Homebuilders preparing for big 2021, data suggests

Overall housing starts in January totaled 1.58 million units, a decline of 6% from December, according to the latest statistics from the U.S. Census Bureau. But there’s reason for optimism from homebuilders – a huge spike in building permits.

“Despite a modest month-over-over decline, single-family housing starts are up 17.5% from one year ago,” said Odeta Kushi, deputy chief economist at title insurance firm First American. “Single-family permits, a leading indicator of future starts, are up nearly 30% from one year ago. It’s still not enough to significantly narrow the gap between supply and demand, but it’s a step in the right direction.”

A total of 1.881 million residential building permits were issued last month to homebuilders, roughly 1.2% above December’s tally but more than 22% greater than were issued a year ago.

Interestingly, the overall decrease in housing starts last month was driven by single-family starts, which decreased by 12.2% from the prior month, while multi-family starts increased by 17.1% from last month. A seasonal dip was to be expected, experts said, but the widespread distribution of a COVID-19 vaccine should give the economy – and the housing industry – a shot in the arm in 2021.

Doug Duncan, Fannie Mae’s senior vice president and chief economist, said the vaccine combined with President Joseph Biden’s $1.9 trillion fiscal stimulus will drive consumer interest in locking-in historically low mortgage rates, thus driving the amount of home sales upward.


Making housing more affordable by bridging the affordable supply gap

In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher supply of affordable homes.

Presented by: Fannie Mae

“We assume that the proposed fiscal stimulus of around $1.9 trillion will be passed in mid-March, and that growth will accelerate sharply beginning in the second quarter,” Duncan said. “If 2020 was the year of the virus, then 2021 will more than likely be the year of the vaccine. Whether the vaccines are effective, including with the new virus strains, and how broadly and timely they can be distributed remain key questions.”

Economists are wary, Duncan said, of a potential boom-or-bust scenario for the housing industry in the new year: the combination of rising interest rates from record-low levels, a high national debt, and the risk of rising inflation.

“Very strong growth in the second half of 2021 could push inflation, and thereby rates, up significantly in 2022, thus invoking a Fed response of tightening and a significant deceleration later in 2022,” Duncan said. “This is not our base case scenario, but we see it as a significant risk moving forward.”

Added John Pataky, TIAA Bank executive vice president: “With rates creeping up and homebuilding still partially restricted by the pandemic, the housing market’s next phase of growth may be much more of a grind.”

Privately-owned housing starts in January hit an adjusted rate of 1.336 million, down 2.3% from December but up 2.4% from January 2020.

Single-family authorizations in January were at 1.269 million, up 3.8% from December.

January housing starts increased in the Northeast (+2.3%), but decreased in the Midwest (-12.3%), the West (-11.4%), and the South (-2.5%).

Where homebuilders go from here is of great interest to industry experts: Construction rates are expected to climb in the opening quarter of 2021 and possibly into the summer thanks to high-lumber prices and low land inventory, but the demand for homes is expected to remain high thanks to low interest rates and the hope of President Joseph Biden’s $15,000 first-time homebuyer tax credit.

“Lumber now costs more than double what it did this time last year – a fact that that has reportedly caused some builders to stop some projects mid-way,” said Matthew Speakman, Zillow economist. “Land and labor shortages also continue to hinder the ability to take on new projects.”

Still, Speakman noted, homebuilders’ earned some benefit of the doubt with the way they handled hurdles in 2020.

“Home construction was a source of strength in the U.S. economy in 2020, as builders strove to keep up with robust demand for housing and put up homes at the strongest pace in a decade and a half,” he said.  

Source: housingwire.com

Biden stimulus could worsen affordable housing crisis

The nation’s most influential housing trade groups sent a letter to the House Committee on Financial Services saying any new stimulus package considered would need to have rental assistance, and warned of dire consequences if it does not.

