July 23, 2021

Existing home sales rose in June, ending a streak of four straight monthly declines. Home construction activity improved last month, but a decline in permits suggests that builders are being hampered by supply-side constraints. As forbearance protections are due to expire, the federal government announced more protections for at-risk mortgage borrowers.

Existing home sales resumed growth following a four-month hiatus

• June existing home sales were up 1.4% from May, to 5.86 million (SAAR)
• Inventory rose 3.3% from May, to 1.25 million for-sale homes.

Housing starts surprisingly rise, but lagging permits point to enduring struggles for builders

• June housing starts rose 6.3% from May to 1.643 million (SAAR)
• Housing permits fell 5.1% from May, to 1.598 million (SAAR).

The federal government announced more protections for some mortgage borrowers behind on payments

• The White House announced a program that allows some borrowers to reduce their monthly payments by up to 25%.
• The program is targeted towards borrowers with government (FHA, VA, USDA) loans.

So what? 

June’s small bump in existing home sales is welcome news for the housing market after four straight monthly declines. The combination of low mortgage interest rates, an improving economy and demographic factors continues to stoke buyer demand and fuel market competition. But this historic price growth nationwide has also weakened some households’ ability to afford their next home and a shortage of available inventory appears to have left some would-be buyers discouraged. While demand for homes is still strong, these constraints are limiting some sales activity and bringing volume somewhat closer to historic norms after soaring to 15-year highs in late 2020 and early 2021. Applications for home purchase mortgages fell 6 percent in the week ending July 16 from the previous week, and are now in line with 2019 levels, following the highs reached earlier this year. Still, despite the recent slowdowns, existing home sales volume remains above pre-pandemic levels and recent increases in inventory and May’s strong jump in pending sales could signal more improvements to come. Sales volume may not be living up to the lofty expectations set earlier this year, but is staying solid as the summer rolls on.

Despite rising costs and limited availability of key materials and labor, the nation’s home builders exceeded expectations and found ways to break ground on new homes, with the third highest jump of new housing starts in a single month since 2006 — a sign of the enduring demand from buyers for homes of all types. But an ongoing pullback in construction permits — an indicator of building activity still to come in future months — is also a clear signal that difficulties persist, and that construction activity could be even higher given a bit more long-term certainty and an easing of critical supply chain volatility. While lumber prices have fallen back to earth after the prolonged surge that began last spring, disruptions are now pushing up prices of other key building materials including steel, concrete and lighting, and making other important supplies very difficult to come by. Reports of multi-month delays in the delivery of windows, heating units, refrigerators and other items have popped up across the country, delaying delivery of homes and forcing builders to cap activity, and many builders continue to point to a shortage of available workers as a separate challenge. June will go down as a very solid month for home construction activity, and also one symbolic of the month-to-month struggle that builders face. It was a welcomed reminder of just how creative they are and will need to continue to be to get past significant obstacles and deliver for a market starved for new housing supply.

In recent weeks, a series of mortgage-related policies have either been added or removed with the intention of offering existing homeowners the opportunity to save on their monthly payments and offer additional support for mortgage borrowers who are currently receiving forbearance protection on their loan. A new program announced by the White House this week was a continuation of that trend. According to the program, homeowners with government mortgages – including FHA, VA and USDA loans – who are struggling to make their monthly payments could qualify to have said payments reduced by 25 percent. Combined, those three loan classes make up about a quarter of all outstanding single-family mortgages. They also have smaller down payment requirements and tend to be accessed by borrowers with lower credit scores and household incomes – a subset of the population that has been disproportionately affected by the economic impacts of COVID-19. In order to qualify for the program, applicants would need to either be looking for work, re-training, experiencing trouble catching up on back taxes or continuing to experience hardship for another reason, according to the report. The news was the latest indication that the federal government is prepared to take continued strong actions in order to prevent a sharp increase in foreclosures once forbearance protections expire. Many borrowers who entered forbearance at the beginning of the pandemic will see their protections expire this Fall, and according to Black Knight, about a million of these will be more than 60 days behind on their payments.

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