At this point when I’m recording it the election results haven’t been finalized, and I’m sure in the
coming days and weeks that will be. But as we get things kicked off, we’ve got a lot to talk about today. And where I wanted to start is sharing my screen and going back maybe in time just a little bit to what we shared earlier this year in April of 2020 what experts are saying about economic downturn and recovery in the first, second, and third quarter.
So, if you remember going back to that time, we saw a little bit of economic decline in the first quarter, significant decline in the second quarter, and then ultimately the forecast was in the third quarter for there to be economic recovery in this V shape. Now, I’m not sitting here saying let’s talk more about the V shape. We’ve talked a lot about that over the summer. But what I want to go back and do is I want to go back and show you what has actually happened now that the economists have given us the initial, what they call the advanced estimate of GDP for the third quarter, and that’s come in here most recently at the end of October. And what actually happened is what experts said, what we gave you back in April. And so, as we start this monthly market report, I think there are a lot of questions in the market. There’s certainly a lot of uncertainty in the world. And we can help buyers and sellers. We can help the clients
that we serve gain certainty by looking at what are the experts saying. What are the data and facts about the housing market that we can help them understand what’s going on, make a powerful and competent decision for them and their families about housing.
But if you look back at what we said in April, you look at what’s just recently happened, you could literally lay these over the top of one another and you’re able to create that certainty for the folks that you serve. And I bring this up because of a quote that we’ve used before, and I want to bring it back. From the Wall Street Journal, it says, “New stories often describe the coronavirus induced global economic downturn as the worst since the Great Depression. Yet for many the comparison does more to terrify than clarify.” So, no doubt that headlines today, news reports, things like that, do a lot more to terrify than they do to clarify about actually what’s going on.
So, I want to kind of turn back and take a look at what has happened during the pandemic, and then we’re going to get into some very real issues that we’re facing right now as a business and as an industry, and what I believe are some of the most important topics our KCM research team has come up as we’ve developed this monthly market report.
So, the first point I bring to you is, over the summer during the coronavirus pandemic, the average FICO score in this country has actually risen. And that may be shocking to a lot of people. These are not people that are in process for a home loan or FICO scores of people that are applying for a mortgage. These are average consumers. And we’ve seen it slightly risen over the summer months. And why is this? There’s a very specific reason for that. And it is this: it’s that most households have used their stimulus check to pay down debt and to save. Thirty-five percent of those receiving stimulus used it to pay down debt, to retire debt. Thirty-six percent of those people receiving it saved that money. You’ve probably seen some news stories about deposits rising across the country. Twenty-nine percent spent the money – and I’m not saying this that there’s not a reason that people need this and that the stimulus was not impactful, because it was. But a lot of people, two out of three almost, used it to pay down debt or
save, thereby improving their financial situation, raising their FICO score, and giving them a better situation going forward. And I think that as we go back and we look at we look at what I said before about news headlines doing more to terrify than clarify, I don’t think it’s something that’s being talked about in general.
The other thing that’s very interesting about the world that we live in right now relative to business, is the number of business applications across the U.S. has skyrocketed this year. And that’s really a tribute to innovation across this country as people have seen here’s a need through the pandemic; I can shift my business, I can create a business, I can do something different to be able to meet the need of consumers in today’s market. There is no doubt there have been a lot of businesses that have been impacted in a negative way going through the pandemic, but there’s been so much response of people saying I’m going to start a business. I’m going to do something that’s going to serve a need in this country. It’s no different than the housing crash back in 2008. A lot of the great companies that are around today were started and that innovation was birthed during the downturn of the Great Recession. So, I think there’s
positive news there relative to businesses and people starting businesses to innovate and meet a need through this health crisis that’s caused an economic crisis across the country in the year that is 2020. Now, the interesting thing as we look across the country at consumer spending, we know that in a large majority of states that consumer spending is very near to where it was at the first of the year. So, we go back to January 1st, we look at where consumer spending is as compared to that, you can see no matter what state you’re in where you’re at relative to consumer spending. And the majority, this mustardy brown color, which is within 10 percent of where we were January 1st, and so that is a very, very good thing. The country as a whole is within 3.7 percent of where we were on January 1st.
Now, I mentioned before, as I’m recording this the results of the election have not been finalized. And I think we can say confidently, no matter who is elected there’s likely to be another stimulus package passed, which is going to help consumer spending, going to help push the economy forward as we see a rise in coronavirus cases, a rise in things going into these winter months. And so, I think we can be encouraged with consumer spending across the country and where that’s at, and hopefully seeing that recover as we continue on throughout the year.
