Is the housing market already rebounding from COVID-19?

Is the housing market already rebounding from COVID-19?
Cabin fever is a real thing. And you don’t have to live in a cabin to get it.

With everyone chomping at the bit to get back to “normal,” I thought it would be useful to check in on the five metrics I previously identified as signals for the beginning of the economic recovery stage that I have been calling AB, or America is Back.

 1. Flattened Curve

Status: Close, but stay vigilant 

First and foremost, for the economy to get back on track, we needed to dampen then quash the increase in cases of infections per day, nationwide. Only when the spread of the virus is contained can we safely return to work and some semblance of normality.

Logan MohtashamiColumnist

According to my virus turnaround thesis, “It is from this data that I have based my virus turnaround thesis, which is that by May 18 or sooner, we will see a flattening of the new infection curve, and by September 1, we will be at a much higher capacity to fight this virus.”

While it is true that we have been successful in flattening the curve nationally and testing is more available, there are still spots where the number isn’t doing great.

I do not feel confident in saying the spread of this disease is behind us, so I cannot give this indicator and all clear just yet. 

If we have genuinely contained the spread of the virus, we will not get a noticeable rebound of cases when we begin to progress through the stages of reopening the economy.

This is up to us. A second wave is likely but not inevitable. If we continue to wear masks when appropriate, religiously wash our hands and remain vigilant against possible contamination, by September 1, we will be in a better position to handle whatever the fall and winter bring.  

2. End of Stay-at-Home Orders

Status: On Our Way

The second indicator of economic recovery is the end of stay-at-home orders and the reopening of commercial businesses.

We are in the very early stages of this process, but it has begun at some level all across the country.  Over this past Memorial Day weekend, we saw a lot of Americans doing normal weekend activities. Some with masks and some without. Remember folks, winter is coming.

3. 10-year Yield Goes Above 1%

Status: Not Yet

Before the 10-year yield broke under 1% this year, I stated that in a recession, we could expect the 10-year yield to be between -0.21% and 0.62%.

On March 9, the 10-year fell to 0.34%, but for the most part, since the start of the COVID-recession, the 10-year has been above 0.62%. Considering the massive job losses and other dreary economic data, this yield may seem high. 

But it makes sense if you assume that the bond market is anticipating that Q3 and Q4 economic data will be better. A rebound in infections, reinstating stay-at-home orders, and/or the removal of fiscal or monetary support are all things that could drive yields lower. 

On the other hand, if the economic data gets better – such as a decrease in jobless claims – yields will go higher, signaling real economic growth is coming back. We are not there yet. When we get into a range between 1.33% and 1.6% on the 10-year yield, we can consider this bullish. 

4. Decline in Credit Stress and Jobless Claims

Status: 1 out of 2 

The St. Louis Financial Stress Index, which measures the degree of financial stress in the U.S. financial markets, spiked aggressively to 5.379% on March 20. Since the peak, the index has taken it a dramatic dive. (See graph below).

A level below 1.21% would indicate some calmness in the markets, but the ultimate goal would be to see the index go and stay below zero, indicating stable market conditions common with the economy growing. Currently, it is at 0.6166%

It is important to remember that the St. Louis Index is a financial markets index – not an index of the overall economy. Employment may be a better measure of that.

And that does not look good.

While the rate of growth of jobless claims has fallen in the last week, cumulative job losses are tragically high, with over 38.6 million Americans filing for unemployment in a short time. Providing fiscal support by increasing unemployment benefits and providing loans to Americans has prevented a profound deflationary event, and as such, has been one of the most successful economic policies I have seen implemented in my lifetime.

5. Data from the hardest-hit sectors start to trend upward

Status: Started

The fifth metric I look at to determine where we are on the road to recovery is movement in the hardest-hit sectors like dining, lodging, and travel.

Because growth in these sectors is from the lowest levels, they provide a sensitive measure for growth. Auto sales, miles driven, bar patronage, domestic flying, restaurant dining and hotel lodging are all bouncing from the bottom and starting to move higher.

For the housing market, purchase applications were one of the hardest-hit segments and thus are a sensitive metric to watch for potential recovery.

From the peak rate of growth on purchase application to the lowest year-over-year decline, we have had a 52% move lower in 2020. Year over year, purchase applications fell as much as 35% in the weekly reports. Since that nadir, purchase applications have been showing smaller and smaller year over year declines, with the last report showing only a 1.5% decline from the same period of the previous year. We may even see the first positive year over year print this week!

