In this Real Estate News Brief for the week ending May 2nd, 2020, First-Quarter GDP, a new low for mortgage rates, and a surge in demand for single-family homes.
We begin with economic news for this past week and the staggered reopening of some state economies. At least 30 states have started allowing businesses to carefully reopen, or have announced plans to do so this month, but each state has different guidelines and timelines.
While government officials want to reopen safely, they also want to survive economically. The latest report on the GDP shows a 4.8% annualized drop in first quarter economic activity. That’s the biggest drop since 2008… and analysts say the second quarter will probably be much worse. (1)
Contributing to the GDP decline was a 7.6% pullback in consumer spending. Americans haven’t been spending as much on cars, clothes, travel, restaurants, and other kinds of non-essential goods and services. Health care spending was also down because people don’t want to go to a doctor’s office if they don’t have to.
The inflation rate didn’t move much. It’s still at 1.3%. With the lack of spending, there’s more risk of deflation. Home prices appear to be holding. The S&P CoreLogic Case-Shiller 20-city price index posted a 3.5% year-over-year increase in February. That is .4% higher than January.
The Fed said after a policy meeting this last week, that it will continue with its bond-buying program until we hit 2% inflation and full employment. The Fed’s balance sheet is now at $6.6 trillion.
As for unemployment, another 3.8 million Americans filed for unemployment. Jobless claims have been dwindling since a peak at the end of March, but the total number is now more than 30 million.
Pending home sales dropped substantially in March. The National Association of Realtors says, they were down almost 21%. (2) That’s the lowest level of contract signings since 2011. NAR’s chief economist Lawrence Yun says it’s a temporary lull. He says, “As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”
And they are at an all-time low right now. Freddie Mac says the 30-year fixed-rate mortgage dropped 10 basis points this last week to 3.23%.
In other news making headlines…
Mortgage Applications Spike
Those low rates are motivating some buyers. The Mortgage Bankers Association says there was a 12% spike in new loan applications. Refinance applications were down however, so that brought the total number of applications down about 3%.
MBA’s associate vice prescient, Joel Kan, says mortgage applications increased in the ten largest states, including California and Washington. He believes it could be the start of an upturn in home sale activity for the delayed spring home-buying season.
Renters Boost Sales of Newly Built Homes
Homebuilders are also reporting a boost in sales from renters trying to get away from city apartments. According to research by John Burns Real Estate Consulting, new home sales are still down about 65%, but they were down 85% at the beginning of the pandemic.
Consultants at Burns says, renters account for much of that demand especially young couples with job security and a good income. They say this could give builders an edge in the recovery because new homes are easy to show and are germ free. Builders are also offering incentives including help with getting a loan.
More People Searching for Rural Homes
There are also signs that people are looking for more rural homes, away from crowded cities. Redfin CEO, Glenn Kelman, says that more people are searching for “homes at the foot of a mountain by the lake.” And, that’s a big change from a time not too long ago when everyone wanted to live in the big city.
Compass CEO Robert Reffkin has noticed the same trend. (3) He told CNBC that they’re “Seeing a 40% increase in searches for single-family homes and a 7% decline in searches for vertical condominiums.” There’s also been more emphasis on larger homes and things like pools and outdoor space.
Lump-Sum Payment Not Required
Borrowers who’ve requested forbearance won’t be required to pay it all back in one lump sum — at least not for Fannie or Freddie-backed loans. (4) The Federal Housing Finance Agency clarified the rules, saying that mortgage servicers would contact borrowers at the end of the forbearance term to work out a repayment plan. One option could be a loan modification.
Black Knight Financial says that 3.4 million homeowners have delayed their mortgage payments. That’s about 6.4% of all U.S. home loans.
(1) MarketWatch Report: GDP
(2) MarketWatch: Pending Home Sales Drop
(3) CNBC Article
(4) Realtor Magazine: Forbearance Clarification