High housing demand and limited supply continue to put downward pressure on prices.
US home prices hit another monthly and annual record in April, according to the latest S&P CoreLogic Case-Shiller Indices.
The national S&P CoreLogic Case-Shiller index spiked nearly 15% year over year in April. That was up from 13.3% in March and the highest reading in more than 30 years.
“Pressures on home prices that have built over the last year culminated in the strongest home price growth since the beginning of the data series in 1987. Nationally, the S&P CoreLogic Case-Shiller Home Price Index soared a remarkable 14.6% year over year in April,” said CoreLogic deputy chief economist Selma Hepp.
The Case-Shiller 20-city composite index, which measures price growth across a sample of large US metro areas, posted a 14.9% annual gain, up from 13.4% in the previous month.
The report also showed that all 20 cities that make up the index experienced year-over-year price gains in April. Phoenix (+22.3%), San Diego (+21.6%), and Seattle (+20.2%) posted the highest annual gains.
“And while the acceleration may be met with concerns, mortgage interest rates remain 50% lower than they were in 2005, when home price growth last peaked, keeping the ratio of mortgage payments to monthly household income lower today,” Hepp said. “It’s probable that continued massive demand will keep pressure on prices, which are likely to remain at a double-digit growth rate throughout the remainder of 2021.”
Rules bolster protections for struggling borrowers as they exit forbearance.
The Consumer Financial Protection Bureau has released new rules mandating how mortgage servicers must support financially distressed borrowers as part of the federal foreclosure moratoria phase out.
The consumer watchdog announced Monday that it had finalized amendments to its mortgage servicing regulations that will “establish temporary special safeguards to help ensure that borrowers have time before foreclosure to explore their options, including loan modifications and selling their homes.”
The rules, which will take effect on August 31, cover loans on principal residences and generally exclude small servicers. The goal is to prevent a wave of foreclosures as nearly 900,000 homeowners prepare to exit forbearance in the coming months.
“As the nation shifts from the COVID-19 emergency to the economic recovery, we cannot be complacent about the dangers we still face,” said CFPB acting director Dave Uejio. “An unchecked wave of foreclosures would drain billions of dollars in wealth from the Black and Hispanic communities hardest hit by the pandemic and still recovering from the impact of the Great Recession just over a decade ago. An unchecked wave of foreclosures would also risk destabilizing the housing market for all consumers.”
Among the amendments, servicers are required to:
According to the CFPB, borrowers will have at least three options to bring their mortgages current and avoid foreclosure. Among these options: borrowers can resume their regular mortgage payments and move their missed payments to the end of the loan, also known as deferral. Borrowers can also ask their lenders to change the interest rate, principal balance, or length of their mortgage through loan modifications. Additionally, homeowners with sufficient equity may opt to sell their homes.
In cases where foreclosures are not avoidable, the new CFPB rule will allow foreclosures to start if the borrower has abandoned the property; was more than 120 days behind on their mortgage before March 01, 2020; is more than 120 days behind on their mortgage payments and has not responded to specific required outreach from the mortgage servicer for 90 days; or has been evaluated for all options other than foreclosure and there are no available options to avoid foreclosure.
“We are giving homeowners the time and opportunity to make informed decisions about the best course of action for them and their families, whether that is seeking a loan modification or selling their home,” Uejio said. “And we are giving mortgage servicers the flexibility they need to serve homeowners with dignity while managing an unprecedented volume of borrowers seeking assistance.”
You may have been told that it’s important to get pre-approved at the beginning of the home buying process, but what does that really mean, and why is it so important? Especially in today’s market, with rising home prices and high buyer competition, it’s crucial to have a clear understanding of your budget so you stand out to sellers as a serious homebuyer.
Being intentional and competitive are musts when buying a home right now. Pre-approval from a lender is the only way to know your true price range and how much money you can borrow for your loan. Just as important, being able to present a pre-approval letter shows sellers you’re a qualified buyer, something that can really help you land your dream home in an ultra-competitive market.
With limited housing inventory, there are many more buyers active in the market than there are sellers, and that’s creating some serious competition. According to the National Association of Realtors (NAR), homes are receiving an average of 5.1 offers for sellers to consider. As a result, bidding wars are more and more common. Pre-approval gives you an advantage if you get into a multiple-offer scenario, and these days, it’s likely you will. When a seller knows you’re qualified to buy the home, you’re in a better position to potentially win the bidding war.
