Housing Finance Roundup: July 13, 2020

MBA NewsLink summarizes more than half a dozen new reports from Redfin; Zillow; First American Financial Corp.; Fitch Ratings; ATTOM Data Solutions; and Black Knight.

Redfin: More Than Half of Offers Faced Bidding Wars in June

Redfin, Seattle, said more than half of its agent-engaged offers for homes faced competition in June, the second consecutive monthly increase. Nationwide, 53.7% of Redfin offers faced bidding wars last month, up from a revised rate of 51.8% in May and 44.4% in April.

Redfin Economist Taylor Marr said the bidding-war rate is rising even as the coronavirus pandemic and the shaky economy that comes with it continues to spread across the country.

“Bidding wars continue to be fueled by historically low mortgage rates and fewer homes up for sale than almost any time in the last two decades,” Marr said. “It’s like a game of musical chairs where only the best bidders get a seat. Both renters and move-up buyers who have held onto their jobs are vying for the small number of single-family homes on the market as they realize they need more space for their families.”

The report said with 72.4% of Redfin offers facing competition, Boston had the highest bidding-war rate of all the metros included in this analysis in June. Boston also topped the list in May, when 67.2% of offers were part of a bidding war. Next come San Diego and Salt Lake City, where 65.7% and 63.8% of offers faced competition, respectively. More than half of all offers faced bidding wars in 12 of the 24 metros included in this analysis.

Zillow: Heavy Buyer Demand Tilting Market in Favor of Sellers

Sellers have the upper hand in today’s housing market, according to Zillow’s Weekly Market Report. Despite a dip in newly pending sales, homes are “flying off the market” at a record pace and inventory remains scarce.

The report said homes once again went under contract at their fastest pace since at least 2018 (when Zillow began tracking the data), tying a record set last week. Homes sold in the week ending July 4 were typically on the market for 20 days before a contract to sell was signed, a full week faster than the same period last year. And they are typically selling after only five days in Kansas City, Cincinnati and Indianapolis. Zillow said newly pending sales fell 4% from the previous week — the second consecutive weekly drop —  and remained steady from a month earlier.

The housing market continues to be “starved” for inventory, Zillow said. New for-sale listings dropped 1.5% from the previous week. They are now 7.9% below last month’s level, and down 27.2% from a year ago. Total for-sale inventory is 22.4% lower than during the same week last year.

“Housing demand is clearly outstripping supply,” Zillow said. “Sellers are reacting by more often holding steady with their list price — only 4.1% of active listings had undergone at least one price cut last week, down from 5.6% a year earlier.”

•           The median list price grew again to $338,760, up 0.5% from the previous week and 4.3% year over year. High-end homes are coming onto the market at a greater rate than more-affordable homes, helping to drive up the median list price.

Black Knight: Active Forbearance Plans Fall by 435,000

Ahead of today’s Forbearance and Call Volume Report by the Mortgage Bankers Association, Black Knight, Jacksonville, Fla., said active forbearance plans fell another 435,000 week-over-week ending July 7, bringing the total number of active forbearances to its lowest point since April 28.

Black Knight said as of July 7, 4.14 million homeowners were in active forbearance, representing 7.8% of all active mortgages, down from 8.6% the week prior. Together, they represent just under $900 billion in unpaid principal. Some 6.0% of all GSE-backed loans and 11.6% of all FHA/VA loans are currently in forbearance plans. Another 8.2% of loans in private label securities or banks’ portfolios are also in forbearance.

“This latest decline in the number of homeowners in active forbearance is an encouraging sign of continued improvement,” said Andy Walden, economist and director of market research for Black Knight. “The reduction of roughly 435,000 – the largest single-week drop yet – was driven at least in part by the fact that more than half of all active forbearance plans entering the month were set to expire at the end of June. While the majority of those have been extended, this week’s data suggests a significant share were not.”

First American: Rising Millennial Educational Attainment Signals Homeownership Demand Primed for Growth

First American Financial Corp., Santa Ana, Calif., said its annual Homeownership Progress Index showed potential homeownership demand grew nearly one percentage point nationally in 2019.

When broken down by age group, the Index showed the majority of the potential demand for homeownership in 2019 and 2018 was driven by the millennial generation, those between the ages of 22 and 38 (in 2019).

“Millennials are choosing to delay critical lifestyle choices that are often triggers to buying a home, primarily getting married and having kids, because largest numbers of millennials are focused on furthering their educations,” said Odeta Kushi, First American Deputy Chief Economist. “The rise in millennial educational attainment, while it may delay homeownership demand compared with their predecessors in the near-term, increases the likelihood of even greater homeownership demand for this generation.”

The Index reported Millennials are the most educated generational cohort in U.S. history. Comparing each generation’s educational attainment at the same age of 38, 45 percent of millennials have a bachelor’s degree or higher, while only 38 percent of Generation X and 24 percent of Baby Boomers did. The share of millennials with bachelor’s degrees or higher will likely continue to rise, as some younger millennials have yet to graduate. Education takes time and money, which helps explain why millennials are delaying important lifestyle decisions, such as marriage, having children or owning a home.

“While the homeownership rate for millennials currently lags preceding generations, we know that income is a strong predictor of the likelihood of becoming a homeowner, and we know that millennials are just as interested in becoming homeowners as their predecessors,” Kushi said. Just as we saw millennials drive the homeownership rate higher in 2019, we can expect the same in the years to come.”

