Data from the latest Health of Housing Markets Report (HoHM Report) from Nationwide economics has found that mortgages delinquent 90 days or more are peaking in nearly all corners of the United States, reaching levels nearly as severe as experienced in 2010 during the housing bust. But thanks to government forbearance measures introduced earlier in the year that is keeping these delinquencies from becoming foreclosures, the housing market is stable with demand nearing all-time highs.

“The spike in mortgage delinquencies would normally have had a significantly negative impact, but delinquencies in the current environment should not be viewed as they have been in the past due to government policy changes,” said Nationwide Senior Vice President and Chief Economist David Berson. “It seems the federal government learned a valuable lesson from the Great Recession, realizing that massive and timely forbearance policies were necessary. As a result, many of these loans have not slipped into foreclosure.”

With expectations that forbearance options will be extended further under the incoming Biden administration, the national Leading Index of Healthy Housing Markets (LIHHM) is little changed, remaining in modestly positive territory.

The HoHM report is a quarterly measure of the health of the U.S. housing market using the LIHHM, a proprietary, data-driven view of the near-term performance of housing markets for the nation as a whole and for 400 metropolitan statistical areas (MSAs) and divisions. For each MSA, the LIHHM uses local-level data to incorporate the unique characteristics of regional housing markets, including employment, demographics, the mortgage market and house prices. The focus of the LIHHM is on the entire housing market’s health, rather than a projection of house prices or home sales.

Mixed factors act as brake on recovery
While the fourth quarter HoHM report finds the LIHMM remains in positive territory after adjusting for government intervention measures, the report also reveals that the overall health of the housing market is still being weighed down by a mix of factors, chief among them the still recovering job market.

According to the U.S. Bureau of Labor Statistics, while November marked the seventh consecutive month of job growth for the U.S. economy, employment remains more than 10 million jobs in the hole compared with the peak prior to the start of the COVID-19 recession in February. Moreover, the national unemployment rate – despite having fallen sharply – is still at recession levels.

Meanwhile, house price gains are accelerating in response to a persistent imbalance between supply and demand in the market. Throughout much of 2020, mortgage rates have remained historically low. Combined with a shift in housing preferences for “space” as many workers can work remotely and rapidly increasing levels of employment as the economy heals from the downturn, the report finds that housing prices have been rising rapidly nationwide.

“Home price appreciation has accelerated in many local markets in response to the extremely tight supply of homes,” Berson said. “Even with low mortgage rates, which we expect will remain near record lows for the foreseeable future, rapidly rising prices are a risk for housing affordability, especially if inventory levels remain as low as expected.”

The HoHM report finds that areas hardest hit by this have been Texas and parts of the Pacific Coast. Metro markets that have the least positive LIHHM outlooks are: San Angelo, Texas; Cheyenne, Wyo.; Odessa, Texas; Clarksville, Tenn.; Brownsville-Harlingen, Texas; Fort Worth-Arlington, Texas; Kennewick-Richland, Wash.; State College, Penn.; Manhattan, Kan.; and San Rafael, Calif.

By contrast, metropolitan regions where home prices have remained more stable, such as in the Midwest, are showing positive or neutral rankings. For the fourth quarter, metropolitan areas with the highest LIHHM rankings are, in order: Saginaw, Mich.; Johnstown, Penn.; St. Joseph, Mo.; Tuscaloosa, Ala.; Alexandria, La.; Detroit, Mich.; Wheeling, W.Va.; Gape Girardeau, Mo.; Flint, Mich.; and Altoona, Penn.

More information about the HoHM Report, including the methodology used, can be found at blog.nationwide.com/housing. The HoHM Report is released on a quarterly basis online and in print.

Although the COVID-19 recession rained body blows on the U.S. economy in the form of mandated government closures, causing the highest levels of unemployment since the Great Depression, the HoHM report finds the housing market is showing resilience. Amidst the worst of the recession in the second quarter, the national Leading Index of Healthy Housing Markets (LIHHM) fell modestly into neutral territory. But the housing market climbed off the canvas in the third quarter, moving back into the plus side of the ledger with the largest one-quarter increase since 2010.

“Record low mortgage rates and rising incomes drove an increase in housing affordability. Those factors should help to keep housing demand elevated into 2021, assisted by an increased demand for space,” explained Nationwide Senior Vice President and Chief Economist David Berson. “Delinquency rates spiked as homeowners struggled with lost jobs and incomes, but government forbearance options for federally-backed mortgage loans have cut into foreclosures, softening the blow of the recession.”

The HoHM report is a quarterly measure of the health of the U.S. housing market using the LIHHM, a proprietary, data-driven view of the near-term performance of housing markets for the nation as a whole and for 400 metropolitan statistical areas (MSAs) and divisions. For each MSA, the LIHHM uses local-level data to incorporate the unique characteristics of regional housing markets. The focus of the LIHHM is on the entire housing market’s health, rather than a projection of house prices or home sales.

Housing health stands ground

While the U.S. housing market reached positive LIHHM territory in the third quarter, the HoHM report finds there is still cause for concern. Nationally, the unemployment rate in August was 8.4 percent. Regionally, weak labor markets continue to weigh on the housing market outlooks for many metro areas.

