• Louis Baca

August 2020 Market Update

Market Update August 2020

PAYMENT PROBLEM  19% of U.S. households missed their mortgage and rent payments in the first week of July. 13% made only a partial payment. – Fox Business News GOVERNMENT HOME LOAN DELINQUENCY SKYROCKETS Delinquency rates on FHA and VA loans spiked in June to 14.07%, nearly double what it was in April at 7.13%.  At the end of June, 1.38 million borrowers with government home loans were in default. EXISTING HOME SALES RESILIENCY Existing home sales jump 20.7% in the month of June, setting a record since the National Association of Realtors started to track this data in 1968. The median home price rose 3.5% over June of 2019. Housing starts also posted an impressive increase of 17.3% in June. Despite a recession, global pandemic, and 17.8 million people unemployed, the U.S. housing market is on fire. The new normal? Sustainable? Want to see if you can qualify for a lower rate or payment? Click HERE!

HOMEOWNERSHIP RISING In the 2nd quarter of 2020, homeownership rose to 67.9%, the highest level since the 2nd quarter of 2008. Plummeting interest rates are credited for the jump in homeownership. RECORD HOME EQUITY Despite a global pandemic, home values continue to rise, with home equity setting an all-time historic record. According to a new report from Black Knight, “tappable” home equity, the equity borrowers could borrow against while remaining at 80% loan to value, reached $6.5 trillion. RECORD LOW-INTEREST RATES In a recent Freddie Mac report, 30-year fixed mortgage rates fell under 3.0% for the first time in history. The year started with interest rates near 4.0%, but due to the global pandemic, the Feds have been purchasing an unprecedented amount of mortgage-backed securities, artificially forcing interest rates lower. All-time low long-term mortgage rates have spurred home purchase activity when inventory was already limited; causing values to climb. If history has taught us anything, falling rates and rising home values is unsustainable long term; yet there is no end in sight at this time.  Doug Duncan, senior economist for Fannie Mae predicts interest rates for a 30-year fixed mortgage to fall to an average of 2.8% in 2021. The prediction is predicated on the Federal Reserve being committed to purchasing $40 billion a month of mortgage-backed securities for as long as necessary to subsidize the economy, in hopes to prevent another “great” recession. Want to see if you can qualify for a lower rate or payment? Click HERE!


Home prices predicted to fall by 6.6% by May of 2021 according to a recent report published by CoreLogic. “Unlike the Great Recession, the current economic downturn is not driven by the housing market,” CoreLogic said in its report. “While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. “By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession,” said Frank Nothaft, chief economist at CoreLogic. The anticipated impacts of the recession are beginning to appear across the housing market as the CoreLogic Market Risk Indicator, a monthly update of the overall health of housing markets across the country, predicted 125 metro areas have at least a 75% probability of decline by May 2021. “The next 12 to 18 months are going to be very tough times for the broader economy. As employment and economic activity begin to pick up, as it will surely do, we expect housing to be a driver in a national recovery,” said Frank Martell, president, and CEO of CoreLogic. – One variable not mentioned in the government’s wiliness to subsidize the economy. The entire economy is currently being kept afloat by an endless supply of money being poured into the economy in the form of PPP loans to business, supplemental payroll checks, the CARES Act which puts a moratorium on foreclosures and has the government making forbearance payments to investors for services, and $40 billion per month purchases of mortgage-backed securities to artificially lower long term mortgage interest rates. The 2nd round of stimulus making its way to reality soon.