Because housing is such an essential sector to the overall economy I am more than a little excited by this trend.

Previously I wrote:

“I believe the months of April and May are going to tell an epic story of America’s start in defeating this virus.  If we do this right and document the cause and effect of our efforts, future generations will be able to look to this period in time for how to handle a global pandemic. My faith in America winning has never let me down because I always believe in my people and country. I can tell you now, this virus isn’t changing my view on that.”

That is my story, folks, and I am sticking to it. Let’s remember that this virus has killed over 98,000 Americans, and it is up to us how many more this monster will claim. So, please be mindful and careful out there.

Stay vigilant but also and be kind to each other. We have all been through it. 
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[PULSE] How should we think about foreclosures?

[PULSE] How should we think about foreclosures?
The current economic collapse raises pressing questions about what lessons we learned from the last one. No two crises are ever the same. Although they have many common elements, which flow directly from an extended plunge in economic activity, they have distinct causes and hence different trajectories. At a minimum, the reform measures that were put in place to address aspects of the prior crisis will alter the course of the next one.

Richard CordrayGuest Author

The Great Recession, which lasted from December of 2007 to June of 2009, is of special interest here because it was an economic collapse brought about specifically by failures in the housing and mortgage markets. Some blame government policy for those failures, and it bears some share of the responsibility. Yet the greater weight of the evidence has shown that rampant Wall Street financial speculation was the core of the problem. The traditional approach to housing and mortgage financing became distorted by new mortgage-based investment instruments, leveraged lending, and lax underwriting, all of which turned out to be grounded in ill-founded assumptions.

Two of those assumptions were especially problematic in leading to the Great Recession. The first was the glib view that residential property values would always hold steady or rise over time, as had been largely the case since World War II. Putting aside the isolated tragedy of setbacks for individual families, or localized conditions of economic weakness, the “national” market for residential real estate was regarded as steady and enduring. When we first began to see elevated levels of foreclosures in Michigan, Ohio, and Indiana in 2004, 2005 and 2006, they were initially written off as a “Rust Belt” phenomenon. In the rest of the country, the home itself, which serves as the essential collateral for a mortgage loan, continued to be regarded as the solid keystone of the entire edifice.

This assumption, in turn, led to dangerous developments in mortgage underwriting practices. Those seeking to expand the market were not content to make safe, conventional loans; they wanted to widen the pool by bringing in new swathes of customers. And many shared what they saw as a key insight – that looser underwriting to a wider pool of individuals was not overly risky because the underlying collateral could always be counted on to rescue even a failed loan. Although government policy played some role in these developments, the unshackled creativity that spawned exotic new mortgage instruments was astounding. No-documentation loans, underwriting that was deceptively pegged to teaser rates, and broader use of negatively amortizing loans were just some of the novel approaches that many lenders adopted to qualify borrowers from outside the traditional mainstream. These innovations were met with little resistance, and even open encouragement, from most regulators.

In all these instances, lenders (and those who bought or financed their loans) were able to tell themselves that the financial condition of the borrower didn’t really matter, because the ultimately surety for the loan was the residential property itself. And with the assumption that the value of this collateral would be unfailingly sound, more venturesome loans could be made.

The problem with this approach is a basic common-sense point: any economic axiom that contains the word “always” is inherently unreliable and, at some point, will be proved wrong. When real estate values plummeted across many geographic markets at once, dragged down by irresponsible lending that disregarded the borrower’s ability to repay, the transmission of this cataclysm through new and sophisticated financial channels led to the credit freeze and the financial crisis. One central reform that Congress and the Consumer Financial Protection Bureau put in place in the wake of this disaster is that nobody can now make a home loan without first making a reasonable assessment of whether the borrower will be able to repay the loan.

But the second casual assumption that helped precipitate the Great Recession was the related notion that the process for realizing the collateral that underpins a home loan, to recapture its market value, can be counted on to work effectively. The assumption had less to do with the sustainability of home values, and more to do with the nuts-and-bolts functionality of how a jilted loan-holder can go about getting its money back. The mortgage market relies on the foreclosure process as the ultimate means of recovering the loan-holder’s collateral, and those involved in the market were willing simply to assume that the process would function capably to backstop their investments. This too was an error, and the reasons why are worthy of further consideration.
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Fannie Mae, Freddie Mac launch online resources for consumers

Fannie Mae, Freddie Mac launch online resources for consumers
Fannie Mae has launched a new initiative to help homeowners and renters who have been impacted by the COVID-19 pandemic. “Here to Help” is available as an online resource for hard-hit homeowners and renters.

