Daily Archives: April 15, 2020

Hoping for a V-Shaped Recovery

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Source: Statista

In economics a V-shaped recovery is broadly defined by a sharp decline in output, employment or any other metric measuring the health of the economy followed by a quick and sustained recovery. It is different from an L-shaped recovery, in which the economy slumps for a longer period of time or, among others, a W-shaped recovery, which is characterized by, you guessed it, a brief recovery followed by another steep downturn and a second swift recovery.

A V-shaped recovery is what economists are hoping for in the current crisis, brought about by the coronavirus pandemic. Trying to contain the spread of COVID-19, countless countries around the world went on more or less complete lockdown, resulting in a sudden drop of economic activity. Businesses operating in the travel, tourism and leisure sector lost their entire income stream practically overnight as strict social distancing measures were put in place, forcing airlines to ground their fleets, hotels to close doors and restaurants to pivot to takeaway service. But since there is nothing fundamentally wrong with the economy, many are hoping that the recovery will be just as swift as the downturn itself, once the outbreak is under control or a vaccine is found.

The International Monetary Fund backed up such hopes with its latest World Economic Outlook, published on Tuesday. Assuming that “the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound” and that effective policy measure are taken to limit the economic harm done by lockdown measures, the IMF is predicting a V-shaped recovery for the world economy. As the following chart shows, the contraction this year is expected to be severe but the IMF carefully predicts a quick recovery in 2021.

Infographic: Hoping for a V-Shaped Recovery | Statista

Home Prices Resilient Despite Big Drop in Sales Volume Due to Low Inventory

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Redfin reports that for the seven days ending April 13, homebuying demand was down 25% compared to the prior year

Seattle, WA – April 15, 2020 (PRNewswire) (NASDAQ: RDFN) —Spring started more than three weeks ago, but this week felt more like a new beginning. Homebuying demand, as measured by the annual growth rate in customers going on their first tour with a Redfin agent, took the first few halting steps towards recovery, according to the latest weekly update from Redfin. For the seven days ending April 13, homebuying demand was down 25% compared to the prior year after being down as much as 36% for the seven days ending March 28.

It’s still too soon to say if homebuying demand will suffer a relapse, and the road to a full recovery is long; in January and February Redfin’s homebuying demand was up 27% compared to the prior year.

The improvement in homebuying demand is especially notable because this year Easter fell on April 12, when it landed on April 21 in 2019. Normally homebuying demand is weaker over the holiday weekend, but with gatherings limited by social distancing, it appears people kept shopping for homes.

Digital commerce is the best medicine for real estate
This past weekend, nearly one-third of Redfin’s home tours were conducted via video chat. Now buyers are writing offers based on those tours. For the week ending April 12, 1 in 8 Redfin offers were written by customers who viewed the home via video chat even though some also saw the home in person.

While the coronavirus outbreak has prompted consumers to change their behavior, it’s a change Redfin agents think is here to stay. Mara Gemond, a Redfin agent in Virginia, has had three buyers who’ve written offers based on a video tour, but none of them were avoiding COVID-19 exposure; all three were moving from at least an hour away. “There are still some kinks to work out,” Mara said. “My kids laugh at me because I have nine different video apps on my phone.”

Last weekend, Redfin also began piloting its Direct Access technology with vacant listings in Denver, Houston and Las Vegas. Direct Access turns Redfin’s mobile application into a key that lets a verified buyer tour a Redfin listing without an agent. Until last weekend, Direct Access was only available on homes Redfin owns through RedfinNow, but demand from buyers and sellers prompted us to roll this technology out to homes listed by Redfin’s agents.

The big question is whether homebuying demand will turn into sales
Redfin is still hearing reports of bidding wars from agents in markets across the country, especially for affordable homes and homes in historically desirable neighborhoods. Janet Rose, a Redfin agent in Oklahoma, has buyers relocating from the coasts to take advantage of lower prices. “There are Amazon and Dell facilities in the area as well as an Airforce base, so those people who have stable jobs and can buy a home in that $200,000 price point.” Oklahoma hasn’t seen as many COVID-19 cases as the rest of the country and real estate is considered an essential service in the state. Janet said, “I feel busy.”

Despite these pockets of activity, U.S. pending sales are down 54% for the seven days ending on April 10 compared to the prior year. As recently as March 10, pending sales were flat compared to the prior year.

Pending sales are declining while homebuyer demand is strengthening because many sellers are sitting on the sidelines. There are currently just over 750,000 homes for sale in the U.S. compared to just under just under 1 million homes for sale at this time last year.

Prices have been stubborn, but homes are sitting on the market just a little longer
A 50% decline in pending home sales would normally lead to a drop in prices, but the lack of homes for sale is keeping prices relatively stable. The median listing price fell from $309,000 last week to $305,000 over the seven days ending on April 10. That’s flat with the median listing price at this time last year.

Redfin still hasn’t seen an increase in price reductions, but homes are starting to sit on the market just a little longer. Homes on the market have been listed for an average of 64 days, up from a low of 58 days earlier in March. If homes sit longer, prices may slide further.

Completing a sale requires patience and more flexibility than ever
Health concerns, stay-at-home orders, and lenders overwhelmed by refinance applications are slowing down transactions. Irma Jalifi, a Redfin agent in Houston, said, “My clients just accepted an offer with 30 days for the buyers to get their financing approved, when it should take two weeks, or less. I worry the house will be off the market for a month and the deal still won’t come together. In this market you’re damned if you do, damned if you don’t.”

In Pittsburgh, Redfin agent Sara Minshull has a buyer waiting 40 days to do a physical inspection of the property due to the seller’s health concerns. Buyer and seller have agreed to extend the timeline an extra 30 days if the coronavirus isn’t contained by then. A 70-day property inspection is unheard of when the normal turnaround is a few days to a few weeks.

