Zillow Market Pulse: April 17, 2020

April 17, 2020

More than one out of twenty mortgage borrowers have been granted a pause on their monthly mortgage payments. New reports shed light on where the downturn in the labor market is being felt the most. And China's economy worsened for the first time in at least 28 years.

• 5.5% of all mortgages are in COVID-19-related forbearance programs

  • Black Knight reports that nearly 3 million loans are now receiving relief on their monthly payments.
  • The loans total $650 billion in unpaid principal.

• Sharp slowdown in job advertisements another blow for reeling labor market

  • Job postings fell 31% in the past two months compared to the same period in 2019, according to Indeed.
  • Tourism-dependent and hospitality-dependent metro areas saw sharpest declines.

• China's first quarter GDP beats estimates, but shows sluggish consumer activity

  • GDP fell 6.8% in the first quarter of 2020 from the same period in 2019, the first such decline since reporting  began in 1992.
  • Retail sales fell 15.8% in March from the year before.

So what?

The numbers in today's report from Black Knight offer more concern for the mortgage industry, which continues to face extreme challenges resulting from well-intended forbearance policies. Despite missing out on monthly payments from borrowers, mortgage servicers are still required to pass the payments through to investors in mortgage backed securities. With 2.9 million loans in forbearance,mortgage servicers will need to advance about $2.3 billion each month in order to meet these obligations. What's perhaps even more concerning is how this number could grow in the coming weeks and months. While 80 million financial relief payments for individuals were processed in the last three weeks, according to the U.S. Treasury, and millions began to receive their $1,200 (or more) payment this week, rumblings have already begun to surface that the one-time payment is insufficient for families. A survey conducted by SimplyWise in late March found that 63% of respondents would need additional relief within the next three months in order to stay afloat. With an unprecedented, and unexpectedly sharp, increase in unemployment claims occurring in the past few weeks, expect calls for more direct support from the federal government to get louder in the near term. 

Speaking of the downturn in the labor market, while the headline figures at the national level are rightfully gaining most of the attention, evidence has begun to surface showing which parts of the country have been hit hardest. A report from Indeed states that job postings on their site in a two-month period ending April 10 are down 31% from the same period in 2019. Hospitality and tourism-dependent areas have seen the biggest fall so far — three of the ten hardest-hit metros are in Florida — but no large metros have been spared from a downturn. A separate analysis from a U.S. Census Bureau economist identified Michigan and Pennsylvania among states where high jobless claims coincided with a sharp reduction in new business applications. The author was sure to point out that some states have been able to process claims for unemployment more quickly than others, which might skew the results . But these two analyses introduce an important element to the ongoing nightmare scenario in the labor market: It's not only where jobs will be lost, but where the new jobs will be once the economy begins its recovery.

Lastly, news that China reported its first ever annual decline in quarterly GDP offered a forecast of what's to come in other parts of the world. Perhaps the most glaring element of the report was how poorly consumer activity in China has recovered thus far. While the headline GDP figure came in above expectations for a larger decline, consumer-specific indicators were far worse than what experts had been anticipating. Retail sales in March were 15.8% below levels from a year ago, much worse than the 8% that had been expected. Home sales for the quarter fell 23% from the same quarter in 2019. These indicators are a warning for what the recovery could look like in the U.S. China's economy is still highly reliant on industrial activity and exports, as opposed to the U.S., where two-thirds of economic output is driven by consumers. A similarly sluggish recovery for consumers in the U.S. would be a major problem for the country's economic recovery and would delay the time it will take to reboot.

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