April 9, 2021

The rate at which loans are exiting forbearance keeps accelerating, and a new proposal aimed at preventing foreclosures could offer even more support for at-risk borrowers. Housing sentiment improved in March, with sellers indicating they are more eager to list. And the broader economy continues to show signs of improvement.

The decline in forbearance volume continues to steepen

• 2.3 million home loans were in forbearance as of April 6, 228,000 fewer than a week earlier.
• The Consumer Financial Protection Bureau proposed a new policy that would bar foreclosures until 2022.

Consumer housing sentiment improved in March, with sellers leading the way

• Fannie Mae’s Home Purchase Sentiment Index rose 5.2 points from February to March, to 81.7.
• 61% of respondents said they believe it’s a good time to sell a home, 6 more than any month since February 2020.

Service sector activity finds a higher gear

• The ISM Services Index rose 8.4 points in March from February to 63.7, its highest reading ever.
•  The report mirrored a similarly strong recent read on the manufacturing sector.

So what? 

After months of very modest improvements, the number of homeowners in forbearance has fallen sharply lately, and those improvements accelerated this week. According to Black Knight, 2.3 million mortgage borrowers remained in forbearance as of April 6 – down by 228,000 (or 9.0%) than a week earlier and the strongest weekly improvement in six months. It’s worth noting that the strength of the report was largely attributable to many loans simply exiting their plans 12 months after first receiving assistance. But encouragingly, the number of plans entering forbearance experienced a sharp decline as well – just 158,000 loans began receiving protection in the last four weeks, down 18% from the previous four-week period. That said, while the numbers continue to improve, 4.4% of all loans are still in forbearance and many households are behind on payments — a big reason why the Consumer Financial Protection Bureau announced additional safeguards to prevent these loans from falling into foreclosure. The so-called program “review period” program essentially prevents loans from being foreclosed upon until 2022. It also applies to all mortgages, including the 30% held by private lenders, not just those originated or sponsored by the federal government or government sponsored enterprises like Fannie Mae and Freddie Mac. With fewer than 3% of all mortgage holders in negative equity – owing more on their mortgage than their home is worth – the mortgage market is in much better shape than it was in the Great Recession.

Consumer housing sentiment jumped in March as people grew increasingly confident in the broader economy and keener to sell their property. The Fannie Mae Home Purchase Sentiment Index (HPSI) increased by 5.2 points in March from February to 81.7 – tied for its highest point since the pandemic began. The monthly improvement was driven by an 8-point improvement in the share of people who said they expect their household income to be significantly higher 12 months from now, and by a strong increase in seller sentiment. Almost two-thirds (61%) of respondents said they believe it’s a good time to sell a home, more than any time since February 2020. With fewer homes coming on the market to begin 2021, an uptick in seller optimism is a great sign for the market. Separately, the Federal Reserve Bank of New York’s Survey of Consumer Expectations Housing Survey, found that 30.6% of people believe buying a home in their ZIP code is a good investment, up 5.9 percentage points from February 2020. Combined, the two reports suggest that buyer demand for housing remains elevated, while sellers are increasingly eager to get in on the action.

Following up on last week’s banner jobs report, the broader economy showed another strong improvement this week. The ISM Services Index – a measure of activity in the service sector, which makes up about 80% of U.S. economic output – jumped 8.4 points in March from February to 63.7, its highest level since 1997, when the survey began. Any readings above 50 indicate that businesses are expanding, and readings of greater than 55 suggest broad strength across industries. A gauge measuring hiring in the sector jumped 4.5 points to reach 52.7 —  a two-year high. Teamed with the solid jobs report and rising consumer confidence, this is the latest indication that industries are increasingly optimistic about their prospects in the months to come, as the economy thaws and businesses reopen.

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