Freddie Mac explains:
“By having a pre-approval letter from your lender, you’re telling the seller that you’re a serious buyer, and you’ve been pre-approved for a mortgage by your lender for a specific dollar amount. In a true bidding war, your offer will likely get dropped if you don’t already have one.”
Every step you can take to gain an advantage as a buyer is crucial when today’s market is constantly changing. Interest rates are low, prices are going up, and lending institutions are regularly updating their standards. You’re going to need guidance to navigate these waters, so it’s important to have a team of professionals such as a loan officer and a trusted real estate agent making sure you take the right steps and can show your qualifications as a buyer when you find a home to purchase.
In a competitive market with low inventory, a pre-approval letter is a game-changing piece of the home buying process. Not only does being pre-approved bring clarity to your home buying budget, but it shows sellers how serious you are about purchasing a home.
Banks halted lending in many cases
US homeowners spooked by the burgeoning pandemic last spring rushed to tap equity in their properties for a hit of ready cash -- and equally wary banks tightened credit or halted lending in response.
In the past year, monstrous demand for homes amid a scarcity of listings pushed up prices to the point of giving owners more collective equity than they’ve ever had before: $8.1 trillion, according to data provider Black Knight Inc.
But despite the roaring housing market and economic recovery, lenders are still keeping a tight grip on home equity lines of credit, or Helocs, a primary way borrowers can turn value stored in a home into cash. Chalk it up to lessons learned from the last real estate crash, and other options for homeowners that may be less costly given today’s historically low mortgage rates.
“Many banks are still wary of the risks of making home-equity lines of credit,” said Keith Gumbinger, vice president at mortgage-information company HSH.com. “For both banks and borrowers, cash-out refinancing can offer a very viable alternative for accessing the growing equity in their homes.”
Demand for Helocs has tumbled since the beginning of the pandemic, with application volumes last month totaling about half that of March 2020, when homeowners raced to obtain credit lines, according to data from Informa Financial Intelligence.
A Heloc functions like a credit card, with a consumer’s home equity serving as collateral. It makes sense for people who want to be able to tap into a reserve of credit as they need it instead of receiving a lump sum, as with a cash-out refi or other types of loans. That made it logical for homeowners to reach for Helocs as a security blanket while the coronavirus swept across the US.
The catch is that for banks, a Heloc is riskier than some other forms of lending because it’s a second lien -- meaning it would be paid off after primary-mortgage obligations, creating the potential for losses if something goes wrong.
“A lot of lenders even before the pandemic hit were kind of reluctant to be in that second-lien position,” said Tendayi Kapfidze, chief economist at online loan marketplace LendingTree. “And then certainly when the pandemic hit, that became a very significant risk factor that many lenders didn’t want to be exposed to.”
That skittishness dates back to the financial crisis, when plummeting home values lashed banks with billions in second-lien losses. Reforms introduced after the crash ensure underwriting is sturdier than it was back then, with homeowners facing stricter limits on the amount of equity they can borrow against, as one example.
Even so, some of the largest lenders opted to pull away from the Heloc market last spring rather than stick around and learn whether the potential economic fallout of the pandemic could lead to similar losses.
For the most part, that retreat has yet to reverse. JPMorgan Chase & Co. isn’t accepting applications for Helocs, according to its website. Wells Fargo & Co. stopped taking them after April 2020 and hasn’t changed course since, the company said in an emailed statement, without specifying why its suspension remains in place.
An exception is Bank of America Corp., which tightened standards for Helocs last year and has since returned to pre-pandemic guidelines. Client interest in the credit lines has picked up as the country reopens and consumer confidence improves, a bank spokesperson said.
Homeowners aren’t exactly desperate for access to Helocs. They’ve been favoring cash-out refinancing, in which they get an infusion of funds -- to pay bills or finance remodeling projects, and the like -- while replacing an old mortgage with a new one with a larger balance.
Because of the additional risk, lenders tend to charge more in interest for Helocs. The average Heloc rate is 4.11%, compared with 3.18% for 30-year fixed-rate mortgages, Bankrate.com data show. Even if a lender tacks on a quarter of a percentage point for a cash-out refi, the rate is still significantly lower, making it a more-appealing option for many borrowers, according to Greg McBride, chief financial analyst at the firm.