The greatest economic socialism experiment of our time. How long can the government pay for consumer consumption?   FORBEARANCE EVOLVES TO FORCLOSURE 8.6% of all mortgages were in forbearance at the tail end of June. A staggering number, although considerably lower than early forecasts. Due to spiking COVID-19 numbers in many states, and the CARES Act unemployment insurance benefit to expire at the end of July, forbearance numbers could spike, along with foreclosures. Unemployment claims ticked up on July 23rd to 1.4 million. With state rollbacks, unemployment claims will likely continue to rise. Federal Reserve Chairman Jerome Powell is warning that without additional economic relief from Congress, the US economy will suffer “long-term” damage. HUD TO ROLLBACK DISCRIMINATION REGULATION In 2013, under the Obama Administration, HUD rolled out the “Disparate Impact Rule,” to further restrict, ideally prevent, racism and discrimination in housing which is still prolific. The lending industry pushed back to no avail, and penalties for discrimination based on race, gender, etc became severe. In 2019, under the Trump Administration, a new rule was rolled out by HUD to ease regulation aimed at eliminating discrimination in housing. “Under the new rule, plaintiffs claiming disparate impact will be required to satisfy an onerous, and at times impossible to meet, pleading standard at the outset of litigation. The proposed rule exempts ‘single events’ from scrutiny because single events, it alleges, are materially different from broader policies and practices. It removes the “perpetuation of segregation” from the list of discriminatory effects prohibited under the FHA. The rule also creates loopholes for landlords and lenders to defend discriminatory housing policies and algorithms, either as belonging to a third party and therefore out of scope, or as necessary to achieve ‘legitimate objectives.'” – Furman Center It is not 2013. It is 2020, and the Black Lives Matter movement is moving the mortgage industry that not long ago, would have rallied behind HUD to roll back a regulation that protected against housing discrimination. Today, some of the industry’s largest lenders are now asking HUD, and the Administration to halt the implementation of the new rule; including Quicken Loan and Wells Fargo. “Placing undue burdens on those being discriminated against in rental and owned housing and housing finance is a reversal of course in this nation that has taken so long to make even small steps of progress to erase decades of abuse.” “And in this year especially, when we see the stark divides of opportunity and access so plainly displayed throughout the nation, it’s the imperative of all who care about equality to simply call for what’s right. Whether it impacts the bottom line is irrelevant to the clarity of what needs to be stood for. HUD needs to withdraw its planned changes to the disparate impact rule.” – David Stevens, Former MBA President (from Housing Wire article) Wait, there is more to this story which was just released. The Trump administration will terminate the Obama-era rule regarding the implementation of the Affirmatively Furthering Fair Housing or AFFH, provision of the 1968 Fair Housing Act, according to Housing and Urban Development Secretary Ben Carson. In a press release issued on Thursday (07/23), Carson alleged the provision has proven “to be complicated, costly, and ineffective.” “After reviewing thousands of comments on the proposed changes to the Affirmatively Furthering Fair Housing (AFFH) regulation, we found it to be unworkable and ultimately a waste of time for localities to comply with, too often resulting in funds being steered away from communities that need them most,” said Secretary Carson in the release. “…Washington has no business dictating what is best to meet your local community’s unique needs.” The total abolishment of the rules caught the industry by surprise. Even HUD Secretary stated that is was unexpected. The rule was created in 2015 to give federal funding to cities to monitor housing for patterns of discrimination and racial bias. Something that is still prevalent in today’s housing and lending market. In a statement on Thursday, NAR President Vince Malta, a broker at Malta & Co. Inc., in San Francisco, said HUD’s decision “significantly weakens the federal government’s commitment to the goals of the Fair Housing Act.”   “The viability of our 1.4 million members depends on the free, transparent and efficient transfer of property in this country, and NAR maintains that a strong, affirmative fair housing rule is vital to advancing our nation’s progress toward thriving and inclusive communities,” he added. “With the pandemic’s disproportionate impact on people of color reminding us of the costs of the failure to address barriers to housing opportunity, NAR remains committed to ensuring no American is unfairly denied this fundamental right in the future.” – Fair Housing applies to all. What can be said for a government that implements policy to roll back protections against discrimination? END OF DACA – ROUND 2   In June 2020, the Supreme Court rejected an attempt from the Trump administration to terminate the Deferred Action for Childhood Arrivals (DACA) program. Chief Justice John Roberts, writing for the majority, said the Trump administration failed to consider important issues surrounding the DACA program, including “what if anything to do about the hardship to DACA recipients” who have been in the U.S. since childhood and know no other home. – The Wall Street Journal   Despite the Supreme Court’s ruling, the Trump administration is making yet another attempt to eliminate DACA. The Trump administration is undertaking a comprehensive new review of the program in light of the high court’s ruling and won’t accept new DACA applications in the interim. It will also limit the renewal of benefits to current DACA recipients to one year, instead of the two years allowed previously, the Department of Homeland Security said. – The Wall Street Journal   A Federal Court in Maryland has already ordered the administration to completely restore the DACA program, so the current actions of the administration, which seemed to be in direct opposition of the court’s ruling, is likely to land the administration back in court. “We know what it takes to defend DACA—we’ve done it before and we’ll do it again if necessary,” said California Attorney General Xavier Becerra, a Democrat. The American Civil Liberties Union said it would keep fighting the administration, calling Tuesday’s rollback “another cruel day for Dreamers, their families, and all Americans.” – The Wall Street Journal     Prior to the Supreme Court’s ruling, most of the mortgage industry suspended DACA home loans due to the uncertainty of the program’s future. What do lenders do if DACA is severely weakened or eliminated, and the homeowner/borrower is unexpectedly thrown out of their home and deported to another country? After the Supreme Court ruling, it appeared that DACA recipients may soon be able to purchase homes once again. Although, with the recent move by the Trump administration to circumvent the Supreme Court of the United States to eliminate DACA, the dream of homeownership for so many is once again on hold. U.S. NATIONAL DEBT $26.57 trillion and climbing. RATE WATCH- LOWER Want to see if you can qualify for a lower rate or payment? Click HERE! 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