Zillow Market Pulse: August 31, 2020

August 31, 2020

Millions of homeowners are ineligible for extended protections offered by Fannie Mae and Freddie Mac. A consistently dwindling number of homes available for sale is not stopping buyers from snatching up those that are. And job losses once hoped to be temporary are becoming permanent.

Almost a third of mortgages don't qualify for extended foreclosure/forbearance protection

• Fannie Mae and Freddie Mac recently reaffirmed their plans to offer 12 months of forbearance to homeowners in need.
• But loans held privately/in lenders' portfolios — roughly a third of all mortgages — do not qualify for this protection.

Pending home sales continue to rise, despite incredibly low inventory

• NAR's pending home sales index rose 5.9% in July from June.
• The latest Zillow data shows for-sale inventory is down 28.9% year-over-year.

Previously "temporary" job cuts are becoming permanent

• MGM Resorts announced plans to permanently lay off 18,000 previously furloughed workers.
• According to payroll firm Gusto, 33% of workers placed on temporary furlough in March were permanently laid off by July.

So what? 

Last week, Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac extended key assistance policies for distressed homeowners, including the extension of a foreclosure moratorium through the end of the year and a reminder that servicers of GSE-backed loans are allowed to provide a year of mortgage forbearance for those in need. The update provided some much-needed assurances for the ~5% of homeowners with GSE-serviced loans currently in forbearance and, more broadly, the ~25 million borrowers nationwide with loans guaranteed by the two GSEs. But about 30% of the country's outstanding mortgages are portfolio or private-label securities (PLS) loans, owned by financial institutions and ineligible for servicing by the GSEs. These loans have also received some assistance in response to the coronavirus outbreak, but the fate of their protection going forward remains unknown. By definition, a wide range of different institutions are responsible for servicing these loans, and these parties place different criteria (qualification requirements, repayment options etc.) on the protections they offer. This makes it difficult to place a one-size-fits-all protection policy on private loans, and presents considerable uncertainty to the borrowers of these loans and to the broader housing market. Overall, mortgage forbearance rates have gradually fallen in the last few months — but the share of PLS loans in forbearance grew last week to 10.44%, up from 10.37% the week prior.

Following strong home sales figures in July, the housing market appears to have more to give. Pending home sales – normally a 1-2 month leading indicator of final sales – rose strongly in July, an improvement that comes even as the number of homes available for sale remains very low. According to the National Association of Realtors, for-sale inventory was down 21.1% year-over-year at the end of July, and Zillow's latest weekly market report found there were 28.9% fewer homes for sale as of August 22 compared to the same time last year. Theoretically, a shortage of for-sale homes will constrain the market going forward, but thus far, the housing market is showing few signs of slowing down as we enter the late summer months. Homes are moving to a pending status in just under two weeks, and price cuts have become far less common.

Last week, MGM Resorts laid off 18,000 employees, a development that followed American Airlines' decision earlier in the week to cut 19,000 workers by October 1 unless additional aid is received. Earlier this summer, oil field services provider Schlumberger said it will cut 21,000 jobs. Announcements like these are the latest in a steady stream of large companies being forced to cut jobs due to weak consumer demand for their products and services. As the pandemic lingers on, more evidence is emerging that a significant share of layoffs that were initially deemed temporary are transforming into persistent (or permanent) job losses. According to a study by payroll firm Gusto, about a third of employees who were temporarily furloughed back in March were laid off permanently by July. A separate analysis from the Federal Reserve Board and Harvard University found that the number of persistent job losses will likely double (at least) by the end of the year, to levels similar to those of the Great Recession. Long-term unemployment significantly inhibits economic progress, and it took about eight years for the unemployment rate to recover from the sharp increase experienced during the Great Recession.

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