“Fannie Mae is committed to providing sustainable housing options to help keep people in their homes,” Fannie Mae Chief Executive Officer Hugh R. Frater said. “We hope Here to Help will bring some clarity, transparency, and assurance to homeowners and renters who are facing job loss, reduction in work hours, illness, or other issues related to COVID-19.”

“We are committed to putting people first, helping Americans stay in their homes, helping customers stay in business, and ensuring that the nation’s mortgage and housing markets remain strong,” Frater continued.

The “Here to Help” online portal at knowyouroptions.com features informative videos, fact sheets, mortgage loan and apartment rental lookup tools, and other resources to equip homeowners and renters with the information they need to successfully navigate their options.

The portal also provides mortgage servicers and lenders with tools to better assist their customers. This includes clear explanations of forbearance, repayment options after forbearance and training videos for loan servicers.

Freddie Mac is also launching a new initiative, called #HelpStartsHere. These interactive tools are made available to consumers to help them stay in their homes, according to the GSE.

“While we have taken unprecedented action to help millions of owners and renters struggling due to this pandemic, our efforts cannot be fully effective without widespread awareness,” said Freddie Mac CEO David Brickman. “Our online tools are designed to ensure those affected are aware of their options so they can get the help they need now.”

MyHome, Freddie Mac’s consumer education website, was relaunched on Tuesday, providing a comprehensive guide to owning, renting and getting help, available in multiple languages.

Freddie Mac said that the campaign offers clear, direct access to important resources for borrowers and servicers who need options in the current environment. It includes an interactive experience to help homeowners assess their options related to COVID-19, a homeowner checklist and resources for servicers to help their borrowers.
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Sprout Mortgage continues rolling out new non-QM loan offerings

Sprout Mortgage continues rolling out new non-QM loan offerings
It looks like Sprout Mortgage’s announcement last week that it was unveiling a new jumbo mortgage program was just the first step in a reversal of the lending break the company took in March.

Sprout announced Tuesday that it is rolling out four new non-QM offerings.

According to the company, the four new loan programs are “engineered to meet the needs of non-QM borrowers — and the mortgage professionals who serve them — in the current challenging markets.”

In a release, the company said that the programs replace the company’s previous non-QM offerings and take effect on May 27, 2020.

According to the company, the programs carry a maximum loan-to-value ratio of 80%. Additionally, loans of up to $4 million are available at lower LTV ratios.

The four new programs include:

Select Jumbo Full Doc – For income documented with paystubs and tax returnsSelect Bank Statements or 1099 – Typically for the self-employedSelect Asset Optimizer – For high net-worth borrowersInve$tor Debt Service Coverage – Designed for investment properties

“We’re excited to be making these four new non-QM programs available to our clients so that they can provide their borrowers with a full range of mortgage options,” Sprout President Michael Strauss said. “These programs were developed to serve the unmet home finance needs of many consumers who are currently shut out of the home financing market, but who are creditworthy borrowers.”

Sprout was among several companies that froze their non-Qualified Mortgage lending activities in March as COVID-19 began shutting down the U.S. economy. At the end of the month, Sprout paused its lending activities but by May the company was lending again.
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Cloudvirga expands digital mortgage platform to wholesale lenders

Cloudvirga expands digital mortgage platform to wholesale lenders
Cloudvirga has announced the expansion of its digital mortgage platform for retail lenders to wholesale lenders and their brokers.

According to the Irvine, California-based fintech company, Cloudvirga TPO has been rolled out to accommodate the increased market share of the wholesale lending sector, which has seen its market share reach almost 16% of the nation’s $2 trillion annual mortgage volume.

Mark Attaway, company co-founder, noted many large lenders have been moving into the wholesale business over the past two years, resulting in new omnichannel environments that require digital solutions.

“These lenders are saying, ‘Hey, we’d love to take the solution and be able to leverage the platform and empower brokers,” Attaway said. Attaway stated that wholesale lenders can increase their market share by offering a complete digital mortgage platform to meet their mortgage brokers’ marketing, customer service and loan process operations.

