Zillow Market Pulse: April 21, 2020

April 21, 2020

March home sales figures were underwhelming, and the worst is yet to come. The Federal Housing Finance Agency will provide much-anticipated relief for mortgage servicers, as the share of loans in forbearance continues to climb. And more federal relief for small businesses appears to be on the way.

• Existing home sales fell sharply in March, but the worst is yet to come

  • Sales of existing homes fell 8.5% in March from February.
  • March data is even older than it appears, reflecting deals that went pending in January or February. April's declines will almost certainly be larger.

• The FHFA announced long-awaited relief for mortgage servicers

  • Under new policies, servicers are only required to pass through payments associated with loans in forbearance for four months, after which they will only be responsible for the interest portion of the payments.
  •  As of April 12, 3 million mortgages were in forbearance nationwide, according to the Mortgage Bankers Association.

• More relief likely on the way for small businesses

  • The White House and congressional leaders reached an agreement that includes an additional $370 billion for small business relief.
  • Hospital aid and funding to enhance coronavirus testing capabilities were also included in the deal.

So what?

Today's release of March existing sales data was one of the first definitive signals on just how much the nation's widespread business shutdowns, social distancing measures and general fear and uncertainty weighed on home transactions during the first few weeks of the U.S. coronavirus outbreak. On the surface, the numbers look bad, showing the largest monthly decline in sales volume since November 2015. But data in the coming months are expected to be worse. March sales activity encompasses the entire month – including the first half, when much the country was still more-or-less open for business. The March data also reflect closed sales that likely went pending in February or even January, a time when the economic outlook was, obviously, far rosier than today. While continued declines in sales data are almost certain, what happens to home prices is far less definitive. The median sales price grew in March at its fastest annual pace since 2016, and almost one-in-five (18.3%) homes sold in March had a sale price of at least $750,000. Inventory remains very low – as expected – which should help prevent prices from falling markedly, despite waning confidence among would-be home shoppers.

News that the Federal Housing Finance Agency (FHFA) would provide assistance to mortgage servicers was a welcome and well-timed development for those growing increasingly concerned about servicers' financial prospects amid growing rates of forbearance. A recent report from the Mortgage Bankers Association (MBA) found that, about 3 million U.S. mortgages were in forbearance as of April 12 – almost 6% of all mortgages outstanding. In addition to easing servicers' financial burdens, the FHFA policy – which obligates servicers to advance only interest payments after a loan remains in forbearance for four months – should offer servicers more certainty and help ease lending conditions, which have tightened in recent weeks. It has become very difficult for all but the most creditworthy borrowers seeking conventional loans to qualify for a loan to purchase or refinance. Even wealthier borrowers were feeling the pinch, as the availability and issuance of jumbo loans has fallen notably in recent weeks.

A bipartisan spending bill agreed upon by the White House and congressional leaders was a similarly positive development overall, particularly for small businesses that watched hundreds of billions of dollars in initial funding get absorbed in just a couple weeks. The latest, $480+ billion deal – which still needs to pass through the House and Senate and be signed by the President – also offers additional support for hospitals and funds intended to bolster virus testing capabilities. But the centerpiece of the bill is an additional $310 billion for small businesses, as well as an additional $60 billion in small business loans to be set aside for small lenders, who some argue are more inclined to lend to very small businesses that might otherwise fly under the radar of larger banks. With the details still being worked out, and questions surrounding the loan approval and distribution process remaining, it's difficult to immediately estimate the impacts this new bill will have. Even so, more relief is desperately needed for small businesses and progress on what would be the fourth coronavirus-related bill signed over the last two months is welcome news to many industries that have suffered immensely since the onset of this epidemic.

 

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