Housing groups including CCIM Institute, Council for Affordable and Rural Housing, Institute of Real Estate Management, Manufactured Housing Institute, Mortgage Bankers Association, National Affordable Housing Management Association, National Apartment Association, National Association of Home Builders, National Association of Housing Cooperatives, National Association of Realtors, National Leased Housing Association and National Multifamily Housing Council sent a letter to Rep. Maxine Waters, D-Calif., chair of the committee, and Rep. Patrick McHenry, R-N.C., the ranking member, outlining their concerns.

In the letter, the trade groups urged Congress to move beyond “one size fits all” federal housing policies in favor of a more tailored approach. President Joe Biden’s American Rescue Plan stimulus proposes a continuation of previously passed policies for the rental sector such as an extension of federal eviction moratoriums. However, the letter states this approach could threaten the stability of the rental sector.

It proposes, instead, a rental assistance plan be considered.

“We strongly support the inclusion of additional rental assistance in the Americans Rescue Plan,” the letter states. “Without additional robust, direct rental assistance – beyond the newly proposed $25 billion – housing providers may never fully recover outstanding debt – whether through the eviction process or otherwise – and the housing affordability crisis will be exacerbated in the long- and short-term. This could devastate the industry and hurt America’s most vulnerable renters.”


Making housing more affordable by bridging the affordable supply gap

In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher supply of affordable homes.

Presented by: Fannie Mae

The apartment industry faces an estimated nearly $60 billion in lost rent for 2020, according to a recent study released by the Urban Institute and authored by Moody’s Analytics Chief Economist Mark Zandi and Falling Creek Advisors Owner Jim Parrott.

The letter explains this places a heavy financial strain on many in the rental industry, including “mom and pop firms.”

“Functioning under reduced revenue for almost a year has drained reserves, caused deferred maintenance and capital improvements and placed many housing providers on the precipice of economic ruin,” the analysis states.

Other economists agree that the rental space is being heavily hit, creating concerns for the housing market.

“There are some things that are of concern from a policy perspective and that, in the housing sector, is actually in the rental space,” Fannie Mae Chief Economist Doug Duncan recently told HousingWire. “There is the risk of a significant increase in the level of evictions in that space. The difficulty is targeted these policies so that they don’t distort normal behavior patterns. The devil will be in the details of how that gets put in place. Unemployment is definitely higher among the renter population than among the owner population.”

Congress continues to negotiate the stimulus package as Republicans seek to slim down the $1.9 trillion package to about $600 billion. The White House, however, remains unmoving on that front. The House passed the bill as a budget resolution, meaning it did not need any votes from the Republican party. The Senate could do the same, however it would require every one of the Democratic Senators on board with the new package.

“Renters need additional assistance, including emergency housing vouchers to ensure people in rural, and suburban and urban communities can remain stably housed,” Waters said in a committee hearing titled: More than a Shot in the Arm: The Need for Additional COVID-19 Stimulus. “More funding is needed for persons experiencing homelessness, who face even greater health risks as a result of the pandemic.”

“We must also address the reality that homeowners across America face a foreclosure crisis if Congress does not step in to support modifications before the pandemic ends,” she said. “And this Committee will also need to come to the aid of businesses and their workers who are barely staying afloat, including small businesses, minority-owned businesses, and sectors hit hard like the airlines.”

Source: housingwire.com

Biden’s Stimulus Plan Includes $3,000 Child Tax Credits

Now that Joe Biden is president, battling the coronavirus and shoring up the economy is his first priority. His American Rescue Plan, a $1.9 trillion stimulus relief proposal, is aiming to do just that. One element in the plan that would provide a financial boost to most families is Biden’s proposal to temporarily increase the child tax credit and to make it fully refundable.

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Current Child Tax Credit

Presently, the child tax credit is worth $2,000 per kid under the age of 17 who you claim as a dependent and who has a Social Security number. To qualify, the child must be related to you and generally live with you for at least six months during the year. The credit begins to phase out if your adjusted gross income is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return.

Up to $1,400 of the child credit is refundable for some lower-income Americans with children, but these people must also have earned income of at least $2,500 to get a refund.

