Home / Markets News & Opinions / Housing Market / The U.S. Housing Market Just Got Some Fiercely Bullish News
Housing Market
4 min read

The U.S. Housing Market Just Got Some Fiercely Bullish News

Last Updated September 23, 2020 1:54 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:54 PM
  • Mortgage applications from homebuyers jumped 12% last week after cratering to five-year lows.
  • This shows that demand remains strong despite widespread economic devastation.
  • But that doesn’t mean the housing market won’t face threats in the months ahead.

The U.S. housing market continues to defy warnings that the coronavirus pandemic would ignite a harrowing repeat of the financial crisis.

While today’s pending home sales reading  was much worse than expected, new data shows that demand has already begun to recover from an early-April plunge.

Mortgage Demand Spikes 12% After Crashing to 5-Year Lows

According to the Mortgage Bankers Association, mortgage demand from homebuyers climbed 12%  during the week ending on April 24 after collapsing to a five-year low the previous week.

Volume still has a long way to go to reach prior-year levels. But this week’s 12% jump is spectacular news, especially since the recovery was well-distributed.

u.s. housing market, mortgage demand data
Even coronavirus-ravaged New York saw an uptick in mortgage demand last week. | Source: MBA 

Even New York, the state hit hardest by COVID-19, reported a 13.7% weekly increase in purchase applications.

“The 10 largest states [by application volume] had increases in purchase activity, which is potentially a sign of the start of an upturn in the pandemic-delayed spring homebuying season, as coronavirus lockdown restrictions slowly ease in various markets,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

According to the CoreLogic S&P Case-Shiller Index, home price growth accelerated in February , immediately before the coronavirus outbreak decimated U.S. economic activity.

u.s. housing market price forecast
Just 3% of realtors expect home prices to plunge like they did during the Great Recession. | Source: NAR 

Other surveys indicate that home prices continued to rise in March. And a majority of realtors expect them to increase (38%) or remain stable (23%)  over the next 12 months. Roughly 40% expect prices to fall, though a mere 3% anticipate financial crisis-level declines.

Economist: Housing Market Will Recover in Fall & Winter

To be sure, the U.S. housing market has certainly lost some ground during the coronavirus pandemic.

But it’s encouraging that demand has already begun to snap back now that infection rates are decreasing  and a growing number of states are discussing how to “reopen” their economies.

And according to National Association of Realtors (NAR) Chief Economist Lawrence Yun, the housing market may make much of that lost ground back up  thanks to a stronger-than-usual fall and winter season.

“The autumn months will be better than the typical autumn or winter months compared to the season factors,” Yun said in a recent interview. “The second half should be running a little better, but we are missing out on the spring buying season.”

Yet that doesn’t mean threats aren’t lurking on the horizon.

Devastating Forbearance Data Remains a Threat to Housing Market Strength

An estimated 3.5 million mortgages were in forbearance as of April 19 , equating to 6.99% of all mortgage loans.

That’s a staggering spike from the March 2 baseline of just 0.25%. And it could get even worse as May and June payment deadlines approach.

mortgage forbearance chart
Almost 7% of all mortgages have entered forbearance, up from just 0.25% in early March. | Source: MBA via Yahoo Finance 

NAR data estimates that a stomach-churning 11 million Americans – 8 million homeowners and 3 million renters – are struggling to pay their mortgage and rent payments . That’s going to put a devastating pinch on another sector of the housing market: the mortgage service industry.

The CARES Act has liberalized forbearance regulations to help unemployed Americans weather a sudden disappearance in income.

Yet the government has mostly shrugged at the fallout for mortgage servicers , who are still obligated to pay bondholders even if homeowners stop making payments.

The Federal Housing Finance Agency guidance reduced this obligation period to four months  (from 12) last week. But the sheer volume of loans entering forbearance threatens to render mortgage servicers insolvent anyway.

Despite injecting historic levels of stimulus throughout the economy, Treasury Secretary Steven Mnuchin said the government has no plans to provide further support  to mortgage servicers.

mnuchin on u.s. housing market
Source: Twitter 

This combination of liberal forbearance with minimal support for mortgage servicers has already led some lenders to tighten their credit restrictions .

It’s clear from the recent data that there’s plenty of pent-up demand for home purchases. But that demand won’t translate into sales if prospective homebuyers find that no lender wants to give them a mortgage.