With a record number of Californians out of work because of the COVID-19 pandemic, missed mortgage payments are becoming a real worry.
More than 5.7% of homeowners with a mortgage in the state were delinquent or in the foreclosure process in April, almost double the figure in March, according to industry tracker Black Knight Inc. It’s far from the peak of 15.7% in February 2010, when the housing market was reeling from the Great Recession, but warrants watching.
The current figure of missed payments includes homeowners with mortgages in forbearance. Many banks — including Bank of America, Chase Bank and Wells Fargo — have allowed homeowners affected by COVID-19 to apply for forbearance for a few months, while the federally backed Fannie Mae and Freddie Mac have extended the offer to one year.
Those missed payments, in many cases, will be added to the end of the mortgages, along with fees and interest. Homeowners should contact their mortgage servicer if they cannot make payments and need to seek forbearance.
Some economic experts say the increase in delinquent payments and forbearance is likely a short-term issue, and many homeowners will catch up once they return to work. And applications for forbearance has slowed in recent weeks, according to the Mortgage Bankers Association.
However, with 2.9 million residents jobless in California — the equivalent of everyone in San Jose, San Francisco, Fresno and Sacramento, combined — some homes will certainly enter foreclosure. But the figure should pale compared to the 1.1 million foreclosures in the state during the Great Recession.
Feature photo of foreclosed home by Andy Dean/Flickr
More than one of every three California renters worried about rent
About one-third of Californians who rent say they are concerned about making the payment this month (June), according to a new survey by the U.S. Census Bureau.
Those missed payments could have a lingering effect on property owners and tenants, and a ripple effect on the economy.
Now, Gov. Gavin Newsom has extended an eviction moratorium until July 28, blocking landlords from kicking out residents unable to pay rent due to the COVID-19 pandemic. But tenants must eventually catch-up on those payments or face eviction.
The 34% rate of Californians who say they have little or no confidence they will be able to pay rent is slightly higher than the national average of 32%, according to the Census Bureau.
Low-income households, minorities, families with young children and those without a college education are the most at risk of missing the monthly rent payments.
Los Angeles second-best market for mortgage refinances
Record-low mortgage rates continue to attract homeowners looking to refinance their mortgages to save some dollars or shave some time off their loans — or both.
Lenders approved 1.07 million refinance loans during the first quarter, a 16% decline compared to first-quarter 2019 but a head-turning 87% increase from a year ago, according to ATTOM Data Solutions.
As the COVID-19 pandemic affected the housing market in March, more homeowners embraced the idea of refinancing and staying put. Refis accounted for 56% of all home loans in January through March, basically flat compared to the second quarter but up from 41% during the final quarter of 2019.
Los Angeles was the second-hottest market in the nation for refis during the quarter, increasing 116% from a year ago. No other California market cracked the top 10. Chicago had the largest annual increase at 129%.
The average refi loan was $307,000.
“The number and dollar volume of home loans marked yet another sign of how charged up the U.S. housing market continued to be in the early months of the year when everything was still pointing in the right direction,” says Todd Teta, chief product officer at ATTOM Data. “Unfortunately, that is all uncertain now due to the economic fallout from the virus pandemic that could throw the market in a downturn. But at least the market heeds that uncertainty with some of the strongest home loan … numbers since the aftermath of the last recession.”
New-home sales get hammered in the West
Better-than-expected new-home sales in April grabbed national headlines on May 26, but the figure was rather gloomy in the West, according to the U.S. Census Bureau.
U.S. new-home sales eked out a 0.6% increase in April compared to March, and was off only 6.2% from a year ago. Analysts had expected a much worse 21% drop in sales from April 2019.
“The April estimate from Census came in better than forecast, so there is a possibility of a downward revision in the next release,” says Robert Dietz, chief economist for the National Association of Home Builders. “Nonetheless, the data matches recent commentary from builders and reflects recent gains in mortgage applications.”
But the West region, which includes California, actually had a dramatic decline in new-home sales, plummeting to 133,000 homes, a 34% drop from the 200,000 a year ago. And new-home sales were off 6.3% in April vs. March, according to the closely watched report.
