We saw a little bit of economic decline in the first quarter, significant decline in the second quarter, and then, ultimately, the forecast in the third quarter was for there to be economic recovery in this V shape.
Here is what has actually happened now that the economists have given us the initial, advanced estimate of GDP for the third quarter. What actually happened is what the experts said.
“New stories often describe the coronavirus induced global economic downturn as the worst since the Great Depression. Yet for many the comparison does more to terrify than clarify.”
– The Wall Street Journal
Over the summer and during the coronavirus pandemic, the average FICO score in this country has actually risen. There’s a very specific reason for that: most households have used their stimulus check to pay down debt and to save.
Thirty-five percent of those receiving stimulus used it to pay down debt. Thirty-six percent of those people receiving it saved that money. Twenty-nine percent spent the money. A lot of people, two out of three almost, used it to pay down debt or save, thereby improving their financial situation, raising their FICO score, and giving them a better situation going forward
The other thing that’s very interesting about the world that we live in right now, relative to business, is that the number of business applications across the U.S. has skyrocketed this year. And that’s really a tribute to innovation across the country, as people have seen needs through the pandemic. There is no doubt there have been a lot of businesses that have been impacted in a negative way going through the pandemic, but there’s been so many people saying, “I’m going to start a business.”
Now let’s look at consumer spending. We know that in a large majority of states consumer spending is very near to where it was at the first of the year. So, as we go back to January 1st, we look at where consumer spending is compared to that. The majority (orange color) is within 10% of where they were January 1st, and so that is a very good thing. The country as a whole is within 3.7% of where we were on January 1st.
Here is the weekly filings for unemployment – the weekly claims across the country since this started in late March. The height was certainly towards the end of March (around 7 million people in one week claiming unemployment). Most recently, about 750,000 claiming. We want to see that continue to come down.
Let’s look at those currently receiving unemployment insurance. Back in May, we saw almost 25 million people receiving unemployment insurance. The most recent count is about 7.3 million. We want to see that come down.
“Data from the Survey of Business Uncertainty suggests that the road forward is going to be a tough slog. Businesses hold tepid expectations for year-ahead employment and sales growth. Expectations are, in fact, so tepid that, based on the latest average projection, it will take firms more than four-and-a-half years to recover their pre-COVID employment levels.”
– The Federal Reserve
Overall, we don’t have a complete picture of recovery.
As far as real estate, lots of people seem to think we will get a rush of foreclosures in 2021. Let’s review some data on that idea… You go back to the end of May where just over 4.7 million people on active forbearance, which is decreasing dramatically. In October, we are at about 3 million people for the last several weeks on active forbearance. It’s great news to see people come off of the forbearance program.
Back in May, we reached this height of about 8.5% of mortgages in forbearance. Where we sit now is about 5.8% of mortgagees in forbearance, and that number dropping.
The CFPB granted 180 days for forbearance, and an option to extend for another 180 days (for a total of 360 days). And this is as of October 20th, of the 5.7 million families were granted forbearance, and this is what happened upon the expiration of the plan. About 2.5 million extended their forbearance. Forty-four percent of mortgages were removed (probably people who took it and then said, “You know what? I don’t need it). Five hundred thousand paid off their mortgage. Then, 481,000 people expired while delinquent and are in some form of loss mitigation. Think about this as a workout with their bank, and that’s a good thing. The last tranche is 80,000 people expired while delinquent and are not in some form of loss mitigation. Now, those are the ones that may end up in some type of distress sale or foreclosure.
“The likelihood of us having a foreclosure crisis again is about zero percent.”
– Ivy Zelman
The biggest issue in real estate right now no doubt is inventory. It’s a very interesting look at the last 12 months of inventory across the country. Most recently, 2.7 months of inventory across the country, and likely lower in a lot of cases.
Let’s take a look at the year over year change in listings – the supply of homes coming to market versus the inventory of homes in the market. As this supply comes in, it gets purchased as fast or faster than it comes to market, leaving the inventory number flat.
Zillow just came out with a study of the top three reasons homeowners are not putting their homes on the market. Thirty-one percent say financial uncertainty. Thirty-four percent say life is too uncertain right now. A quarter of people they have concerns about their health and bringing people into the house, relative to COVID.
“Homeowners who feel life is uncertain right now may think they can get a strong price if they delay selling until they have more clarity. The catch is, waiting to sell may raise the cost of a trade-up. And this fall’s record low mortgage rates, which make a trade-up more affordable on a monthly basis, are not guaranteed to last.”
– Jeff Tucker, Zillow
As we look into the future, the projections on home prices is very positive. Most predictions are in that 4-5% range of home price increases.
The MBA’s most recent forecast on Mortgage Rates has come out and forecasted 3.3% next year and 3.639% in the years following. As the economy improves and the rates tick up, it’s going to cost more to buy a home.
Looking at the home affordability index from NAR, we can see how affordable are homes. Right now, it’s still very affordable. The higher the index, the more affordable a home.
“The good news is that affordability remains significantly higher than one year ago, mostly due to falling rates. One month does not make a trend, but this month’s decline in affordability signals that the current dynamics producing faster house price appreciation may begin to erode the affordability gains of recent years.”
– Mark Fleming, Chief Economist @ First American
Take a look at how we wrapped up November 2020 in Tallahassee: