Forecasts of doom and gloom in the housing and mortgage markets in April have turned to upside surprise as May came to a close, with record-low mortgage rates and easing of stay-at-home restrictions spurring stronger activity on both the purchase and refinance side of originations.
The Mortgage Bankers Association (MBA) reported that applications for the week ending May 22 rose 2.7 percent from the previous week, with both purchase applications and refis above levels from the same week in 2019.
Purchase originations rose 9 percent from a year ago and increased for the sixth week in a row. Refi originations were basically flat from the previous week but still 176 percent above 2019 levels.
“The housing market is continuing its path to recovery as various states reopen, leading to more buyers resuming their home search,” MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said in a release. “Purchase applications increased 9 percent last week – the sixth consecutive weekly increase and a jump of 54 percent since early April. Additionally, the purchase loan amount has increased steadily in recent weeks and is now at its highest level since mid-March.”
The refinance share of applications, which reached above 75 percent as the start of stay-at-home orders were issued, was down to 62.6 percent in the most recent week.
Driving the activity is not merely pent-up demand, but record-low rates. Freddie Mac reported May 28 that its Primary Mortgage Market Survey found 30-year fixed-rate mortgages were at 3.15 percent, the lowest level in the nearly 50-year history of the survey.
“These unprecedented rates have certainly made an impact as purchase demand rebounded from a 35 percent year-over-year decline in mid-April to an 8 percent increase as of last week — a remarkable turnaround given the sharp contraction in economic activity,” Freddie Mac Chief Economist Sam Khater said in a release. “Additionally, refinance activity remains elevated and low mortgage rates have been accompanied by a $70,000 decline in the average loan size of refinance borrowers this year. This means a broader base of borrowers are taking advantage of the record low rate environment, which will benefit the economy.”
The numbers were reflected in daily mortgage rates tracked by Mortgage News Daily, which found that rates dipped as low as 3.03 percent May 21, before rebounding to 3.1 percent May 28.
Prior to May 14, the record-low 30-year rate tracked by Mortgage News Daily had been 3.12 percent in early March. Mortgage News Daily’s data stretches back to April 2009.
The positive news has led Zillow economists to revise their market forecast, released less than a month ago on May 4. In an update to the forecast, Zillow said, “since initial publication, new data now lead us to believe that home sales are recovering more quickly, and that home prices will fall by less than first expected.”
The revised forecast calls for sales volume to “rebound strongly” in May to about 24 percent below February levels. Its previous expectation was for a 40 percent drop in sales in May.
The tight supply leads Zillow to forecast home prices to decline 1.8 percent – not as far as the 2 percent to 3 percent drop expected earlier – and to bottom out in October.
“By December 2020, we expect home sales to return to levels only slightly below February 2020 levels,” Zillow wrote. “We continue to place the highest likelihood on our medium scenario, and there is now an equal probability of our optimistic scenario as our pessimistic scenario.”
The positive news also has been seen on the forbearance front. After a heavy spike in jobless claims in late March and early April, the Department of Labor has still reported more than 2 million new claims each week in April and May.
And yet both the MBA and Black Knight Inc. are reporting a significant slowdown in the pace of new forbearance requests from borrowers.
MBA reported that the total number of loans in forbearance reached 8.36 percent as of May 17, up from 8.16 percent a week earlier. That puts about 4.2 million homeowners in forbearance plans, a rise of about 100,000 from the previous week.
The biggest increase comes in the Ginnie Mae portfolio, which rose 0.34 percent to 11.6 percent of its overall portfolio.
“Although job losses continue at extremely high rates, mortgage servicers are reporting only modest increases in the share of loans in forbearance as of May 17,” MBA Senior Vice President and Chief Economist Mike Fratantoni said in a release. “The decline in employment and income is hitting FHA and VA borrowers harder, leading to 11.6 percent of Ginnie Mae loans currently in forbearance.”
Meanwhile, Black Knight reported that as of May 26, it found 4.76 million homeowners in forbearance plans, but that was just 7,000 more than the previous week.
“Volumes of forbearance plans have flattened, and in fact, new inflows have slowed to a relative trickle,” Black Knight stated.
The 4.76 million in forbearance represents 9 percent of all active mortgages, Black Knight stated, and more than $1 trillion in unpaid principal. At this level, the company said servicers need to advance a combined $3.6 million a month to GSE security holders, in addition to the $1.5 billion in taxes and interest payments they must make.