As foreshadowed by the record-breaking spike in the unemployment rate in the second quarter, the report found that the COVID-19 recession led to a sharp increase in mortgage delinquencies during the second quarter of 2020. The Mortgage Bankers Association (MBA) reported that 2.1 percent of all mortgages were overdue by 60-89 days while 90-plus-day delinquencies soared to 3.7 percent, levels only seen in the aftermath of the Great Recession.

Despite the rise in mortgage delinquencies, foreclosures dropped to near zero in the second quarter as expanded forbearance provisions and a foreclosure moratorium from the CARES Act for federally-backed loans (from Fannie Mae, Freddie Mac, Federal Housing Administration and Veterans Affairs) allowed most delinquent homeowners to remain in their homes.

“There are stark differences in the types of loans that are going into delinquency, and it tells the story of this recession in a microcosm,” Berson said. “Job losses within the lower-paying service sector have been much higher during the COVID-19 recession, and correspondingly, the types of mortgages that have seen the greatest rise in delinquencies are those backed by the Federal Housing Administration, which concentrates on lower-income/lower-asset homebuyers, along with the easiest lending guidelines.”

About 6.4 percent of conventional, fixed-rate mortgages backed by Fannie Mae and Freddie Mac were past due, but delinquencies soared to 15.6 percent among FHA mortgages.

Across housing markets nationwide, the report found that low mortgage rates, mortgage payment forbearance, a shift in housing preferences with a jump in the demand for “space” and increases in employment as the economy has begun to recover helped to improve the near-term sustainability of housing markets, even as delinquencies dragged down rankings compared with the prior year. Still, LIHHM rankings show that the housing health of over half of the 400 MSAs measured have declined since the year-ago period.

For the third quarter, metropolitan areas with the highest LIHHM rankings are, in order: Detroit-Dearborn-Livonia, Mich.; Cape Girardeau, Mo.–Ill.; Saginaw, Mich.; Milwaukee-Waukesha-West Allis, Wisc.; Joplin, Mo.; Mansfield, Ohio; Gettysburg, Penn.; Des Moines-West Des Moines, Iowa; Lansing-East Lansing, Mich.; and Elizabethtown-Fort Knox, Ky.

By contrast, metro markets that have the least positive LIHHM outlooks are: Odessa, Texas; Cheyenne, Wyo.; San Angelo, Texas; Kennewick-Richland, Wash.; Peoria, Ill.; Colorado Springs, Col.; Brownsville-Harlingen, Texas; Elmira, NY; Idaho Falls, Idaho; and McAllen-Edinburg-Mission, Texas.

More information about the HoHM Report, including the methodology used, can be found at blog.nationwide.com/housing. The HoHM Report is released on a quarterly basis online and in print.

Across the United States, the dramatic worsening of the labor market due to COVID-19 caused the national Leading Index of Healthy Housing Markets (LIHHM) to fall sharply in the second quarter to 100.3, down by almost six points from the first quarter. This puts the LIHHM only into neutral territory, however, indicating modest concerns about housing sustainability for the national housing market into the first half of 2021. Despite the hit to housing coming from the drop in the job market in the first half of 2020, low mortgage rates and continued solid household formations should lead to a quicker improvement during the expected economic rebound.

The HoHM report is a quarterly measure of the health of the U.S. housing market using the LIHHM, a proprietary, data-driven view of the near-term performance of housing markets for the nation as a whole and for 400 metropolitan statistical areas (MSAs) and divisions. For each MSA, the LIHHM uses local-level data to incorporate the unique characteristics of regional housing markets. The focus of the LIHHM is on the entire housing market’s health, rather than a projection of house prices or home sales.

More concern about local markets

In a sharp turn from the first quarter, the HoHM report finds only 44 of 400 MSAs are rated positively, down from 233 in the first quarter. Meanwhile, 219 of 400 housing markets in the U.S. are now in neutral territory, while 137 markets have a negative ranking, the highest number of negative rankings since the third quarter of 2010. Fortunately, 120 of these markets are negative by only one ranking (out of a possible four), indicating a slightly elevated concern about housing health in those markets. The remaining 17 negative markets have a minus two ranking, indicating a modest downturn in the housing market is likely in the near term.

“The breakdown of rankings for metropolitan areas is the weakest it’s been since 2010, with only about 10 percent of markets now rated positively,” said David W. Berson, Nationwide senior vice president and chief economist. “A quarter of all housing markets are now negative, and half are in neutral territory, showing just how widespread the impact of COVID-19 has been within local markets across the U.S.”

Mandated stay-at-home orders to flatten the infection curve of COVID-19 shut down housing markets across most of the country during the typically busy spring buying season. Existing home sales plunged by 17.8 percent for April and home builders substantially cut housing starts in anticipation of reduced homebuyer demand.

Looking forward, Nationwide economics projects a 13 percent decline for total home sales in 2020, which will be the largest drop in year-over-year sales since 2008. Despite the overall decline, signs of recovery have appeared in the second quarter.