While many of the largest banks keep Helocs at arm’s length, smaller lenders are still active in the market. M&T Bank tightened its standards for the credit lines but continues to issue them, said Joe Lombardo, head of consumer products at M&T.
With mortgage rates near record lows, cash-out refis are “taking up a lot of the demand for debt consolidation and home improvements that we would traditionally see home equity being a fit for,” said Lombardo, whose company was the 13th-largest Heloc lender in the US last year.
“The larger lenders are sitting on the sidelines still,” he said, “because there isn’t a huge need from a consumer standpoint to get back in.”
Find out if the emergency pandemic protection will be extended
Despite protests from housing groups to sunset the eviction moratorium, the Biden administration and the Centers for Disease Control and Prevention have decided to extend the nationwide ban protecting tenants who are unable to make rental payments for one final month.
The moratorium, which was scheduled to expire on June 30, was extended through July 31. CDC director Dr. Rochelle Walensky said that this is the last time they intend to extend the moratorium. “The COVID-19 pandemic has presented a historic threat to the nation’s public health. Keeping people in their homes and out of crowded or congregate settings — like homeless shelters — by preventing evictions is a key step in helping to stop the spread of COVID-19,” the health agency said in a statement.
White House press secretary Jen Psaki said Wednesday that the eviction ban, which had been extended several times before, was “always intended to be temporary” and that the President’s aim is to provide COVID-impacted tenants with a sort of off-ramp once it ends.
“Hence, we’ve also worked to take additional steps to ensure people are getting the support they need to stay in their homes, whether they are renters or homeowners,” Psaki said. “But we’d certainly defer to the CDC on their decision and their timeline.”
Following the CDC’s decision to extend the emergency pandemic protection, the White House announced a series of actions to stabilize homeowners and help them make the transition without massive social upheaval. The administration’s new initiative includes accelerating the distribution of emergency rental assistance, developing eviction diversion programs, and more.
Landlords and housing organizations have made it clear that they are against any extension. Last week, a coalition of real estate organizations wrote a letter to Biden pointing out that it is time to put an end to the moratorium.
Yet prices continue to rise…
Sales of new homes fell unexpectedly in May and the 5.9% retreat was the second consecutive monthly decline even as the median price hit an all-time high.
The May sales decline pushed sales to a seasonally adjusted annual rate of 769,000, the Commerce Department reported Wednesday. That followed a 7.8% sales decline in April, a figure that was revised lower from what was initially thought to be a drop of only 5.9%.
The median price of a new home sold in May jumped to $374,400, up 18.1% from a year ago when the median price stood at $317,100. The average home price also rose in May to $420,600, compared with $368,700 a year ago.
A shortage of homes on the market and rising costs for materials like lumber, and also labor, is fueling the upward momentum.
The surge in lumber prices that began this year has started to unwind and that could help slow surging housing costs, but the shortage of homes to buy is still creating a very high bar for potential buyers.
“What we need to take the edge off double-digit housing price gains is more houses and the builder backlog and the strong permits rate show more new homes are coming,” said Robert Frick, corporate economist at Navy Federal Credit Union.
The inventory of new homes for sale increased to 330,000 in May, up 4.8% from the end of April. That would represent a 5.1 months supply of new homes at last month’s sales pace.
Rubeela Farooqi, chief US economist at High Frequency Economics, said “supply constraints appear to be easing somewhat” but she predicted that rising home prices would continue to be a headwind for sales.
Sales of existing homes fell for the fourth consecutive month in May, the National Association of Realtors said this week, even as the median price soared 23.6% from a year ago and breached $350,000 for the first time.
Homes that do hit the market often get multiple offers far exceeding the listing price. Demand is also being juiced by low mortgage rates, reflecting efforts by the Federal Reserve to help lift the economy out of the pandemic-triggered recession.
Declines were led by a 14.5% drop in the South, the region of the country that accounts for more than half of new homes sold annually.
Sales were flat in the Midwest and up in the other two regions, led by a 33.3% sales gain in the Northwest and a 6.7% gain in the West.
Deadline is looming
With one week to go before the nationwide ban on evictions expires, the White House is acknowledging that the emergency pandemic protection will have to end at some point. The trick is devising the right sort of “off-ramp” to make the transition without massive social upheaval. White House press secretary Jen Psaki said Wednesday that the separate bans on evictions for renters and mortgage holders were “always intended to be temporary.”