Cloudvirga TPO represents a new product, Attaway added, rather than a reconfigured version of the Cloudvirga Consumer and Originator Point of Sale products on the retail side. Cloudvirga TPO is now available on an enterprise license platform, and Attaway identified Finance of America, which uses Cloudvirga for its 1,300-plus national retail salesforce, as the first lender to incorporate Cloudvirga TPO into its wholesale network serving mortgage brokers.
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Introducing HousingWire’s 2020 Class of Rising Stars

Introducing HousingWire’s 2020 Class of Rising Stars

This year’s 2020 Class of Rising Stars celebrates 50 young innovators moving the housing industry forward. Coming from all sectors of housing – mortgage, real estate, fintech, servicing and more, these up-and-coming leaders are blazing their own trail. The norm is no longer good enough. These Rising Stars are taking the lead on revolutionizing the housing industry.

From their use of data to how they bring their teams together and even lead those that follow behind them, these young leaders are the future of the housing industry. And from where we’re standing, the future is bright. 

Narrowing the selection down to 50 was more difficult than ever before, and the list of nominees was even more competitive than previous years.

Not only did we have a hard time chosing just 50, but now we also can’t wait any longer to share the list of winners with you. We are so excited about the 2020 Rising Stars and what they have accomplished, that we decided to release an early look at the list of winners for members of our HW+ community.

See below for HousingWire’s 2020 Class of Rising Stars, and check back on June 1st to click through for full profiles on each winner that detail their amazing accomplishments, and how each one is shaping the industry around them through their leadership and innovation.

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Will smaller cities see a boom from the coronavirus?

Will smaller cities see a boom from the coronavirus?

After the Great Recession, the number of big-city residents boomed. Flush with jobs and thirsting for modern high-rises, young adults and families moved into dense metro areas with amenities at their doorsteps and strips of restaurants blocks away.

But those walkable urban areas have become less affordable in recent years, and the quintessential dream of a single-family home, especially after the coronavirus-induced quarantine, may be multiplying.

In the last few years, population in larger metropolitan areas such as New York, Los Angeles and Chicago declined, while more people moved into mid- and smaller-sized metro areas.

Now, as local economies and subsequently corporate offices re-open with more leniency on working from home, demographers, Realtors and even companies like Redfin predict that this movement from high-cost-of-living urban cities to more affordable areas – whether suburbs of the same area or smaller metros altogether – will accelerate.

“Redfin is preparing for a seismic demographic shift toward smaller cities,” said Redfin Chief Executive Officer Glenn Kelman in a May 15 press release announcing a new survey of 900 homebuyers and sellers. “The whole narrative of the past 200 years, of the young person moving to the big city, may turn a little upside down in the years ahead.”

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As travel slows down, when will Airbnb owners recover?

As travel slows down, when will Airbnb owners recover?
As travel has been significantly minimized and less people are renting out Airbnb‘s, it leaves vacation rental owners in a bind, with some paying multiple mortgages.

While Airbnb has mended some of its policies to accommodate the extenuating circumstances, are vacation homeowners protected with mortgage forbearance?

Airbnb, which recently cut about 25% of its workforce due to COVID-19, has not spoken out on assistance for these homeowners. However, GSEs like Freddie Mac say that “While the Guide currently provides that only Mortgages secured by Primary Residences are eligible for a forbearance plan, until further notice the Mortgaged Premises may be a Primary Residence, second home or Investment Property.”

In an interview with the TODAY Show, Airbnb CEO Brian Chesky said that cleanliness is the company’s top priority when renting out homes.

“I think travel is going to shift,” Chesky said in the interview. “It’s going to be smaller, it’s going to be more intimate, it’s going to be smaller towns, it’s going to be smaller communities. More intimate, more local.”

“This is a storm,” Chesky continued. “But like all storms it will end. We will be ready when travel is back, hopefully this summer.”

In an interview with HousingWire, realtor.com’s Senior Economist George Ratiu said that while it’s hard to predict how the pandemic will play out, he doesn’t see travel traffic rebounding for the next three to five months.

“I think that for many owners, particularly those who have multiple properties, the road to recovery will be challenging,” Ratiu said. “Especially so because for most owners of multiple properties, they have financing so they have to meet mortgage obligations. These are investment properties. For many of them, the ability to leverage the option of selling them in the current environment is less desirable.”

How will those vacation rental homeowners recover from the fall of vacation travel? With spring break and some summer vacations cancelled, what’s next?

