July housing starts soar 22.6% despite COVID-19
Yahoo Finance's Brian Chung joins Zack Guzman to break down the latest home-building activity data as July housing starts are jumping despite the ongoing pandemic.
Video Transcript
ZACK GUZMAN: Of course, we've been talking about this recovery here in 2020, and a noted area of strength has always been real estate boosted by record low mortgage rates. And today, we got more data to support the theory that real estate is here to stay, at least the strength in this recovery. As US homebuilding picked up for a third straight month in July, one of the areas, again, that we have seen strength in this recovery. US homebuilders began constructions on homes at a seasonally adjusted annual rate of more than 1.4 million in July, and the official number, 1.496. And for more on that, want to get to Yahoo Finance's Brian Cheung. And Brian, this does seem to be, again, much stronger than expected.
BRIAN CHEUNG: Well, Zack, no slowing in the housing market, as you mentioned in the big number coming in from the Commerce Department this morning, that 1.5 million new housing starts for the month of July. That is the third month in a row of gains following that precipitous decline at the beginning of the COVID-19 crisis, but still pretty impressive when you consider that despite all of the hearing that we've been hearing about in terms of slowing of possible portions of this recovery, it's still a 23.4% year over year increase when you look at those housing starts numbers.
So it is pretty impressive to say, hey, a lot of these homebuilders are feeling confident that there's enough demand in the housing market with mortgage rates especially this low for these homebuilders to create this new inventory. Now, keep in mind this is in many ways a leading indicator, because if there are more homebuilders building houses now, that signals that there could be drummed up demand for the remainder of this year considering that it's going to take some time for these homebuilders to put these new houses up. So again, the big new headline number from the Commerce Department today, 1.5 million new homes. That does signal some optimism for mortgages in this country, Zack.
ZACK GUZMAN: Yeah, it's not all sunshine and roses though when we are talking about mortgages. I mean, there's a large gap between some of these home prices, but when you look at federal housing administration mortgages, those are the ones more levered to first time homebuyers, I should say, minorities and low income Americans there. And we've seen the delinquency rate on FHA mortgages now hit the highest rate we've seen in at least four decades. So clearly, not all great news on the home front here. What do you make of that and how worrisome that might be as we are seeing the economic consequences here I guess in real estate by extension?
BRIAN CHEUNG: Well, as you mentioned, Zack, FHA loans are those that are targeted towards lower income, and in many cases, also minority, first time borrowers. A very important slice of the market for those that traditionally maybe don't have a credit history or the income stability that other borrowers have. This has always been kind of a shaky type of loan, but we've already seen that the forbearances for these types of loans has started to wear off, and we've seen that number increase based on new numbers from the Mortgage Bankers Association showing that the share of FHA loans that were paid delinquent rose to about 16% in the second quarter.
That's up from 9.7% in the previous three months before that. For comparison, if you look at a regular conventional loan, the delinquency rate is only going to be about 6.7%. Now, this is pretty jarring when you consider that there are many measures in place right now for FHA borrowers to get a forbearance from having to pay those mortgages at least for right now because of the hardships being faced in this COVID-19 crisis with millions of people out of work.
But despite those that help, we have seen these delinquency numbers go up, so definitely some concern that these delinquencies could at some point in a worst case scenario end up evolving into a fall in foreclosure, which would leave millions of Americans homeless. So definitely a situation that is worth watching here as the continuation of that debate for a phase four possible extension of these mortgage forbearances, which have been differing, depending on what type of mortgage you are and what type of state that you're living in, so definitely something worth watching. But again, the numbers from the Mortgage Bankers Association showing that people are having more difficulty paying off those loans. Zack.
ZACK GUZMAN: Yeah, and the state seeing the most difficulty there in terms of citizens struggling, interesting to see the overlap with a lot of the states that we highlighted in terms of unemployment surges, New Jersey having the highest FHA delinquency rate at 20% followed by a lot of the states we've talked about on this show with jobs leverage in the hospitality industry in Nevada and New York, Florida, and Hawaii also seeing struggles there on that front. Brian Cheung, appreciate that.
