October 12, 2020
The hurdles to securing financing are getting higher for small business owners and home buyers alike. And a new study shows the pandemic prompted a wave of temporary relocations, but has not prompted permanent moves.
Mortgage lending standards tightened further in September
The Mortgage Bankers Association Mortgage Credit Availability Index fell (tightened) 1.9% in September from August, to 118.6.
The index – a measure of lending standards — has fallen by about 35% since February.
Small business funding has also gotten harder to secure
70% of loan officers recently surveyed by the Federal Reserve said they had tightened lending requirements for small businesses.
The net share of small business owners that said they believe revenue will grow in the next 6 months fell to 2.5% in August, compared to 13.3% in June.
Temporary moves spiked in the early days of the pandemic, but permanent moves did not
According to a survey from the USPS and MYMOVE, temporary home moves grew 27% year-over-year between February and July.
Permanent moves rose just 1.9% year-over-year over the same period.
The tightening in mortgage lending standards last month isn't surprising given the state of the mortgage market and the broader economy. Despite the recent encouraging trends in mortgage forbearance and delinquency rates – both of which have recently declined – about 6.5% of all mortgages are still receiving assistance, and the broader economic recovery is slowing. Given these trends, mortgage lenders remain reluctant to resume normal lending standards, even as demand for refinance and home purchase loans remains firm. As a result, it will continue to be difficult for those borrowers with lower credit scores, seeking an atypical loan type and/or equipped with a relatively small down payment to qualify for a loan and capitalize on mortgage rates that remain near all-time lows. Would-be buyers who have recently experienced a job loss or pay cut will also continue to have a difficult time qualifying for a loan. Even as indicators of mortgage demand remain elevated from last year, tight lending standards are likely to prevent many from getting on the homeownership ladder.
The pandemic-driven economic downturn has been particularly difficult on the nation's smaller companies. About 20% of businesses that were open in January have since closed, according to business data firm Womply, and 42% of respondents to a survey from the social networking company Alignable said they believed they were at risk of closing permanently by the end of the year. Relief efforts aimed at small businesses – such as the Paycheck Protection Program and the Federal Reserve's Main Street Lending Program – have either expired or turned out less-effective than initially planned. And tight lending standards are also weighing on small businesses. In normal times, the main source of funding for small businesses is through bank loans, but that funding source has dried up recently. According to the Federal Reserve's Senior Loan Officer Survey from Q3 2020, 70% of loan officers said they had tightened lending requirements for small firms – the highest share since Q4 2008. Simply put: Revenue growth has stalled or reversed at many small businesses. And their owners have few, if any, options for supplemental funding, placing them in dire risk — which, of course, does not bode well for the overall economy's recovery.
There was a sharp uptick in people moving temporarily from their home in the early days of the U.S. coronavirus pandemic, according to new data released today by the U.S. Postal Service. According to the USPS and moving analytics company MYMOVE, temporary home moves between February and July 2020 were up 27% from the same period in 2019. But permanent changes of address increased by just 1.9% over the same period and slowed down considerably in May and June. It's possible many of those initially temporary address changes may turn into permanent moves, but so far the data do not show any evidence of that. The analysis showed that most of the moves (both temporary and permanent) came from a selection of large, densely populated cities – most notably New York City, Brooklyn, Chicago and San Francisco.
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