Shadows loom over the mortgage market
The biggest storm cloud on the real estate horizon is that credit is getting harder to come by. Last week Redfin reported limited availability of both jumbo loans for higher-priced homes and FHA loans targeted at first-time buyers.

This week, lenders raised credit standards even for conforming loans that are guaranteed by Fannie Mae and Freddie Mac. On April 13, JP Morgan Chase announced it will require a 20% down payment and a minimum credit score of 700. With average U.S. credit scores around 700 the changes at Chase could take a big bite out of homebuying demand, especially if other lenders follow suit.

With unemployment claims at almost 17 million and 11% of U.S. workers out of work, it’s not surprising lenders are battening down the hatches. But the biggest threat to the availability of credit comes straight from Washington, D.C., wrapped in good intentions. The CARES Act lets homeowners receive a forbearance on mortgage payments for up to 12 months, without requiring any documentation. Already, nearly 4% of loans are in forbearance, up from 0.25% in March.

The catch is that the banks servicing loans in forbearance still have to front the monthly payments to the investors who purchased those loans. So while the Fed shovels money into the mortgage-backed securities market to keep 30-year mortgage rates below 3.5%, lenders are restricting credit so only borrowers with stable incomes and sterling FICO scores have access to it. Hopefully Chairman Powell starts directing a portion of the money earmarked to stabilize housing towards mortgage servicers soon.

To read the full update, please visit:https://www.redfin.com/blog/stable-home-prices-low-inventory-coronavirus/

To view charts highlighting more housing data from this past week, please visit: https://www.redfin.com/blog/coronavirus-upending-housing-market/

Redfin is publishing this housing-market update as a way to inform our customers, not our investors. Even though we’re notifying investors through a government filing about this customer update, we’re not updating, withdrawing, or affirming the first quarter financial guidance we issued on February 12, 2020. Unless otherwise noted, all data in this update is as of April 11, 2020.

About Redfin
Redfin (www.redfin.com) is a technology-powered real estate brokerage, combining its own full-service agents with modern technology to redefine real estate in the consumer’s favor. Founded by software engineers, Redfin has the country’s #1 brokerage website and offers a host of online tools to consumers, including theRedfin Estimate, the automated home-value estimate with the industry’s lowest published error rate for listed homes. Homebuyers and sellers enjoy a full-service, technology-powered experience from Redfin real estate agents, while saving thousands in commissions. Redfin serves more than 90 major metro areas across the U.S. and Canada. The company has helped customers buy or sell homes worth more than $115 billion.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin’s press release distribution list, email press@redfin.com. To view Redfin’s press center, click here.

Record U.S. Expansion Likely Undone by COVID-19

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Housing Expected to Slow Due to Increased Consumer Caution, Financial Uncertainty

Washington, D.C. – April 15, 2020 (PRNewswire) The longest economic expansion in U.S. history has likely come to an end amid the unprecedented impacts of COVID-19, according to the latest commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. With consumers staying home, many businesses shutting, and household financial stress growing, the ESR Group now projects back-to-back quarters of negative real GDP growth in the first half of 2020, meeting the commonly accepted definition of a recession. The updated forecast includes expectations of a historically large contraction in the second quarter of approximately 25 percent annualized amid sizeable declines in employment, consumer spending, and business investment. While full-year 2020 output is expected to contract 3.1 percent, the ESR Group anticipates a growth rebound of 4.8 percent in 2021. Risks to the forecast remain skewed heavily to the downside, with the length and magnitude of virus-related shutdowns ultimately determining the likely contraction’s severity.

The ESR Group also expects housing to slow significantly in the months ahead, despite starting the year in a strong position. Declines in purchase mortgage originations and new for-sale listings are indicative of the caution being demonstrated by homebuyers and sellers, due in part to financial and social uncertainty. As a result, the ESR Group is forecasting a sharp decline in total home sales and housing starts in both the second quarter and all of 2020. However, the low interest rate environment should continue to support refinance activity this year, which the ESR Group now projects to account for 56 percent of total mortgage originations volume.

“The historically rapid decline in economic activity, the accompanying employment loss, and our limited, though improving, understanding of COVID-19 make this a particularly challenging forecast environment,” said Doug Duncan, Senior Vice President and Chief Economist, Fannie Mae. “Our baseline forecast of a 3.1 percent contraction in real GDP in 2020 acknowledges the economic downdraft and, considering the unprecedented monetary and fiscal policy responses, suggests a solid-but-incomplete recovery exiting 2020. The variability around this forecast is wide, and is dependent on the incidence, severity, and duration of the virus, as well as the response of the public and policymakers to new information. In the background and contributing to the economic stress is the drop-off in demand and the negotiations over supply constraints in the oil industry.”

“Amid job losses and employment stability concerns, we expect the housing market to also experience a downside shock,” Duncan continued. “In our view, the negative shock will apply to both the home purchase and rental markets. On the demand side, early indications are that the purchasing benefit of lower interest rates are being offset by the downturn in employment. On the supply side, the number of listings is falling, as those with homes to offer may either be hesitant to allow strangers to tour their home or worry that the lack of demand is placing downward pressure on the sales price they might otherwise receive. On net, the expected effect is about a 15 percent decline in home sales in 2020, translating into a decline in purchase originations from $1.28 trillion in 2019 to $1.11 trillion in 2020. On the flip side, compared to 2019, refinances are expected to pick up in 2020 by approximately $400 billion to $1.41 trillion.”

Visit the Economic & Strategic Research site at fanniemae.com to read the full April 2020 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here.

About Fannie Mae
Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit: fanniemae.com | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic & Strategic Research (ESR) group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views, including assumptions about the duration and magnitude of shutdowns and social distancing, could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of tha