Now, the question that’s on a lot of people’s minds, things we’ve talked about over the summer, is unemployment. And I’ve got a – look here. We haven’t used this slide in a while, but it’s of the weekly filings for unemployment, the weekly claims across this country since this started in late March. And as you look at this you can see kind of where we’ve been, and certainly the height towards the end of March around 7 million people in one week claiming unemployment. Most recently, about 750,000 claiming unemployment in the most recent week. But we’ve been in this area for the last couple of months, around eight or nine hundred thousand people filing for unemployment each week. We want to see that continue to come down, but we’re kind of hovering in that area. Now, the interesting thing about that is as people continue to apply for unemployment, people are getting their jobs back and coming off of unemployment.
Now, this is a look at those currently receiving unemployment insurance. So, if you go back to May, the height of this, we saw almost 25 million people receiving unemployment insurance. Most recent count, about 7.3 million. And while we’ve hovered in that eight or nine hundred thousand people applying in that range, each week there you can see we’ve seen a decrease of those receiving unemployment insurance. Most recently about 500,000 of those coming off, for a total number of about 7.3 million receiving unemployment insurance. Now, I think that is sobering news. I’m not suggesting that 7.3 million people on unemployment is a good thing, certainly not 25 million. But we want to see that come down.
The Federal Reserve came out with a very interesting quote here that I want to read to you. It says, “Data from the Survey of Business Uncertainty suggests that the road forward is going to be a tough slog. Businesses hold tepid expectations for year-ahead employment and sales growth. Expectations are, in fact, so tepid that, based on the latest average projection, it will take firms more than four-and-a-half years to recover their pre-COVID employment levels.” Now, a couple of things there. First of all, four and-a-half years to recover from pre-COVID employment levels. If you go back and look at some of your slides in the monthly market report, we’ve been talking about that. Experts have been saying it’s going to be about four years before we get back to where we were relative to unemployment, if you remember that depth versus length slide that we used a lot of times. So, that’s certainly not a surprise there.
The other one is just the road forward being a tough slog. I think we’re looking at this going, experts are saying okay, we’re not out of the woods here. We don’t have a complete picture of recovery yet, and we’ve got a far ways to go yet in how we recover here. So, we’re going to stay on top of that, but I don’t think any of this is something that’s going to catch anybody by surprise, because a lot of experts have been saying this. But it is sobering news relative to the unemployment and recovery picture out across the country.
I think this brings us up to a point that I want to focus on for just a minute, and that is this question that’s kind of floated around our business of, are we going to see a 2021 housing crisis, foreclosure crisis, housing crash? There are people on YouTube, there are articles written about it posted in different blogs and Facebook groups. And I want to attack that directly and give you some information there to have that conversation with maybe people in our business, but also maybe people that you’re working with.
Say I’ve heard that there may be a coming flood of foreclosures, REO properties, things like that.
And to do that I want to take a look at active forbearances. So, again, we’ve followed this for a while.
We look at forbearance across the country as the tool given to consumers to help weather the storm relative to their housing. You go back to the end of May, just over 4.7 million people on active forbearance. The number total is a little bit higher than that of people that have taken it. Now, we’re going to unpack that in just a minute. But as we look at over time, the number of people in active forbearance is decreasing, and quite dramatically decreasing. Almost this step down in October where you see right at 3 million people for the last several weeks on active forbearance. Now, as we see that we want to continue to see people come off. If you remember, the CFPB gave options for people as their first term, first 180 days of forbearance expire. They could extend, they could do a number of different things, and we’re going to talk about those people in a minute. But the good news is we’re seeing people come off of the forbearance program.
When we started this, I think a lot of experts, a lot of people were saying hey we’re going to see 30 percent of homeowners take forbearance. Well, that actually never happened. Back in May we reached this height of about 8.5 percent of mortgages in forbearance. Where we sit today is 5.8 percent of mortgagees in forbearance, and that number dropping. So, that number of – all these loans that are going to go into forbearance never happened, and we see quite the opposite of that. A fraction of those, and that number drooping. What we know as well is the percentage of forbearances by product type is decreasing. Look at Fannie, Freddie, Ginnie, and then private mortgages, all of those things dropping. There are questions about that, about certainly the private mortgages, non-QM mortgages. I think there are a lot of people that took mortgages in that and there’s certainly data to suggest it, that said hey, I don’t know what tomorrow is going to bring, I don’t know what the pandemic is going to bring, and they continued to make their payment. And now they’re saying look, I don’t need it. We’re going to move on from that.
