The headlines couldn’t have been more different, yet the stories below them were pretty much the same.
“Home sales Up In March,” blared one. “March Home Sales Falter,” read another. And they were both right – in their own way.
By the time you read this, the numbers will be out for April or maybe even May and they will likely be dismal, so the March reports are all but useless now. But I use them here, not just to make a deadline, but to make the point you must read beyond the headlines. And sometime, behind the stories themselves.
In the case of the March home sales, the National Association of Realtors reported that existing home sales were indeed higher than they were for the same month last year. But at the same time, they were lower than the month before. So again, both headlines had it correct.
This kind of thing happens all the time, and it does a disservice to anyone searching, hoping,praying for some good news.
Take the announcement by the Federal Housing Finance Agency that Fannie Mae and Freddie Mac would buy closed loans that had not yet been delivered to the GSEs it was appointed to oversee post Great Recession. Or the decision that lifted the weight off servicers’ shoulders about forwarding principal and interest payments to investors.
Beyond the headlines, if you read far enough, you find out that not every agency loan that moves into forbearance before it can be transferred to the agencies qualifies. Indeed, there were some pretty significant exceptions. And even if a loan did qualify, steep loan-level price adjustments were required: 500 basis points for loans to first-time buyers and 700 for “all other loans.”
Not so great, huh? And it means originators would be incurring a steep loss. Bose George, a research analyst with Keefe, Bruyette& Woods, thinks the charge won’t do much to help borrowers with weaker credit profiles. Furthermore, George said in a research note that the fee is likely to result in “material” losses for lenders on eligible loans, adding that he sees the announcement as a modest negative for originators and servicers.
AN INCOMPLETE RESCUE
No so great, either,was the FHFA announcement that it was coming to the rescue of servicers of GSEloans to borrowers impacted by COVID-19. Before Fannie and Freddie will takeover regularly scheduled payments, though, servicers have to advance four months of principal and interest. Yikes, that’s a lot of money. And what about insurance and tax payments?
“Having an end date is extremely helpful,” Black Knight CEOAnthony Jabbour said in late April. “Still, even knowing that time limit, with today’s number of forbearance plans, servicers are still looking at more than$7 billion dollars in advances over those four months. And the forbearance numbers are climbing steadily, day by day.”
“Forbearance takes a lot of liquidity,” agreed David Stevens, the former president of the Mortgage Bankers Association and a former Federal Housing Administration commissioner, who noted that four months is“much longer” than even during the Great Recession. “The question is, where does all that money come from? Massive credit demands are being put on lenders and services in an absolutely unknown way.”
The lesson, then, is to read on, for the devil truly is always in the details, not the headlines. And while you’re at it, remember that all real estate is local. There is no national market. So, forget all those sales figures you receive from your national trade associations.
Take sales. For one thing, they are not sales, they are closed contracts on sales that took place as far back as two or three months ago, before the pandemic panic set in. While tens of thousands of so-called“sales” closed in March, they actually took place a while ago. That makes the mall but useless, except maybe to locate a starting point for when the market started to slide.
For another thing, they are national numbers. Your market may be markedly different, and probably is. So, forget about these stats. Look to what’s happening in your state or, better yet, your city or town. The better figures come from your local real estate, home builder and mortgage organizations, not from their trade associations in Washington.
Another example: Unemployment numbers. 44 million at last count.
Staggering to be sure. But about a fourth of the people who are out of work have been furloughed, not fired. While the unemployment rate is bad, it isn’t quite as bad as it seem. Temporary layoffs as a percentage of unemployment is normally 10-15%; at last look, it was almost double that.
And job losses are uneven at best. Understandably, the hardest hit state is Michigan, where 21.8% of the civilian workforce is out of work, according to the Tax Foundation. Connecticut is second, at 21.5% and Pennsylvania is fourth at 19.6%. But Vermont is third, with 20.9% of its workforce no longer employed. Vermont?
On the flip side, only 5.4% of South Dakota’s workforce has been sidelined, and just 6.4% of Wyoming’s workforce is no longer employed at this writing. Understandable. Those are small states employment-wise. But Florida, with its beaches and thousands of restaurants and other services catering to retirees and tourists, is 47th on the list of hardest hit states,with “only” 6.5% of its civilian workforce on leave.
That’s even more astounding when you learn that the leisure and hospitality sector nationwide is the most impacted by layoffs, accounting for five times the hit taken by other non-farm job classifications, according to Meyers Research. But cooks, clerks, cleaners and others in those lines of work earn an average of just $25,000 a year. That’s not your typical mortgage client. So, the impact on the housing sector is minimal.
There’s an old saying that figures lie and liars figure. I’m not suggesting that the good folks who produce our national stats aren’t telling the truth. What I am suggesting, though, is that we have to dig deeper,sometimes much deeper.