While market competition remains elevated and homes continue to sell quickly, sluggish listing activity and harsh winter weather combined to hold existing home sales volume back in February. After keeping pace with the previous year for most of the latter half of 2020, listing activity has slowed early in 2021, leaving even fewer homes for home shoppers to bid on. And while recorded existing home sales tend to reflect buying activity in the prior two months – the sale is recorded when the deal is closed — the winter storms that crippled much of the country last month may have stopped or delayed many closings, leaving a backlog of deals still to clear in coming months. Still, despite the retreat, the path forward looks promising. Buyer activity remains strong to begin the year, even as mortgage rates steadily rise. This week, the MBA’s seasonally adjusted measure of for-purchase mortgage applications increased for the fourth straight week. This suggests that many home shoppers are getting a jump on what promises to be a busy spring season, particularly as the economy continues to show improvement and the distribution of the COVID-19 vaccine exceeds expectations.
New home sales experienced a similar setback in February, but the pullback wasn’t entirely unexpected, given the aforementioned harsh February weather and the increasingly steep hurdles facing home builders. The depth of the decline was a bit unnerving, but the dip is likely temporary. Materials prices have surged in recent months – lumber prices were up 59% year-over-year in February according to some measures, the largest annual jump since the 1940s. But while these factors have eaten into some of homebuilder optimism – which has fallen slightly from record highs set a few months ago — spirits among builders remain high, and activity should remain strong in the months to come. More than a quarter (27.9%) of new homes listed for sale were not yet started – the largest share since at least 1999 — suggesting that while weather may have closed job sites for a time, it didn’t close sales centers. And with the supply of existing homes for-sale sitting at an all-time low, newly constructed homes remain an attractive option for the waves of home shoppers eyeing the market.
After months of modest-at-best improvements, the rate at which loans are exiting forbearance is finally increasing. According to Black Knight, the number of mortgages receiving protection declined by 135,000 loans – or 5% — in the last month, the strongest rate since November. And forbearance protections on more than 460,000 loans are due to expire at the end of March, suggesting there is a strong likelihood of more improvement in the next couple weeks. But while this is encouraging news and an indication that broad improvements in the economy are increasing borrowers’ ability to confidently make monthly payments, some red flags do remain. There are 12,000 more private-label loans receiving protection than there were a week ago. These loans are not regulated in the same way that agency loans (those guaranteed by Fannie Mae or Freddie Mac) or government loans are, and there may be less-favorable payback plans associated with them once protections expire. Additionally, the national mortgage delinquency rate – the share of home loans that are 30 or more days past due, but not in foreclosure – rose in February for the first time in nine months. The increase was likely driven by the fact that February – a short month – ended on a Sunday, limiting the number of days in which monthly payments can be processed. All told, while the overall health of outstanding mortgages does appear to be improving, some hurdles remain.
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