Now, as we see these mortgages starting to come off of forbearance and decrease, that in itself is not the complete answer to are we going to see a housing crash, because there are a lot of people that are affected by this. I think what we need to dig into is this number right here. And this is as of October 20th, of the 5.7 million families granted forbearance, this is what happened upon the expiration of the plan, okay. So, let’s kind of go from left to right here. The orange bar all the way over, 2 point almost 4 million extended their forbearance. Like I talked about, the CFPB built in a provision to what they deemed request and be given an extension of 180 days. So, your first initial 180 days, you can get an extension for another 180 days for a total of 360 days on your mortgage. Two point four million said will extend it.
The next tranche is I’m going to say are these blue bars and the green bar, 44 percent of mortgages either were removed while they were performing. These are the people I talked about that took it and said we don’t need it. We’re going to move on. They removed it. They’re performing on their mortgage. Five hundred thousand paid off their mortgage through this process. Now, we don’t know the breakdown of those, the number of people that sold. And maybe there are people in there that said you know what, we can’t hold on to the house, we’re going to sell it. But certainly people that their mortgage was paid off during that time, 44 percent of those expired while performing or paid their mortgage off. Now, the next kind of gray bar there, 481,000 people expired while delinquent and are in some form of loss mitigation. Think about this as a workout with their bank, tacking these payments on the end, doing things that help them survive this and the bank saying hey, we’re going to help you work through this
and use the forbearance plan for the way it was intended. And that’s a good thing.
The last tranche there, 80,000 people expired while delinquent and are not in some form of loss
mitigation. Now, those are the ones that are susceptible I will say at this point, to some type of distress sale or foreclosure. We’re not saying all of those are going to turn into that, but those are the ones that could turn into that. Now, what’s interesting about that is when this forbearance plan came out in the business, I think the general thought was look, we’re going to have a ton of people doing this. Like we said, 30 percent of mortgages are going to go into forbearance. And then there was this kind of undercurrent of, and every one of them is going to turn into a foreclosure. Well, that’s just simply not true where we stand today. Five point eight million people opting for forbearance. We see this very small bucket of people, 80,000 people, that are candidates or could turn into possibly some type of distress sale. And so, I want to caution that. Not all of those, but those are the ones that could turn into that. I think there’s more to be told on that story, and we’re going to continue to watch that. But it’s not the lion’s share, it’s not the majority. It’s not a significant number of those that took forbearance. And the truth is in our business is that people go into foreclosure each month. And we certainly don’t want to see that, we don’t want to see that happen to individuals and families, but it is a reality of our business,
and we’re seeing some of the outcome of this crisis relative to that.
Now, the big difference in this foreclosure crisis, is today, people have options. The equity in their homes gives them options to be able to sell, to be able to do what they want. Maybe pay a commission and put some money in their pocket and move on down the road, and hopefully get to the other side of this crisis with them and their family. And those are options we didn’t have, and homeowners didn’t have back in 2008. We’re in a very, very different scenario today.
It leads us all to this. I pulled a quote from Ivy Zelman. If you follow us, Ivy, we look to her for a lot of advice. She says this, “The likelihood of us having a foreclosure crisis again is about zero percent.” So, certainly Ivy and her team are looking at a lot of factors. We’ve just unpacked for you folks coming out of forbearance, the options that consumers have today. We’re not saying we’re not going to see foreclosure impact, because there certainly will be, but not crisis impact. And so, I think that’s important to remember as we look at the data, as you have conversations, as you interact with people, even in our business that think we may be seeing this flood of REO properties. I’ve gotten several calls of, when are all the REO properties going to hit the market? How do we help people navigate through that. And I think from a crisis level and a flood of those properties, we’re not likely to see it.
Now, as we kind of turn the corner, the biggest issue in our business right now no doubt is inventory. It’s a very interesting look at the last 12 months right here, of inventory across the country. Most recently, 2.7 months of inventory across the country, and likely lower in a lot of cases. And as we go through these winter months we know that the deficit of inventory across the country is the biggest. It is really the thing that could hold back our business, if we’re not able to bring inventory to market, we’re not able to sell homes. We’ve talked a lot about the economic impact of a home sale across the country, and we know that’s driving the economy right now. And I think our job right now is to help bring those listings back to market. If we take this look at the year over year change in listings, it’s the look at supply of homes coming to market versus the inventory of homes in the market. The green bar there, new listings, is the supply coming into the market. And as this supply comes in, it gets purchased as fast
or faster than it comes to market, leaving this inventory number flat. Hopefully maybe bottoming out and coming up a little bit. But still severely under inventory across the country today.
Now, I think the thing that we want to start to look at is, why is that? We’ve talked a lot about those that have not put their homes on the market this year for a lot of reasons. Zillow just came out with a study last week of the top three reasons homeowners are not putting their homes on the market. And I think this is very interesting, and I want to talk about it for just a minute. Thirty-one percent say financial uncertainty is a reason we are not putting our home on the market. Now, going back to what we talked about on the front end of this, I think being able to say this is what experts are saying, this is what happened, even going back in time. Hey, and here’s what’s happening in the economy right now, and here’s what’s happening with unemployment. Here’s what’s happening with consumer spending. Here’s what’s happening with even credit across the country, to help people understand what’s going on financially in consumers across the country.
