After the long weekend, rates are for the most part staying in place; the 30-year fixed rate mortgage shifted down 1 solitary basis point while the 15-year fixed rate mortgage shifted up 2 basis points.
As we head into mid-October, we also head into one of the most historically volatile months in the year. For one thing, it means the beginning of another earnings season as companies release their corporate earnings reports for Q3 2020. In addition, we move closer to an uncertain election day and, following that, the market-distorting frivolity and chaos of November and December. Housing-wise, news is light this week as more homeowners leave behind the safety of forbearance, RMBS and other safe havens become hot commodities, and Americans take to warmer and less dense locations.
Housing Pays Dividends
Those who have bet on the housing market during the pandemic have seen massive returns. In particular, those who bought agency-backed RMBS (or residential mortgage-backed securities) back in March are yielding more than a percentage point above the benchmark! Because agency RMBS, as opposed to non-agency RMBS, are backed by a government agency, investors will still get paid in the event of forbearance or default. The only risk in agency RMBS lies in prepayments, wherein borrowers pay off their mortgage before their maturity date. With interest rates being so low, many homeowners are refinancing, which means less money in interest for investors.
Despite this risk, many looking for a high-yield, lower-risk investment are following suit, including banks who are putting money from consumers’ increased deposits into agency MBS and who now have holdings of around $2.3 trillion dollars. Overall, experts estimate that revenue from the home loan bundle market will reach $3 billion this year, topping last year’s peak of $2.5 billion.
Forbearance Today, Gone Tomorrow
Forbearance numbers experienced their biggest drop yet, falling by 18% or 649,000 loans. This represents a significant increase from the 435,000 forbearances that dropped off in July. As it stands, 2.97 million homeowners or 5.6% of all active mortgages are in forbearance plans still. However, a greater drop of around 800,000 is expected some time in the next month as another round of six-month forbearance plans is set to expire. This may be offset by those who choose to extend their plans for the maximum one year.
Fortunately for those coming out of forbearance, lenders usually give borrowers the option to add the missed payments to the end of their loan, so they’re not forced to make a lump sum payment right when they come out of forbearance. Many lenders have also lowered interest rates and worked out loan modifications with their clients.
Climate and COVID-19 Change is in the Air
Americans today want to live in warm and less populated regions where they can enjoy a healthy life near the outdoors, reliable hospitals, and smaller schools. This is supported by the NAHB’s housing data, which shows small metro suburbs as the only region with year-over-year gains, outperforming metro urban core counties, large metro suburbs and exurbs, and small metro core counties. Other data also suggests that while Americans have taken to working remotely, most still end up “following” businesses who are also in search of low-regulation and low-tax areas.
At the same time, buyers today must also factor in climate change, and the need to find a location that won’t degrade in price in the future. According to the Union of Concerned Scientists, more than 300,000 existing coastal properties will be at risk of regular flooding by 2045. As a result of concerns over climate change, sales volumes in more vulnerable regions such as Florida have already fallen by as much as two-thirds, and housing prices could soon follow.