. View “Mortgage Rates Drop, Hitting a Record Low for the Eighth Time this Year” (Freddie Mac news).
- While FICO scores are rising, “closing rates” for mortgages have dropped. The average FICO score on both purchase and refinance mortgages of all types has risen 9 points from March to June — from 742 to 751. However, the number of purchase and refinance mortgages that closed and funded in June was 73 percent, down from 77 percent in March. Meanwhile, it took an average of 47 days to close all loans, both purchases and refis, in June. Check out “Average FICO Scores Rise 9 Points Since March” (Mortgage News Daily).
- The popularity of granny flats, garage apartments, and in-law suites is rising. There is a growing movement in high-cost areas for accessory dwelling units (ADUs) — essentially extra housing space on the same lot. The scarcity of affordable housing in high-cost areas has resulted in many cities adopting ADU-friendly legislation. The number of for-sale listings that mention ADUs has risen as well. Demand for ADUs is highest in the fastest population-growing regions of the country. See “Granny Flats, Garage Apartments, In-Law Suites: Identifying Accessory Dwelling Units” (Freddie Mac blog).
- Mortgage forbearances are falling, but early-stage delinquencies are rising. Total mortgage loans in forbearance fell for the fourth consecutive week to 7.4 percent in early August, meaning 3.9 million “active” mortgagees/homeowners were in forbearance — better in the short run, but worse than the 0.25 percent reported just prior to the COVID-19 pandemic. Meanwhile, the rate for early-stage mortgage delinquencies in April (30 – 59 days past due) hit 4.2 percent, reaching its highest level in 21 years. And Federal Housing Administration (FHA) mortgage delinquencies — constituting federally-backed homeowner programs — hit a record 15.7 percent as of June 30. Read “Early-Stage Mortgage Delinquencies Rate Hit Highest Level in 21 Years in April” (Housing Wire), “How Many Mortgages are Now in Forbearance?” (DS News), and “As FHA Mortgage Delinquencies Surge to Record High, Here’s What to do if You Can’t Pay” (Bankrate).
- Home sales are rising, but inventory is down over the long term. During the first week of July, home sales rose by two percent when compared to pre-pandemic home sales (the short term), marking the first time that sales surpassed pre-pandemic era levels. However, total home-sale inventory (the percentage of for-sale listings versus total housing stock) is down 32 percent from a year ago, which is no doubt impacted by the fact that new sales listings, a different metric, were down 19 percent. View “Home Sales Surpass Pre-Pandemic Numbers”, “Housing Inventory Down 32 Percent Annually” (MReport), and “Home Sales Growth is Too Good to Last” (Mortgage News Daily).
- Supported by the strong housing market leading into COVID-19, foreclosure filings in the first six months of 2020 reached an all-time low. More than 165,000 properties with default notices, scheduled auctions, or bank repossessions were filed — down 44 percent from the same period a year ago. Distressed property volume is almost guaranteed to increase significantly once the federal foreclosure moratorium is lifted as millions of Americans have already missed their mortgage payments in June amid higher unemployment. Check out “Top 10 U.S. Metros with the Highest Foreclosure Rates in Q2 2020” (ATTOM Data Solutions).
- Many remodeling contractors and crews are busier today compared to before the COVID-19 pandemic, building decks, patios, porches, and redoing kitchens and bathrooms. Small and moderately sized remodel projects are hot right now, with larger projects less so. Nonetheless, rising material prices, especially lumber, and skilled laborer shortages are proving a challenge for both contractors and homeowners. See “Remodeling Industry Sees Optimism Despite COVID-19” (National Association of Home Builders blog).