Biden’s $3,000 (or $3,600) Child Credit Proposal

The president’s American Rescue Plan would expand the child credit for one year in three ways. First, it would increase the credit to $3,000 per child ($3,600 for a child under age 6). Second, it would make the credit fully refundable and remove the $2,500 earnings floor. Third, it would allow 17-year-old children to qualify for the child tax credit, which is good news for parents of high school juniors and some seniors.

Some Democrats want the child tax credit to be paid in advance. They’re calling for the IRS to send monthly payments to families of $250 per child ($300 per child under age 6). That would be a nice windfall for many families. Take a family of five with children ages 14, 11 and 5. Assuming the family qualifies for both the child credit and for the advance payments, they would get $800 per month in 2021 under this proposal.

We don’t know Biden’s stance on advance payments of the child credit. But even if he does support the idea, we think the odds of it actually becoming law are slim. The measure is costly, it might be seen as an unnecessary and messy entitlement program, and it will be an uphill battle to get enough Republicans on board with it. Chances are a bit better for a one-year expansion of the child tax credit without the advance payments.

Source: kiplinger.com

Potential impacts of Biden’s $15,000 tax credit

The housing industry is keeping a close eye on the Biden administration’s proposal of a first-time homebuyer tax credit of $15,000. If passed, the funds — which would help cover a down payment — could be accessed immediately by the buyer at the closing table.

$1.9 trillion American Rescue Plan — is more of a possibility now that both Senate races in Georgia went to Democrats.

Ralph DiBugnara, president of Home Qualified and senior vice president at Cardinal Financial, sees an obvious positive impact of the tax credit but is still wary of parts of the bill, which includes an increased rate on long term capital gains.

“The real estate market is so hot that hurting investors now may not have a big effect, but long term it could cause major issues,” DiBugnara said. “Real estate Investors tend to buy more real estate in even in bad markets as a long-term strategy. If it becomes more expensive for them to do so, because of taxes, I believe some will shift strategies long term so when market cools there will be a lot less of them to support home buying.”

Lawrence Yun, chief economist at the National Association of Realtors, thinks Biden’s tax credit will need to get support from around 60 senators — a majority needed to pass it into law — if Democrats choose not to use budget reconciliation. And, the possibility certainly exists that Republicans will ask for a smaller credit number.


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“Having a few Republican Senators on board will help change the public perception of working across the aisle,” Yun said. “That means getting what the Biden administration wants along with items favorable for Republicans, such as expanding high speed internet access to rural areas and a tax break for small businesses.”

For builders, Yun said preserving the 1031 Exchange to incentivize land sales is important for the future of the housing market. An extra $15,000, he said, certainly won’t help the already low inventory of homes available.

“Only with added supply will the homebuyer tax credit be effective in boosting homeownership and enlarging the middle class,” Yun said. “Without supply, home prices jump much higher with no meaningful gain to new homeownership.”

Ruben Gonzalez, Keller Williams chief economist, said it’s hard to comment on anything definitive at the moment but thinks Biden’s tax credit will garner bipartisan support.

“The challenge with the credit right now is that demand is already really strong with mortgage rates so low, and most evidence is showing that high earners have increased savings during the pandemic,” Gonzalez said. “The first-time home buyer tax credit seems like a good candidate for bipartisan support, but right now it’s still unclear if we are genuinely going to see bipartisan efforts in Congress.”

But past bipartisan support for similar tax bills seems to point things in a positive direction, DiBugnara said, of passing.

“I do believe, with the Democratic-led Senate, most of what is President Biden’s tax plan will come to fruition,” he said. “The [$15,000] credit seems to be one of the easier proposals of the tax plan to get passed, because it will stimulate the already hot real estate market and align with a low interest rate market. The majority of both parties have been in agreement with that.”