In a report from realtor.com, it says that some short-term rental owners are pivoting to renting out the properties long-term instead.

The report said that tourist destinations are actually seeing a significant increase in furnished seasonal rentals, with hosts locking in tenants for monthly or seasonal rentals.

Just since the end of February, realtor.com said that these Airbnb and Vrbo hubs saw an average increase of 74% in seasonal rentals.

Ratiu said that it will be the markets that are popular tourist destinations that will come out on top.

“Obviously, vacation hotspots are those that are likely to see the rebound,” Ratiu said. “I think here, most places near the beach, places near the mountains, it makes it easy for people to vacation while still maintaining a certain degree of social distancing.”

According to a survey from AirDNA, the average length of stay at Airbnb properties nearly doubled, from 3.76 days prior to March 10 to 6.4 days March 10 through March 18.

Bookings made on Airbnb in April are down 70% from 2019, the report said. There were 4.7 million bookings made in April 2020 vs 15.7 million bookings made in April 2019.

Meanwhile, 45% of hosts won’t be able to sustain operating costs if the pandemic lasts another six months, as 16% have already missed or delayed a mortgage payment on one or more of their properties. On average, hosts have lost $4,036 since Covid-19 began to spread in the US, a survey from IPX 1031 said.

“I think this summer will look a little bit different than the average summer, mostly because I think people will remain cautious,” Ratiu said. “Conversely, I am a little bit bullish on the summer travel outlook for a simple reason. As humans, we generally crave mobility and we crave social connection.”
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Startup profile: Brace

Startup profile: Brace
Taken from HousingWire Magazine’s May issue, the startup profile on Brace looks at a company that is about to start creating disruptions in the housing space.

With its sights set on the servicing industry, Brace recently closed a Series A funding round and is looking to bring automation and AI to servicing.

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Appraisal technology reduces risk for appraisers and homebuyers in the midst of COVID-19

Appraisal technology reduces risk for appraisers and homebuyers in the midst of COVID-19
As the majority of the housing industry transitioned to working from home due to COVID-19 health concerns, many appraisers remained on the front lines. 

The Appraisal Institute and several other organizations rallied to deem appraisers essential workers so they would be exempt from stay-at-home orders, but that designation also put them in harm’s way.

The FHFA took action, relaxing Fannie Mae’s and Freddie Mac’s appraisal standards in an effort to “to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.”

This week the tech sector delivered another solution, as Black Knight released its property inspection app, SCOUT, which utilizes cloud-based technology for homeowners to safely collect data for the appraisal process. The fully remote app enables homeowners to compile the necessary property details and photos themselves – all without an appraiser ever stepping foot in their home.

Though the technology has arrived in a timely manner, as states continue to employ social distancing orders, SCOUT is the result of a six-year process at Black Knight. The app is the direct descendent of Black Knight’s REveal, their desktop version of an automated appraisal product.

“We had a long-term vision of modernizing the appraisal industry. To a large extent it’s really been operating in a very retro way, using forms that date back as long as 50 years, and techniques that really have not been made contemporary,” Michael Sklarz, Black Knight’s EVP and managing director said. “So, our vision had been with all the analytics – how could we help appraisers do their jobs more efficiently, more economically, and take advantage of all the data and information that’s out there?”

Once an AMC or lender orders a property inspection, an email is automatically sent to the borrower/homeowner with a SCOUT application link to facilitate the inspection and appraisal process. The app employs GPS technology to track the homeowner in the house, and instructs users on where to take the necessary photos.

Because the appraisal is in the hands of the homeowner, SCOUT implements various fraud measures such as pre-populated property information, location tracking with date/time stamps, direct input of photos to the application (no uploads) and finger signature certification by the homeowner.

Sklarz said SCOUT was in no way meant to replace existing appraisers, but rather enhance the productivity and speed at which appraisals occur.

“With a product like this, the existing appraisers can just do that many more appraisals per day than they would have trying to drive around and go inside of houses,” Sklarz said.

SCOUT arrived on the heels of several other technological advancements that are helping to shape the housing market amid the pandemic—including Zillow’s one-stop rental tool, Zillow Rentals and Redfin’s self-guided home tours, Direct Access. In addition, Built Technologies released limited access to their flagship CLA software to help lenders who have been impacted.

Right now, Black Knight is extending the free trial of SCOUT for AMCs and lenders to utilize through the duration of COVID-19.
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