Northwest Arkansas Democrat-Gazette
NEW-HOME SALES tumble in March as virus hits.
Mid-month virus hit cited in 15.4% plunge; prices drop, too
WASHINGTON — U.S. new-home sales plunged 15.4% in March as a winding down in the middle of the month because of the coronavirus began to rattle the housing market.
The Commerce Department reported Thursday that sales of new single-family homes dropped to a seasonally adjusted annual rate of 627,000 last month after sales had fallen 4.6% in February.
The decline was expected, though economists say it will grow much worse as the country struggles with a shutdown that has thrown millions of people out of work and disrupted wide areas of the economy.
The median price for a new home sold in March was $321,400, down 2.6% from a median price of $330,100 in February.
By region of the country, sales fell a sharp 41.5% in the Northeast and were down 38.5% in the West. Both of those regions had states that implemented stay-at-home orders sooner than other parts of the country.
Sales fell 8.1% in the Midwest and were down a slight 0.8% in the South.
Ben Ayers, senior economist at Nationwide, said sales activity in coming months will take a significant hit from the government-mandated shutdowns and resulting layoffs. But he said the outlook for the housing sector should improve as the virus effects wane.
“Low mortgage rates and continued demand from the millennial generation should drive a rebound in housing activity later this year and into 2021,” he said.
Rates continued to level off this week as the federal government stepped in to help mortgage companies concerned about the increasing number of borrowers who have stopped making payments.
According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average ticked up to 3.33% with an average 0.7 point. (Points are fees paid to a lender equal to 1% of the loan amount and are in addition to the interest rate.) It was 3.31% a week ago and 4.2% a year ago.
Freddie Mac, the federally chartered mortgage investor, aggregates rates from 125 lenders across the country to come up with national average mortgage rates. It uses rates for borrowers with flawless credit scores. These rates
are not available to every borrower.
The 15-year fixed-rate average rose to 2.86% with an average 0.7 point. It was 2.8% a week ago and 3.64% a year ago. The five-year adjustable rate average slipped to 3.28% with an average 0.3 point. It was 3.34% a week ago and 3.77% a year ago.
“While investors kept bond rates at historic levels under 1%, mortgage rates did not follow on a downward arc due to the fact that banks and lenders are pricing loans for the higher risk they are assuming by raising [credit] scores and down-payment requirements,” said George Ratiu, senior economist at Realtor.com.
The Mortgage Bankers Association said this week that the number of mortgages in forbearance jumped to 6%. By comparison, less than 1% of loans were in forbearance in early March. When a loan goes into forbearance, payments are reduced or postponed but interest continues to accrue.
“Mortgage servicers continue to receive a very high level of forbearance requests, but volumes were down somewhat compared to the prior week,” Mike Fratantoni, Mortgage Bankers Association chief economist, said in a statement. “Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates.”
The Federal Housing Finance Agency announced this week that it will allow Fannie Mae and Freddie Mac to buy mortgages that go into forbearance. However, there are restrictions on which loans they will buy. They will buy only loans that go into forbearance after closing but before they are sold. The loans also can’t be more than one-month delinquent. The agency said this solution allows lenders to sell loans and preserve liquidity.
Mortgage servicers are obliged to send monthly principal and interest payments to mortgage-backed security investors even when the borrower doesn’t make a payment on the loan. Most servicers hold money in reserve in case some borrowers miss payments. But when many borrowers miss payments, those reserves can be tapped out. This is a particular problem for non-bank lenders and small mortgage companies, which tend not to have large reserve funds.
Meanwhile, mortgage applications were flat last week. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — decreased 0.3% from a week earlier. The refinance index slipped 1% but was 225% higher than it was the same time last year. The refinance share of mortgage activity accounted for 75.4% of applications.
The purchase index rose 2% but was 31% lower than it was a year ago.
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Kathy Orton of The Washington Post.