Zillow Market Pulse: May 27, 2020

May 27, 2020

Purchase mortgage applications are higher than they were a year ago. The share of loans in forbearance continues to grow, but more slowly. And the Fed offered more color and context to the broad economic slowdowns.

• For-purchase mortgage applications now up year-over-year

  • Application activity increased 9% from last week, and now sits 9% above the levels from the same week last year.
  • Applications are 54% higher than lows hit in April.

• 8.4% of mortgages are in forbearance, but the growth rate has slowed

  • The forbearance rate rose just 20 basis points on the week, the smallest increase since the week of March 9.
  • The biggest gains in forbearance were among loans backed by Ginnie Mae – typically held by borrowers with lower credit.

• The Fed's beige book adds color to economic slowdowns

  • The central bank's report – released eight times a year – emphasized that economic activity decreased in all districts across the country, with most seeing sharp declines.
  • But some budding signs of optimism were emerging in some sectors.

 So what?

After rising for six straight weeks, for-purchase mortgage application activity is now above last year's levels — by a lot. Incredibly, for-purchase mortgage activity has risen 54% from lows reached in early April. Combined with yesterday's surprising increase in new home sales, today's release is another indication that buyer demand remains steady in a market in which prices are still rising and borrowing conditions remain tight even amidst the broader economic slowdown. The question now is whether this steady growth will persist. Some are questioning the longer-term viability of the recovery, stating that much of this bounceback in the market could be due to pent up demand from before the crisis. While that may be, the steady demand suggests that buying activity is gradually improving, rather than sharply recovering. Of course, significant downside risks to buyer demand remain, most notably the enduring downturn in the labor market and delicate plans to reopen the economy. But no matter how you slice it, another solid mortgage applications report is the latest piece of good news for a housing market that is gaining — not losing — momentum.

A separate report released late yesterday by the Mortgage Bankers Association showed that while the share of loans in forbearance continues to grow, the pace of this growth is decelerating, even as job losses and unemployment claims have continued to mount. Forbearance requests as a share of portfolio volume were down from a week prior, and while call volume picked up, wait times and abandonment rates fell, indicating that mortgage servicers are finally prepared for the uptick in activity. That said, there are some lingering concerns underneath the headline figures. Job losses and reductions in income have been felt most strongly by lower-paid workers. This is a likely reason why the share of Ginnie Mae loans (composed of FHA and VA loans – which typically require a smaller down payment and cater to less credit worthy applicants) in forbearance has risen to 11.6% and had the largest weekly increase (34 basis points) of the three categories tracked. The share of Fannie Mae and Freddie Mac loans in forbearance ticked up just 11 basis points on the week, to 9.54%. Overall, the improving trend in forbearance rates is modestly encouraging, but there are many factors still in play that could cause the rate to reaccelerate in the coming months.

The most-recent Federal Reserve Beige Book– a report produced eight times per year ahead of Federal Open Market Committee meetings – offered more color into this downturn, and some signs of subtle recoveries budding in some sectors in certain regions. For example, in New England, cancelled conventions are poised to cost the hotel industry in Boston 200,000 room nights, and a coastal vacation town reported a "stark increase" in bankruptcy inquiries from small retailers in their area. The report also shed light on some budding signs of optimism in some sectors. Businesses in New York appear less pessimistic than in the previous Beige Book report, with multiple sectors expecting a modest improvement to activity in the near-term. And retailers in the Cleveland Fed's district have started to bring back workers that were temporarily laid off. But overall, the report emphasized that economic activity is down nationwide, and employment continued to decrease in all districts. It's important to note that these insights were accumulated about two weeks ago in mid-May, so we'll begin to see if losses can start to fade — and nascent improvements start to more strongly materialize — in the coming weeks.

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