Quite simply stay-at-home orders throughout the region, including Gov. Gavin Newsom’s shelter-in-place requirement that went into effect on March 19, cooled the red-hot market, especially as many new-home subdivision sales offices were closed until recently.
Some builders and real estate agents say the spring bust could become the June bloom, with stay-at-home orders lifted in many parts of the state. That’s good news for the state — and the nation. The West is always critical for new-home sales, accounting for as much as 30% of overall sales nationwide.
But new-home sales have become increasingly important and a larger percentage of overall home sales, according to Redfin.
New homes account for a larger percentage of overall home sales
Active listings have declined 10 consecutive months, including a 25% drop in April compared to a year ago, according to the California Association of Realtors. Existing home sales fell to an adjusted annualized rate of 277,000 units, the lowest level since March 2008.
New-home sales accounted for one of every five homes on the market nationwide, the largest percentage since 2012, according to Redfin. But new homes are also more expensive and harder to find in the West region, with sales falling 35% in April vs. a year ago — and prices at $496,000, about $60,000 more than existing homes. Of course, stay-at-home orders have greatly affected new-home permits, construction and sales.
“Builders are running a business and focused on the bottom line, so they need to clear their inventory as quickly as possible at any given time, especially during an economic downturn,” says Redfin lead economist Taylor Marr. “Homeowners, on the other hand, decide to move, list and sell when the time is right, for the right price, and sometimes even to the right buyer. For many homeowners, a pandemic is not the ideal time to move and have strangers come through their homes, so those who have the flexibility are putting off listing for now.”
Facebook, Twitter and other tech employees look for more affordable, bigger homes
New work-from-home policies at Facebook, Twitter and other tech-related firms could change the housing market in the Bay Area, as more employees consider leaving their hearts and homes in high-priced San Francisco and San Jose for more affordable communities in the region — and in other states.
Crossing the Bay Bridge and buying homes in Oakland, Berkeley, Walnut Creek and other cities has been going on the past several years as San Francisco and Santa Clara (San Jose) counties’ median-home prices topped $1 million. But with Facebook CEO Mark Zuckerberg and Twitter chief Jack Dorsey’s recent announcements that many employees can work from home permanently, being close to the office is less important.
Almost three of every four consumers in San Francisco are looking for homes outside the city, higher than the 67% a year ago, according to Redfin. The East Bay is a popular search destination.
Of course, many have also been leaving California for lower-priced states, according to the U.S. Census Bureau. About 190,000 more people left than moved into California in 2018, the most recent data available. Some of those who left now call Boise, Idaho; Reno, Nev.; or Salt Lake City, Utah, home.
About three of every four employees currently working from home say they would like to continue with the practice, at least part of the time, according to a Zillow survey conducted by The Harris Poll. And two-thirds of those say they would consider moving.
Before the COVID-19 pandemic, about 7% of employees nationwide had the option to work from home, according to the Pew Research Center. However, about two of every five jobs (40%) could be done remotely.
CalHFA boosts household income limits for mortgages
The California Housing Finance Agency (CalHFA), which provides affordable housing for low- and very-low-income families in the state, increased its income limits for consumers looking to tap into its mortgage lending programs June 1.
The state agency boosted the current household income limit from $131,700 to $139,000 for rural counties, such as Butte and Mariposa, to the priciest regions, such as San Francisco and Santa Clara, where the limits will rise from $228,000 to $236,000. New household income limits vary by county, from $153,000 in Los Angeles to $183,000 in Sacramento.
Household income limits are based on changes in home prices. California’s median-home price — meaning half the homes sold for more, the other half for less — has increased a modest $6,000 to $606,410 during the past year, according to the California Association of Realtors.
CalHFA’s higher income limits will help, especially in lower-priced regions, but in pricier regions such as the Bay Area, hefty paychecks are needed to open the door to ownership. For example, less than one of every five consumers in San Francisco could afford to buy a home during fourth-quarter 2020, according to CAR. The Bay Area region’s average price was $980,000 in April, more than four times the CalHFA’s new household income limit.
Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.