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Zillow Market Pulse: April 27, 2020


April 27, 2020

Fannie Mae and Freddie Mac clarified repayment policies for mortgage loans in forbearance. Signs suggest that sales of new homes have strengthened in the last two weeks. And oil prices continue to plummet, posing real economic threats in Texas.

  • Fannie Mae and Freddie Mac clarify details around mortgage forbearance programs

    • Mortgage borrowers in forbearance programs will not be required to make lump sum repayments when their relief expires.
    • Borrowers will be offered a set of options ranging from modifying their loan to making their normal monthly payment amounts after the fact, to paying the loan off all at once.
  • Evidence suggests that sales of newly built homes have risen in the last two weeks

    • According to John Burns, sales of new homes have risen slightly in the past two weeks after bottoming in early April, but remain 65% below last year's levels.
    • The research suggests renters looking to upsize have led the resurgence in demand.
  • Falling oil prices are starting to wreak havoc in Texas

    • The Dallas Fed's Manufacturing Outlook Survey fell to -55.3 in April, the lowest in the survey's history.
    • By some estimates, up to 300,000 jobs will be lost in the Houston area alone as a result of the crash in oil prices.

So what?

Almost 7% of all outstanding mortgages were in some form of forbearance as of April 19, according to the Mortgage Bankers Association, allowing borrowers to temporarily delay their monthly mortgage payments for as long as a year. These programs are undoubtedly helpful to many struggling borrowers, but have also raised questions. The programs stipulate that participation in the program will not negatively impact a borrower's credit score, but the possibilities of other negative impacts were not as explicitly stated. Specifically at issue was exactly how lenders/servicers were going to demand the eventual repayment of the foregone monthly payments – would borrowers be required to pay back the foregone balance all at once, or would there be other options available? Today's announcement by Fannie and Freddie adds plenty of clarity to some of these concerns and should help ease some of the uncertainty and potential stigma around participating in these types of programs.

After sharp declines in the initial month of the lockdown, a recent report suggests sales of newly built homes are beginning to show noticeable signs of improvement. After falling as much as 85% from a year ago earlier in the month, sales of new homes have risen relative to last year's activity in each of the past two weeks, and now cumulatively sit 65% below last year's levels. The numbers are more subtle evidence of positive momentum in the housing market, which has begun to see other signs of improvement higher up the funnel in the last couple weeks. Sales of new homes are typically a timelier indicator of sales activity, due to the fact that the transaction is recorded much earlier in the home buying process than on existing homes. The report pointed to evidence that demand from renters of small apartments has picked up markedly, perhaps as people come to terms with the fact that they will be working from home for a while and may desire more space than they had previously needed. And consumer preferences might also be shifting, the report found, with people potentially more willing to focus their housing search strictly on new homes in order to minimize exposure to spaces that are currently lived-in.

The stock market rose today to a six-week high, but benchmark oil prices fell again, largely in response to the nation's largest oil-focused exchange traded fund selling its holdings of short-term oil futures contracts. Oil prices have come under extreme stress in the last month, and have fallen from a recent high of more than $60/barrel in early January to around $12 today (not to mention a trip to negative territory last week). Such a steep fall in oil prices was certain to wreak havoc on oil-dependent parts of the country, including Texas. The slide in the Dallas Fed's production index, a gauge of manufacturing conditions in the Lone Star state, suggests that deterioration in the oil market has also spilled over into complimentary businesses. Of the 115 manufacturing businesses surveyed, 24% said they had net layoffs in the period of April 14-22. Additionally, a third of business respondents to different, broader survey (including companies in the service sector) said that they were temporarily shut down. The downturn is being felt particularly hard in the Houston area, where an estimated 40% of the economy is tied to the price of oil. Some estimates suggest that between 200,000 and 300,000 jobs will be lost in Houston alone, due to the combined force of falling oil prices and the coronavirus pandemic. Look for similar stories to emerge in coming weeks – other oil-dependent states including Alaska, Louisiana, Oklahoma and Wyoming all face similar threats to their oil-dependent state and local economies.


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