Thirty-four percent say life is too uncertain right now. And you can’t argue with that. There’s a lot of uncertainty in the world. I think it’s our job to help people feel more certainty. And I would say this, and I’m going to talk about this in a minute, there’s going to be a cost for waiting for things to become certain. When things become certain that’s certainly a sign of an improving economy. Interest rates are going to rise and we’ll talk about that, different things that come with a certain economy, but the reality is in feeling uncertain right now there will be a cost to waiting for certainty. A quarter of people, 25 percent of people say I have concerns about my health and bringing people into the house relative to COVID and all that. And so, I think there’s more work to be there to show people how we can safety help them transact the purchase or sale of a home. So, top three reasons, big reasons there. Jeff Tucker from Zillow goes on to say this, “Homeowners who feel life is uncertain right now may think they can get a strong price if they delay selling until they have more clarity. The catch is, waiting to sell may raise the cost of a trade-up. And this fall’s record low mortgage rates, which make a trade-up more affordable on a monthly basis, are not guaranteed to last.” So, what Jeff’s saying there, and I think all of us know in our business, low rates are not guaranteed to last. Even in some complacency, and buyers and sellers going well, we don’t have to do anything, rates are going to be low for a while, I think is what we need to be looking at and saying, there will be a cost for some people that will look back in the rearview mirror and say wow, things were really, really good then and I should have done something.
If we talk about what, as we look into the future right now, what we can see, our projections on home prices, very positive. We still have CoreLogic as an outlier at .2 percent. I talked with our research team this week. We’re going to reach out to them and just say, what are you seeing out there that others are not seeing? We trust CoreLogic but certainly their forecast doesn’t make sense. But if we look back over what others are saying, Zillow at one end, MBA on the other end, a lot of people in the middle, 4, 5 percent appreciation going into next year. Again, going back to if you wait for that certainty you’re going to be seeing appreciation going into next year. So, the same house is going to just, it’s going to cost you more relative to that. So, the price is going to be higher and the cost ultimately determined by rising mortgage rates, is going to be higher. The MBA’s most recent forecast has come out and forecasted. You can see it here, 3.3 next year, 3.639 in the years following. Which, we look at that, I’m not saying that’s a higher interest rate on a 30-year fixed. It’s a very good interest rate. But the reality of the place that we live in today and interest rates, it makes a 4.5 percent or a 5 percent mortgage look high. We have to be mindful of the consumer’s thought or mentality around that. And no doubt as we go forward, we don’t have a crystal ball, we can’t say when, we can’t say what’s going to happen, but as the economy improves, as rates tick up, it’s going to cost more. So, it’s going up in price and the interest
rate is going up and that will be the price of waiting for certainty in the market.
Now, the other thing that was just mentioned in the quote is home affordability. Now, we use the home affordability index from NAR, to look at how affordable are homes. We’ve seen that in a range right now it’s still very affordable, 159 on this. If you remember how to read this, the higher the index, the more affordable a home. And you know affordability was certainly very, very high during the years that distressed properties dominated the market back in the housing crash. And where we stand today is very good relative to history, if you look at years before the housing crash were above that.
Now, I think the question is what’s coming ahead. Mark Fleming from First American covers this. He says the good news is that affordability remains significantly higher than one year ago, mostly due to falling rates. One month does make a trend but this month’s decline in affordability signals that current dynamics producing faster house price appreciation may begin to erode the affordability gains of recent years.
So, homes are appreciating. We know in the last 12 months home has appreciated as home has become more and more important to people. More and more people have purchased homes, we have limited supply, prices are rising. And that rise in price, that rise in interest rates going down the road is going to erode away some of the affordability gains we’ve seen. So, I think that’s important to remind the customers that we’re working with, that that is the reality of the market right now. Certainly not trying to force them to do something they want to do, but making them aware and educated of this is what’s happening in the markets so they can make the best decision for them and their families.
Now, if we look at all this information, a lot of things happening in our market, in the world in general no doubt, but staying on top of it, staying current with everything that’s happening is the key to being able to deliver certainty to the clients that we serve. And I think certainty in an uncertain world is what we’re talking about right now in the month of November.
Coming up soon here on December 4th, the winter buyer and seller guides will be out. It’s a great tool to use that is written for this market to help people that are thinking about, you know we’ve thought about buying a house, we’ve thought about selling a house, to get these in front of them and have that conversation.