Source: housingwire.com

2020 ends with 3.4 million loans in delinquency

The final delinquency tally for December is in, with data revealing that by year’s end, 1.54 million more delinquent and 1.7 million more seriously delinquent mortgages were reported than at the start of 2020, according to a report from Black Knight. With nearly 2 million extra overdue loans in the pipe, that’s approximately 3.4 million loans in total at December’s end.

Overall, the data analytics company estimates a more than 250% increase in 90-day default activity year-over-year.

Despite this massive jump from years prior, the national delinquency rate did manage to show modest improvement in December – dropping for the seventh consecutive month to 6.08%, and the lowest level since April.

Serious delinquencies also fell to 2.15 million from 2.19 million the month prior, but remained a looming reminder of the the challenges facing the market in 2021, Black Knight said.

In the meantime, federal policy on forbearances and foreclosure moratoria pushed foreclosure starts and sales to record lows. Year-over-year starts fell 67% in 2020, and with just 40,000 completions, the year also saw a 70% decline in foreclosure sales from 2019.

However, Andy Walden, director of market research at Black Knight, said there are still a lot of unknowns as far as the cascading policies homeowners are currently protecting themselves with.

In President Biden’s Jan. 14 American Rescue Plan, he proposed an extension of the federal eviction moratorium to Sept. 30. On his first day in office on Wednesday, Biden signed an executive order that would push the moratorium to at least March 30, and on Thursday, the Department of Housing and Urban Development confirmed the extension.

“It’s something that’s going to need to be dealt with at some time. The nice part about having foreclosure moratoriums extend beyond the forbearance protections is that there are 2.7 million homeowners in forbearance right now and there’s a huge unknown of the percentage of those homeowners that are able to go back to performing,” Walden said.

In having those foreclosure protections extend beyond forbearance, Walden noted it will be easier to track and understand the data coming out of those forbearance expirations — whether it be loans going through various waterfalls, how many are back on track, how many need to be modified and so forth.

“More data dovetails more policy decisions,” Walden said.

The end of forbearance isn’t in sight just yet. The FHFA has not currently set an end date for its temporary COVID-19 forbearance policy, and the FHA announced on Dec. 21 that it was extending it’s deadline for single-family borrowers to request initial forbearance through Feb. 28. 

Biden’s rescue plan features an extension of initial requests for forbearance to Sept. 30, but the proposed extension has yet to be passed.

Source: housingwire.com

Mortgage applications decrease as rates move higher

Mortgage applications decreased 1.9% for the week ending Jan. 15 from one week earlier, per data from the Mortgage Bankers Association’s weekly survey. The drop comes after a robust 16.7% jump in applications the prior week.

The 30-year fixed rate rose to 2.92%, its highest level since last November. Additionally, the 15-year fixed rate increased for the first time in seven weeks to 2.48%.

“Market expectations of a larger than anticipated fiscal relief package, which is expected to further boost economic growth and lower unemployment, have driven Treasury yields higher the last two weeks,” said Joel Kan, MBA associate vice president of economic and industry forecasting.

“After a post-holiday surge of refinances, higher rates chipped away at demand,” Kan said. “There was a 5% drop in refinance activity, driven by a 13.5% pullback in government refinances.”

The seasonally adjusted purchase index increased 3% from one week earlier. The unadjusted purchase index increased 9% compared with the previous week, and was 15% higher than the same week one year ago.

“Homebuyers in early 2021 continue to seek newer, larger homes,” Kan said. “The average loan size for purchase loans jumped to $384,000, the second highest level in the survey.”

The FHA share of total mortgage applications decreased to 9.3% from 9.6% the week prior. The VA share of total mortgage applications increased to 13.8% from 15.8% the week prior.

Here is a more detailed breakdown of this week’s mortgage application data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.92% from 2.88%
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) increased to 3.19% from 3.17%
  • The average contract interest rate for 30-year fixed-rate mortgages increased to 3.01% from 2.93%
  • The average contract interest rate for 15-year fixed-rate mortgages increased to 2.48% from 2.39%
  • The average contract interest rate for 5/1 ARMs increased to 2.76% from 2.66%

Source: housingwire.com