Zillow Market Pulse: May 21, 2020

May 21, 2020

April existing home sales fell sharply, but by slightly less than expected. Mortgage delinquency rates nearly doubled in April, largely because of forbearance programs. And claims for unemployment insurance rose last week from the week before.

• Sales of existing homes fell sharply in April

  • Sales fell 17.8% from March, the largest one-month decline since 2010.
  • The 4.33 million homes sold in April was the lowest monthly total since 2011.

• Forbearance programs drive a near-doubling in mortgage delinquencies

  • According to Black Knight, 6.45% of mortgages were at least 30 days past due in April, up from 3.06% in March.
  • Loans that are in forbearance are considered delinquent in this report.

• Labor market carnage continues

  • A total of 4.4 million claims for unemployment insurance were filed in the week ending May 9.
  • Over half of those (2.23 million) were claims for Pandemic Unemployment Assistance (PUA), a program designed to help previously ineligible people receive relief.

 So what?

The April existing sales figures were always going to be bad. While sales took a significant step back in March, April's report is the first one to truly capture the change in buyer activity since the coronavirus broke out on U.S. soil. The combination of fear, economic uncertainty and mandatory stay-at-home orders generated by the pandemic brought huge portions of the economy to a crashing halt and prevented many home shoppers and sellers from participating in the market. The question now is what happens from here. April's report was bad, but it could have been worse - price growth remains strong and inventory is very low, keeping competition high for those buyers still on the market. May's sales figures – which represent buyer activity in April or even late March – certainly won't be a blockbuster but will likely show some faint signs of improvement. Either way, it's clear that as the country begins to slowly reopen, buyer demand for homes remains sturdy and many are eager to take advantage of record low interest rates to get in on the action. It appears the worst may now be behind us and that home sales are at least at the start of the road to recovery.

The April surge in mortgage delinquencies was also largely inevitable. Black Knight considers all mortgages in forbearance programs as delinquent, and as of May 12, slightly more than 8% of all loans (about 4.7 million) were receiving this form of assistance. Nevada, New Jersey and New York – three states that bore substantial health and economic impacts from the coronavirus in April – experienced the largest increase in payment tardiness of any states. Miami – home to the world's busiest cruise ship port – saw a similarly large spike, and had the largest monthly increase of all metro areas. As participation in forbearance programs continues to grow, delinquency rates are also likely to continue to rise, possibly to the all-time highs set during the Great Recession. The question remains, though, how many of those loans in forbearance will avoid progressing into foreclosure, as assistance expires and payments become due again. The future path of any additional aid and of improvements in the labor market are two pivotal pieces that will help prevent a surge in foreclosures.

As the U.S. coronavirus crisis nears its tenth week, the damage to the labor market continues to be devastating. The headline number of unemployment claims decreased slightly from last week, but remains very high by historic standards. But when including applications for Pandemic Unemployment Assistance (PUA) – a new program created to allow self-employed people, independent contractors, and others who don't qualify for traditional unemployment benefits – suggests that overall claims grew significantly from the week before. There were more claims for PUA this week than there were for traditional benefits. The PUA number might be misleading and is difficult to attribute to a specific week, since the program is new and may still be processing a backlog of claims from workers previously ineligible for relief even a month ago. But no matter how you calculate it, the fact that the number of jobless claims remains this high this long into the crisis is a glaring issue. It suggests that the chasm in the labor market is much deeper than anyone expected at the onset of the crisis, and that there is a high risk of job losses once considered to be temporary turning into more-permanent downsizings. A working research paper from Stanford suggests that as many as 42% of recent layoffs will result in permanent job losses, as social distancing and changing consumer behaviors will limit volume in certain industries, leaving a need for fewer workers.

 

Click here to read past editions of Zillow’s Market Pulse updates.

The post Zillow Market Pulse: May 21, 2020 appeared first on Zillow Research.

via Zillow Market Pulse: May 21, 2020