“New home sales unexpectedly increased for April, suggesting some consumers continued to shop while on lockdown,” Berson said. “Record-low mortgage rates have also helped to buoy the housing market, and mortgage applications for purchase have surged since bottoming out in early April.”

While the housing recovery after the Great Recession was sluggish for a number of years, the HoHM report projects a much faster housing market recovery. If antivirals/therapeutics become widely available with an eventual vaccine by early next year, it is expected that the economy will expand sharply in 2021 and into 2022. If that happens, the report predicts total home sales for 2021 will rise to levels nearly on par with 2019, with house shopping behavior further boosted by low mortgage rates.

Looking at the second quarter, metropolitan areas with the highest LIHHM rankings are, in order: Waterloo-Cedar Falls, Iowa; Gettysburg, Penn.; Lancaster, Penn.; Camden, N.J.; Detroit-Dearborn-Livonia, Mich.; Abilene, Texas; Des Moines-West Des Moines, Iowa; New Bern, N.C.; Danville, Ill.; and, Tallahassee, Fla.

By contrast, metro markets that have the least positive LIHHM outlooks are: San Angelo, Texas; Kennewick-Richland, Wash.; Cheyenne, Wyo.; Odessa, Texas; Waco, Texas; Yakima, Wash.; Decatur, Ala.; Kokomo, Ind.; Longview, Texas; and, Clarksville, Tenn.-Ky.

More information about the HoHM Report, including the methodology used, can be found at blog.nationwide.com/housing. The HoHM Report is released on a quarterly basis online and in print.

Across regions nationwide, housing trends have improved in many local markets with more than half of metro areas showing a positive ranking. While this development positions the sector for a strong performance in 2020, the HoHM Report found there is risk in the form of government-insured and jumbo loans should conditions materially decline.

“While the risk has significantly increased that the coronavirus outbreak will disrupt economic activity, our research indicates that housing will be one of the economy’s brightest spots in 2020,” said David Berson, Nationwide senior vice president and chief economist. “Strong, underlying housing demand factors, including above-trend household growth, solid job gains and declining mortgage rates, are driving what is looking to be a strong annual performance.”

Across the United States, most housing markets show a positive reading with limited pockets of negative performance. The HoHM report finds that nearly 60% of the 400 metropolitan statistical areas (MSAs) evaluated achieved a positive housing market ranking in the first quarter. Of the 233 markets with a positive ranking, 214 are classified as plus-one and a further 19 as plus-two (maximum value of plus-four). Across the country, only 29 MSAs fall into the negative category, all of which are performing at minus-one (minimum value of minus-four). There are 138 MSAs in the neutral category.

Government-insured and jumbo loans present a possible risk in the next downturn 

Despite the generally positive outlook, Berson noted there are risks on the horizon due to easier underwriting standards for government-insured and jumbo loans.

“FHA and VA loans now comprise more than 23% of the nearly 40 million mortgages in the U.S. — the highest share since 2001,” Berson said. “While delinquency rates for these government-insured and jumbo loans are low today, deteriorating economic conditions could put these loans at rising risk.”

The report’s proprietary Leading Index of Healthy Housing Markets (LIHHM) index was 106.1 at the end of 2019, well above the neutral level of 100 and marked the sixth-straight quarterly gain for this metric after rising from 100.7 in the second quarter of 2018. Nationwide’s LIHHM is a data-driven view of the near-term performance of housing markets based upon current health indicators for the national housing market and 400 metropolitan statistical areas (MSAs) and divisions across the country. For each MSA, the LIHHM uses local-level data to incorporate the unique characteristics of regional housing markets. The focus of the LIHHM is on the entire housing market’s health, rather than a projection of house prices or home sales.

Demand factors driving the positive outlook are led by low mortgage rates, above-trend household formations, the lowest unemployment rates in 50 years, and rising incomes. Serious delinquency rates have declined in each of the last six quarters, falling to a healthy, below 2% rate. At the same time, house price gains have accelerated in response to homebuyer demand, with existing home sale supply levels very tight. Still, price growth remains near the long-term average and, with low mortgage rates, housing affordability has remained positive.

Metro areas that have the highest LIHHM forecasts are, in order: Hinesville, Ga.; Detroit-Dearborn-Livonia, Mich.; Cleveland-Elyria, Ohio; Trenton, N. J.; Sebastian-Vero Beach, Fla.; Lake County-Kenosha County, Ill.; Warren-Troy-Farmington Hills, Mich.; Philadelphia; Newark, N. J.; and, Camden, N. J.

By contrast, metro markets that have the least positive LIHHM outlooks are: Yakima, Kennewick-Richland and Walla Walla, Wash.; Cheyenne, Wy.; Odessa, Texas; St. Joseph, Mo.; Hickory-Lenoir-Morgantown, N. C.; Albany, Ore.; Manhattan, Kan.; and, Pocatello, Idaho.

More information about the HoHM Report, including the methodology used, can be found at blog.nationwide.com/housing. The HoHM Report is released on a quarterly basis online and in print.