Both will expire on June 30 unless extended. But Psaki would not say whether the administration was planning another extension. That decision, she said, lies with the Centers for Disease Control and Prevention, which imposed the bans on the rationale that allowing people to lose their housing during a pandemic was an unacceptable public health risk.
Psaki said the decision on the moratorium “will be made by the CDC, based on public health conditions.” The White House, she said, “wouldn’t get ahead of their assessment.”
Psaki added that President Joe Biden “remains focused on ensuring that Americans who are struggling, through no fault of their own, have an off-ramp once it ends.”
But even as the threat of the COVID-19 pandemic gradually recedes, there remains pressure on Biden to maintain the eviction moratorium for nonmedical reasons.
This week, dozens of members of Congress wrote to Biden and CDC Director Rochelle Walensky calling for the moratorium to be not only extended but also strengthened in some ways.
The letter, spearheaded by Democratic Reps. Ayanna Pressley of Massachusetts, Jimmy Gomez of California and Cori Bush of Missouri, called for an unspecified extension in order to allow the nearly $47 billion in emergency rental assistance included in the American Rescue Plan to get into the hands of tenants.
Ending the assistance too abruptly, they said, would disproportionately hurt some of the same minority communities that were hit so hard by the virus itself. They also echoed many housing advocates by calling for the moratorium’s protections to be made automatic, requiring no special steps from the tenant in order to gain its protections.
“The impact of the federal moratorium cannot be understated, and the need to strengthen and extend it is an urgent matter of health, racial, and economic justice,” the letter said. Diane Yentel, president of the National Low Income Housing Coalition, called an extension of the eviction ban “the right thing to do - morally, fiscally, politically, and as a continued public health measure.”
But landlords, who have opposed the moratorium and challenged it in court, are against any extension. They have argued the focus should be on speeding up the distribution of rental assistance.
“With each passing month, we are at risk of losing an ever-increasing amount of rental housing - jeopardizing the availability of safe, sustainable and affordable housing for all Americans,” Bob Pinnegar, the president and CEO of the National Apartment Association, said in an email interview. “The mounting housing affordability crisis is quickly becoming a housing affordability disaster fueled by flawed eviction moratoriums, which leave renters with insurmountable debt and housing providers holding the bag.”
Sales in total decline for the fourth straight month
Existing-home sales, weighed down by rising prices and low inventory, fell for the fourth consecutive month in May.
According to the National Association of Realtors, total existing-home sales were down 0.9% to an annual pace of 5.80 million – the slowest month-over-month rate since June 2020. Year over year, sales were up 44.6% to an annualized rate of 4.01 million.
“Home sales fell moderately in May and are now approaching pre-pandemic activity,” NAR chief economist Lawrence Yun said. “Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market.”
Despite these headwinds, housing demand remains very strong, and sales last month were still much higher than in May 2019, said Joel Kan, AVP of economic and industry forecasting at the Mortgage Bankers Association.
“The median sales price once again surged to a record high at $350,300. For context, the median price was around $295,000 in 2020 and just under $270,000 in 2019,” he said.
Kan also highlighted the positive market outlook on supply.
“One positive development was the 7% increase in for-sale inventory, which should slightly help price conditions. However, the stagnating first-time buyer share at 31%, along with the rapidly increasing median sales price, are signs that affordability is an ongoing challenge at the lower end of the market,” Kan said.
Total housing inventory amounted to 1.23 million units at the end of May. Unsold inventory sits at a 2.5-month supply, slightly up from April’s 2.4% supply but down from 4.6-months a year ago.
It could prompt a spate of people to be forced from their homes.
A Kansas judge is beginning to evict tenants who are behind on rent in advance of the expiration of a federal moratorium that some experts predict will bring a tide of people being forced from homes nationwide.
Johnson County Magistrate Judge Daniel Vokins said during a Zoom eviction hearing this week that he doesn’t think the moratorium, which was issued last year by the Centers for Disease Control and Prevention and expires at the end of the month, is enforceable.
Eric Dunn, director of litigation for the National Housing Law Project, said he has heard of judges elsewhere - including in Florida, Georgia, and North Carolina - ignoring the CDC moratorium, but couldn’t say whether it’s been a widespread practice.
The federal moratorium has kept many tenants owing back rent housed. More than 4 million people nationally say they fear being evicted or foreclosed upon in the months following its expiration, census data shows. Making matters worse, the tens of billions of dollars in federal emergency rental assistance that was supposed to solve the problem has not reached most tenants.