Fitch Ratings: Coronavirus Accelerates Secular Shifts in Structured Finance

Fitch Ratings, New York, said the coronavirus pandemic has accelerated secular shifts that are having and will continue to have a lasting impact on structured finance sectors, leading to changes in loan collateral and performance, origination and credit verification.

The report, The Next Phase: Coronavirus Accelerates Changes to the Structured Finance Landscape, said the sudden prevalence of working from home due to sustained lockdowns, concerns about commuting and social distancing have already altered office and residential property use. The extent to which this is sustained beyond the short term would result in reduced demand for city center offices spaces, and there may be elevated housing demand outside of urban centers, with people seeking more space as they spend more time at home.

“We expect to see these trends reflected in both [residential mortgage-backed securities] and [commercial mortgage-backed securities],” the report said.

Fitch said digital underwriting for loans will increase along with new measures of assessing consumer credit quality. Demand for consumer credit will fluctuate with employment status and incomes. Online, unsecured credit lending by fintech companies will continue to increase, but these companies have faced severe stress in the recession and may ultimately be limited by their monoline business model.

“For now, consumer credit may be limited as banks pull back on lending but demand is likely to be muted in an uncertain environment where there is limited visibility on the course of the pandemic,” the report said. “Payment forbearance measures are clouding the credit picture, and high levels of loan modifications or payment holidays are posing challenges to ABS and RMBS.”

Zillow: Fewer Sellers Cutting Prices in Tight Housing Market

A new Zillow analysis shows the share of listings with a price cut is down compared to last year. Only 4.1% of homes on the market as of June 27 had a price cut, compared to 5.6% a year ago.

Zillow said typically the share of listings with a price cut increases as the home selling season continues, rising steadily from February to October. This year however, price cuts flatlined from February to March, with around 4% of listings offering a price cut — atypical behavior compared to previous years — and then dropped to annual lows in April at 2.9%. Since then, more homes saw price cuts, though the share remains well below what would be expected in a normal year.

“This may be our strongest signal yet that sellers have the upper hand in the housing market today — and they know it,” said Jeff Tucker, economist with Zillow. “Many buyers still think they can make lowball offers and score a great deal in the midst of today’s economic turbulence, but sellers are holding firm on list prices. For-sale inventory has been setting new record lows this spring, so sellers know that buyers are starved for options. Despite the lack of price cuts, sellers are still able to sell their homes faster than they did this time last year.”

Of the 50 largest U.S. metropolitan areas, New York (2.8%), Miami (3.3%) and Riverside (3.8%) have the lowest share of listings with a price cut — with New York’s level lower than what’s normally seen in December. However, those shopping in Denver (9.1%), Indianapolis (7.4%), and  Chicago (6.9%) will see the largest share of price cuts.

The typical home value in the U.S. is $251,598 up 4.3% compared to a year ago. Zillow’s most recent home price forecast expects a slight 1.8% drop in prices from April to October 2020, with recovery through 2021.

ATTOM: East Coast, Illinois Have High Concentrations of Vulnerable Housing Markets from Coronavirus

ATTOM Data Solutions, Irvine, Calif., said its second-quarter Special Report spotlighting county-level housing markets around the United States that are more or less vulnerable to the impact of the coronavirus pandemic showed areas most at risk in the second quarter sat on the East Coast and in northern Illinois – with clusters in the New York City, Chicago, Baltimore and Washington, D.C., areas – while the West had the fewest.

The report said a stretch of states running from Connecticut through Florida, plus Illinois, had 43 of the 50 counties most vulnerable to the economic impact of the pandemic. They included 11 suburban counties around New York City, seven in the Chicago area, five around Washington, D.C. and four around Baltimore. The only four western counties were in California, with none in other West Coast or southwestern states.

ATTOM said markets are considered more or less at risk based on the percentage of homes currently facing possible foreclosure, the portion of homes with mortgage balances that exceed the estimated property value, and the percentage of local wages required to pay for major home ownership expenses.

“Home-sales data from around the country is starting to show that eight years of price gains may be coming to an end amid the economic damage flowing from the virus pandemic. It’s still too early to make any definitive calls, but the latest numbers show storm clouds gathering over the market,” said Todd Teta, chief product officer with ATTOM Data Solutions. “With this second special report on the potential impact of the pandemic, we see pockets around the country that appear more or less poised to withstand downward pressure on prices and other market conditions. Over the next few months, enough data should come in to tell us how things will most likely pan out.”

Redfin: Pending Home Sales Retreat Even as Mortgage Rates Hit New Low

Redfin, Seattle, said the housing market closed out June on somewhat uneven footing as pending sales pulled back slightly despite another record low for mortgage interest rates. For the week ending June 28 pending home sales decreased 8.2% year-over-year, a sharp change from the revised 3.9% year-over-year increase a week earlier. However, after adjusting for seasonal effects, the decline was only 3%.

“This decline in pending sales may be a sign that pent-up homebuyer demand from March and April has mostly worked its way through the market, but it could also be due to a continued shortage of homes for sale,” the report said.

New listings were down 8.3% from a year earlier for the week ending June 28, slightly better than the 9.2% decline a week earlier, indicating that sellers are slowly returning to the market. But they aren’t returning quickly enough; active listings of homes for sale remain down 27%, leaving buyers with a very limited selection of homes to choose from.