Zillow Market Pulse: April 24, 2020

April 24, 2020

Mortgage delinquencies rose in March — the first rise ever recorded in the month — but remain near record low levels. Roughly 6 percent of outstanding mortgages are in a forbearance agreement. Spending on capital goods rose, but will very likely reverse in coming weeks.

• Mortgage delinquency rate rises in March for the first time

  • According to Black Knight, 3.39% of loans were delinquent in March, up from 3.28% in February.
  • Delinquencies have never before risen in March — the month is normally the strongest of the year in the mortgage industry, according to the report.

• 3.4 million mortgages are in forbearance

  • The figure represents 6.4% of all outstanding mortgages.
  • Combined, these loans are associated with an estimated $4.1 billion in monthly principal and interest payments.

• Spending on core capital and durable goods exceeded expectations

  • Orders for core (non-defense or transportation) goods increased 0.1% in March from February, according to the Census Bureau's advance report.
  • The final report, due May 4, will provide more detail and likely show declines.

So what?

The monthly increase in the share of delinquent loans is notable because it was the first time in the report's history that this figure increased in the month of March. According to Black Knight, March is normally the strongest month of the year for mortgages. Despite the one month increase in delinquency, overall tardiness is down 26 basis points from a year ago and delinquency rates are still very low by historic standards. Furthermore, measures of serious delinquency and the rate of foreclosures all set new record lows in March. So, despite the notable uptick in overall delinquency, if anything the March report on payment delinquencies offered more evidence of the housing market's overall stability in the period immediately prior to the coronavirus outbreak.

But while delinquencies remain low, the number of loans in forbearance is only getting bigger. According to Black Knight, as of April 23, 3.4 million mortgages were in a forbearance agreement, up half a million from a week ago and representing 6.4% of all outstanding mortgages. Combined, these loans are associated with an estimated $4.1 billion in monthly principal and interest payments that mortgage servicers are still responsible for advancing to investors. Servicers have been vocal about requesting aid in order to help them meet these financial obligations that they had neither foreseen nor planned for. Earlier in the week, the Federal Housing Finance Agency (FHFA) announced a policy that removes the servicers' obligations on a loan after it has been in forbearance for four months, but some argue that the policy does not go far enough to assist servicers in the short term. Treasury Secretary Steven Mnuchin said earlier this week that he has no plans to create a new lending facility specifically for mortgage servicers. As the dispute carries on, the labor market continues to reel and more increases in forbearances in coming weeks look very likely.

The March reports on core (non-defense, non-transportation-related) capital and durable goods spending were a pleasant surprise to most experts, who on average expected each reading to fall by close to 7% from February. But the same experts who were surprised by the relatively good news were also quick to caution that these numbers likely don't reflect reality in the manufacturing and other industrial sectors, and that subsequent reports are likely to be far worse. Today's report was the advanced version for March, which generally captures the industry at a high level, with a particular focus on the beginning of the month. It's likely that the final report, due May 4th, will include more fine-grained information on specific subsectors and offer much more clarity into how the coronavirus outbreak has impacted those lines of business. Measures of consumer sentiment fell sharply this month, suggesting that the willingness to purchase larger items such as cars or large household appliances has waned, a view reinforced by the final version of the University of Michigan Index of Consumer Sentiment, which was released today. The index's read on people's perception of Current Economic conditions fell 29.4 points from March, while the forward-looking Index of Consumer Expectations fell just 9.6 indicating at least some signs of stabilization. In the weeks ahead, we will begin to get a sense of consumers' reactions to eased shelter-in-place restrictions, which will be crucial and informative for how the path to recovery will be charted.

 

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