“We thought 2021 was going to be better and it is turning out to be just as bad,” said Denise Wall, 31, of the Kansas City suburb of Shawnee, who applied for rental aid in March but is still trying to find out whether she qualifies.
She lost her job as a cook as the pandemic started and was out of work for nearly a year before beginning another job in April as a medical courier, picking up and delivering tests. Vokins set her case for trial on July 02.
“This wasn’t anything any of us asked for,” she said in a Friday interview at her apartment, where she and her wife have been collecting boxes as they look for a new place to live. Her wife’s three sons also live with them part of the time.
Vokins noted in moving forward on evictions that a federal judge last month found the CDC exceeded its authority when it imposed the moratorium last year. He said the ruling means that “any current or future moratorium order issued by the CDC is not valid.”
Kansas also had its own eviction moratorium, but it expired at the end of last month. Vokins said that means that “the eviction laws prior to the pandemic in March 2020 is the current law today.” Casey Johnson, an attorney for the non-profit law firm Kansas Legal Services, noted the federal ruling was issued in the 6th Circuit and wasn’t binding in Kansas, which is in the 10th Circuit. “Basically he’s choosing to accept that ruling even though he doesn’t have to,” Johnson said.
Vokins encouraged renters and landlords to work together to obtain emergency rental funds but said he would only pause court proceedings if both sides agreed to the delay.
Two other tenants who appeared before Vokins on Thursday said they were seeking federal rental aid. A third tenant who couldn’t get his sound to work and only was able to communicate with thumbs up and thumbs down hand motions sent an email to the court later in the day saying that he also had applied.
Kansas is now distributing $200 million in federal rental assistance. The Kansas Housing Resources Corp., the state’s housing finance agency, which is responsible for distributing the money in every community except Wichita, has distributed $5.5 million so far to help 956 of the 7,780 households that have applied.
The state received another $20 million in rental assistance last year and handed out $17 million of it, said Emily Sharp, a spokeswoman for the agency.
“The second round of funding has much more stringent federal guidelines, so it is much more difficult for us to award that funding because quite honestly the applicants have more hoops to jump through,” Sharp said. Besides rent, that money also can go toward utilities and internet expenses.
Luke Demaree, an attorney for Fox Run Apartments, said apartment staff is in constant contact with the agency but can’t get details on who is approved or when to expect the money.
“If this was something that was working it would be very, very beneficial to us and we would like nothing more than to have rents caught up,” he said. “We would like nothing more than that, but at the same time, that is not what we see happening.”
Karen Nations, who also represented landlords at the hearing, said the moratorium has been difficult.
“Landlords have been struggling to pay their bills, and people have taken advantage of the moratorium,” she said, adding that some who can afford to pay their rent are not. “It is a very tricky balancing act to get the mortgage paid if you’re not getting your rent.”
"The mortgage industry has an opportunity and a responsibility to open the door for those ready and able"
The Mortgage Bankers Association has announced its support for the Black Homeownership Collaborative’s (BHC’s) plan to boost Black Homeownership by three million net new households by 2030.
Through its solutions-based plan, BHC aims to help Black communities overcome the affordable housing hurdles they face. BHC’s seven-point plan includes homeownership counseling, down payment assistance, housing production, credit and lending, civil and consumer rights, homeownership sustainability, and marketing and outreach.
“Promoting safe and sustainable homeownership and closing the homeownership gap that exists within minority communities is my top priority as MBA’s 2021 chair,” said Susan Stewart, 2021 MBA chairman and CEO of SWBC Mortgage Corporation. “The mortgage industry has an opportunity and a responsibility to open the door for those ready and able to buy a home.”
MBA recently created a task force of industry leaders that aims to provide “direction for reducing the racial homeownership gap and promoting sustainable homeownership policies for communities of color.” Additionally, the trade organization has established two advisory councils on affordable homeownership and rental housing.
“MBA continues to consult and partner with housing experts, consumer groups, non-profits, and civil rights organizations to identify and remove barriers to homeownership for minority households,” said Steve O’Connor, co-chair at BHC and senior vice president of affordable housing initiatives at MBA. “I am proud to co-chair the Black Homeownership Collaborative and believe our thoughtful, results-driven plan will increase Black homeownership and help to close the racial wealth gap.”