Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Over ten percent of existing mortgages are currently in forbearance, or some kind of payment deferment plan, according to the latest report by Black Knight and the Mortgage Bankers Association. The total balances for loans currently in this stage total over $1 trillion. As of this writing, almost 40 million Americans have lost their jobs over the past two months, since the Covid-19 pandemic hit the United States; the biggest labor-market shock since the Great Depression in the 1930s. While the statistics show much gloom, we are starting to see the numbers on all fronts stabilize, and hopefully starting to improve.
We are in unprecedented times, to say the least. Yet, the Mortgage Bankers Association just released their weekly update which reflected that for the fifth week in a row, applications for new home purchases have increased. Home purchase loans are almost in-line to where they were a year ago at this time, a remarkable statistic, given the environment that we are in. Added to that impressive performance is the fact that new listings are down 29% annually as of the first week of May, according to Realtor.com.
While real estate market giants such as Zillow are amongst many others predicting a housing market decline, we are not forecasting the same. In fact, what I am hearing from my conversations with local Realtors is that the weak supply and growing demand is now causing a surge in bidding wars, especially for homes priced below $1 million. Redfin reported that more than 41% of homes in contract faced a bidding war in the past four weeks. Before the pandemic hit, we were below 10% for the same category.
Coupled with historically low mortgage rates and a surge in home shoppers, the real estate market has bounced back with conviction. The stock market has recovered more than half of its losses from the market drop in late March 2020. While stocks seem stable and climbing, I fear that we are not going to see the same strength in equities as we will see in housing. Historically, after major market crashes, we have often seen a quick initial recovery, followed by a more drastic drop again. I hope those trends are not going to be applicable in this case.
In the housing market, we are seeing continued strength in using mortgage leverage wisely. We are also seeing historical levels in the amount of available “equity” in the average U.S. household. It appears as though many homeowners have learned their lessons from the housing crisis in 2008 when most homes reported less than even 20% available equity. The drastic drop in home values that many predicted because of the pandemic are not coming to fruition. This is because of the swift action by the Government and the Federal Reserve to protect homeowners from default and delinquencies, and because homeowners don’t want to lose the equity in their homes to foreclosure.
As far as mortgage rates, we continue to see a very even-keeled hand by the Federal Reserve to maintain these low rates. While some think that the Federal Reserve is manipulating bonds to push mortgages rates lower, this is not the case. The Fed keeps reducing the amount of RMBS purchases almost daily. While the Fed has communicated that their objective is to keep rates stable, the decline in interest rates is coming as a result of banks becoming more comfortable with the environment, and starting to take on more capacity.
I have lost many potential clients because rather than quickly convincing them to lock in a low prevailing rate, I encouraged them to wait to see rates inch lower. The next call they made was to a mortgage representative who pressured them to act before rates spiked back up. I lost the deal, they lost thousands of dollars over the life of their new mortgage. I maintain that if this calm environment remains, rates will continue to remain steady, and will convincingly drop below 3% giving so many the chance to take advantage of lower payments and refinance opportunities. The guidance on how to act, and when to act, continues to be key. I continue to encourage clients to be in constant communication with their local expert mortgage lender. Good luck and stay safe.
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