Maxwell News Digest: Half as Much Housing Inventory on the Market as Last Winter

There’s a different feel in the air. When the year began, there was much excitement about the market. And while interest rates remain historically low, experts, investors, and analysts have been less willing to assure us that the market will continue to boom. 

Currently, the conventional 30-year mortgage fixed-rate barely eclipses the 3% mark, coming in at 3.062%%. Fifteen-year rates, meanwhile, sit at 2.587%. The rates have been slowly inching up week-by-week, but economists and other experts aren’t alarmed, as the 3% benchmark is still exceptionally low in modern history.

As for the news this week:

—Some experts explained why they believe home sales will continue to grow this year despite rising interest rates,

—The New York Times ran a story on the staggeringly low supply of homes right now,

—The Federal Housing Finance Agency (FHFA) extended mortgage forbearance for up to another six months,

—Research finds that single women pay more in mortgage costs compared to single men in the vast majority of states, and

—The Wall Street Journal reported on the lack of investor enthusiasm for the IPOs of mortgage lenders.

The housing market is running on (very) short supply.

The usual trends and indicators that we’ve come to expect in real estate have gone out the window. One of those trends is the huge lack in housing supply that has plagued buyers across the country. According to Altos Research, there’s about half as many homes (!) on the market as there was last winter.

The demand for homes hasn’t been an issue during the pandemic. Low interest rates and space-driven motives have brought more buyers into the market. The problem is that the housing supply isn’t nearly sufficient enough to support the demand, due to pandemic pressures. Most homeowners are older, making them more at risk of COVID-19, a key reason for the low supply.

“The supply side is really tricky,” said Benjamin Keys, an economist at the Wharton Business School at the University of Pennsylvania. “Who wants to sell a house in the middle of a pandemic? That’s what I keep coming back to. Is this a time you want to open your house up to people walking through it? No, of course not.”

Further, government mortgage forbearances have kept homes that would have otherwise gone through foreclosure off the market. Eventually those forbearances will end. But when they do, they might let loose more foreclosures than some markets would prefer, creating a whole other set of issues. 

But with good foresight, you would have seen this supply shortage coming a long time ago. For the last decade, there’s been less home construction in relation to historical averages. In 2008, the housing tumble caused labor and profit losses, effectively halting new construction. Its recovery has lagged amid tighter regulations and higher construction costs.

How should you respond?

Stay on top of these trends. The real estate industry is known to be defiant towards common economic science, so never take the market at face value. While we’ll discuss next why experts believe the market will remain strong through 2021, don’t let your guard down.

Experts remain optimistic while rates increase.

Mortgage rates crossed the 3% barrier this past week, the highest rate since September 2020 and the sixth week of increase over the past eight weeks. Still, experts believe that home sales will continue to trend upwards, as current rates are still historically low. For context, the average mortgage rate was above 10% in the 1980s.

On the flip side, however, refinance activity dropped 11% to its lowest rate since December. But in many ways, that’s to be expected, considering how crazy refinance activity has been—it’s still 50% higher than one year ago. Plus, the average loan size in purchase applications reached $418,000, a record-breaking number. It’s up from $347,800 last year.

The pitfall is that as mortgage rates rise, buyers may change their timeline around making a purchase. The Mortgage Bankers Association (MBA) estimates that existing home sales will stick around $6.4 million in volume each quarter this year, keeping the numbers on par with the final half of 2020.

Should you be optimistic too?

There’s a lot to be happy about (such as origination volume and the average loan size). But once again, caution is warranted. The real estate market is full of uncertainty. Stay on top of the trends.

Mortgage forbearances for FHFA-backed homes are extended.

Homeowners with mortgages backed by Fannie Mae and Freddie Mac could be eligible for up to six additional months of forbearance. The FHFA is making the additional grace period eligible for those who are already on an active COVID-19 relief plan by February 28, covering those who qualify until the end of August.

Along with forbearance, foreclosure and real estate owned (REO) eviction moratoriums were extended through June 30, an extra three months. 

“From the start of the pandemic, [the] FHFA has worked to keep families safe and in their home, while ensuring the mortgage market functions as efficiently as possible,” FHFA Director Mark Calabria said. “Today’s extensions of the COVID-19 forbearance period to 18 months and foreclosure and eviction moratoriums through the end of June will help align mortgage policies across the federal government.”

As of late February, the MBA estimates that around 2.6 million homeowners are utilizing some form of forbearance.

Single women pay more for their mortgages in every state except Alaska.

Why Alaska is the only state with fair rates is unknown. But as for the other 49 states, single women pay more than their single male counterparts, despite being more current on payments.

In Mississippi, where the disparity is clearest, single women paid 3.47% interest compared to 3.37% for single men. While that may not seem like it a lot, it actually equates to $7,000 extra in costs for women.

“The latest Home Mortgage Disclosure Act (HMDA) data makes it startlingly clear—women are largely being left out of the conversation,” says Patrick Boyaggi, CEO and founder of Massachusetts-based lending startup OwnUp. “Recent HMDA data confirms that discrimination in the home-financing process is very real. The main reason? Many female borrowers simply fail to shop around for the best possible rate, which translates into losing thousands of dollars over the total life of their loan.”

Boyaggi’s analysis seems to place much of the blame on a failure to compare rates. But it’s hard to imagine a disparity so commonly seen across the board being based on shopping habits alone. He later points out that the mortgage industry knows that this is an issue and that it must be stopped, alluding to a broader systemic problem.

“I am not certain everybody is aware of it or believes it’s a real issue,” Boyaggi said. “We believe it is a systemic-wide problem […] women are not being treated fairly […] For us, it’s really about it not being 50-50. And therefore, it’s a systemic problem. Let’s bring that to light first and let’s start worrying about the solutions versus trying to nitpick as to why it is an issue. It is an issue. We know it’s an issue. How do we make it better, versus trying to justify it or come up with some kind of rationale for it.”

According to the data, the top states where the disparity was the worst were Mississippi, Alabama, Ohio, Florida, and New Jersey. The states most favorable to women were Maine, Wyoming, Montana, Alaska, and Oregon.

Investors don’t seem to like mortgage IPOs.

Last year, eight out of the top 30 mortgage lenders announced plans to go public on the stock market. But the two lenders that did go public in 2020, loanDepot and Home Point Capital, scaled back their initial plans, ultimately reducing share prices. AmeriHome Mortgage pulled back their IPO plans altogether, and Caliber Home Loans has delayed entry since October.

“The average investor is not convinced a mortgage company is a great bet as far as owning stock in it,” said Guy Cecala, Chief Executive of Inside Mortgage Finance, an industry research firm. “It’s a cyclical business, and they’re not sure what’s going to happen.”

While refinances boomed in 2020 and experts expect a strong purchase market to take over in the coming months, investors simply don’t like the long-term cyclical nature of mortgage lending. It’s hard to predict when profits will rise and fall, making it a lot riskier than other sectors.

There’s good news, though. Rocket Mortgage, loanDepot, and Guild Mortgage are all enjoying higher share prices as the market remains steady. For investors looking into the short-term value of buying into these firms, it might be lucrative.  

We’re already nearing the end of quarter one.

So far, so good. But as we’ve been emphasizing, it’s important to keep on top of the market’s trends. As the Biden Administration moves forward with its policy agenda and more cabinet officials are confirmed by the Senate, we’ll start to see the nation’s fiscal policy shift. Add in the vaccination effort, and it becomes impossible to know what the coming months will hold.

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