The housing market shook off a dismal April with a big-time comeback in May. The Mortgage Bankers Association reports that purchase applications were up another 9% week-over-week. That’s the sixth straight week we’ve seen purchases increase.
That is a welcome relief after the doozy that was the month of April. The National Association of Realtors’ latest report shows pending home sales were down 21.8% month-over-month. Compared to April 2019, pending home sales were down 33.8%. But because of the momentum of May, and states continuing to reopen, the NAR’s chief economist, Laurence Yun, says that he’s raising his forecast for the rest of the year. Previously Yun predicted a 15% drop in home sales, but has revised it to be an 11% drop with a 4% increase in home prices.
We seem to say it every week, but it’s worth noting that mortgage rates are staying in historically low territory. It’s also possible to get a sub-3% rate right now at some companies with the right qualifications. The 30-year fixed-rate mortgage average dipped again this week, hitting 3.15%, according to Freddie Mac. That’s the lowest level in Freddie Mac’s history, dating back to 1971, and the third time the record has been broken in the last few months.
Inventory will remain a headwind for sales, but don’t discount new construction. U.S. Census numbers show sales of newly-built homes increase by 1% in April compared to March, against the expected 22% tumble.
A little more than 8% of home loans are now in forbearance, according to the MBA. That’s about 4.2 million home loans. Of that pool of loans, more than 11% are backed by Ginnie Mae. That group includes FHA, VA and USDA loans. Meanwhile, forbearance loans belonging to Fannie Mae and Freddie Mac increased to 6.4% of that total pool. It’s important to note that only about 0.25% of loans were in forbearance prior to COVID-19.
U.S. economy hit hard by COVID-19
The United States’ gross domestic product shrank by a 5% annual rate in the first quarter of 2020, according to the Commerce Department. That is the biggest decline since 2008, when we saw an 8.4% drop in Q4 of that year. However, economists indicate the worst data is yet to come, predicting a 40% drop for Q2. Although it won’t make up for a potential 40% drop, economists do predict Q3 will see GDP bounce back by 20%.
The latest weekly data from the Labor Department shows another 2+ million people filed initial unemployment claims this week. That brings the total to nearly 41 million since the beginning of the pandemic. The continuing claims proved to be a slight bright spot. The number of people claiming unemployment for two weeks in a row or more declined by more than four million. Overall, continuing claims still sit around 21 million people.
Wall Street hit its stride this week, closing above 25,000 points for the first time since March. The market was stifled Thursday afternoon, however, as President Trump announced a press conference about China the following day. The Dow dipped by 150 points with the S&P 500 and Nasdaq down 0.2% and 0.5%, respectively. Futures were flat going into Friday morning, when Treasury yields moved lower, with the 10-year yield trading at 0.664%.