TheMReport — News and strategies for the evolving mortgage marketplace.
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24 | M R EP O RT COVER STORY "People who have been in quar- antine and working from home in their urban apartments are now realizing they want more space," he said. "This is going to cause a migration of wealthier whites from the city to purchase more affordable and larger homes in the suburbs, which in turn will cause a decrease in affordable suburban inventory and an increase in home prices in these areas, leading to a new form of gentrification." Kaminski said this is a trend that TD Bank is beginning to follow, as they are trying to collect information about the movement, or potential movement, from urban living to the suburbs. However, he noted it may be "a little too soon to tell" and said that more information is needed before decisions are made. "If you do see that move- ment—looking for more affordable living with more space out in the suburbs—you're going to see some impact to inventory or demand, and then ultimately maybe some shifts as it relates to pricing, but I think it's too early to tell," he said. Buege, though, offered a differ- ent point of view, saying a move away from the cities is not likely to happen. He said people are learning how to be safe together and are becoming more optimistic about their future. "Lower mortgage rates have reduced the cost of homeowner- ship, so if you're thinking about it, now is the time to act," he said. "Inventory will likely remain tight, but not because people are afraid of moving or unwilling to put their home on the market, but due to ongoing demand by those seeking homeownership. Demand for housing has mostly remained unchanged." Hale said if there is a pattern showing migration away from the urban centers, the data is mixed. She added that if there is a boom in the suburbs, the market could see more homes for sales in the urban centers, extended time on the marker, and weaker price growth—possibly declining prices. Hale explained, "When I refer to mixed data, here's what we see so far: essentially, when looking at total traffic trends, we don't see a shift out of urban centers yet. While the share of traffic going to suburban areas is bigger (59%), in the COVID- 19 crisis the urban share grew while the suburban share shrank among active shoppers." Hale said in the cities of Washington, D.C., and New York City, the suburban view share has not only recovered but is higher than in 2019. Khater said the lack of inventory and low affordability have caused homeowners to look away from the city center, or potentially to other cities. "While homes are more afford- able further from city centers, the lack of inventory is still an issue even in the suburbs and marginal demand that flows from the city to the suburbs simply means more competition for a limited set of homes for sale which, longer term as the economy recovers, puts more upward pressure on subur- ban home prices," Khater said. Pinto added that the narra- tive for the years' prior was that everyone was moving to the urban centers, which he said was "somewhat exaggerated." In fact, there has been a move away from large metros for a number of years, noting New York City and Chicago have reported falling populations for several years. Another point of concern for Pinto is the aging baby boomer generation. He said a large number of homeowners in this generation are "going to try to figure out a way not to go into a nursing home or an assisted living facility," with some questioning if they should remain in their house in the sub- urbs, rather than move to denser living within the city. Also, Pinto said more children are staying at home longer, whether they are in college or grown children. He himself said his son, wife, and their one-year-old son are temporarily living with them and it would be "impossible" to downsize into a two-bedroom condominium. He noted there are many people who have left New York City for markets such as Connecticut, upstate New York, or New Jersey, citing a need to "keep my options open." Credit Where Credit Is Due B lack Knight reported that more than 4.7 million homeown- ers have entered into mortgage forbearance programs since the pandemic's outbreak. However, this growing popula- tion of homeowners electing to forgo and make reduced payments is causing banks to grow wary. Information by the Mortgage Bankers Association revealed mort- gage credit availability has fallen by more than 35% since the virus spread. In March, riskier borrowers "could get a mortgage but just pay a higher price than other people," wrote Michael Neal, a Senior Research Associate at the Urban Institute Housing Finance Policy Center. "Now, some people are just not going to get mortgages." JPMorgan Chase & Co. tight- ened its standards in May, requir- ing borrowers to have minimum credit scores of 700 and to make down payments of 20% of the home price on most mortgages, including refinances if the bank didn't already manage the loan. Wells Fargo & Co. increased its minimum credit score to 680 for government loans that it buys from smaller lenders before aggregating them into mortgage bonds. "Tighter lending standards will likely make it harder for younger buyers to afford a home, espe- cially if they have student loans to pay off or if they do not have sufficient savings for a down pay- ment," Koss said. Buege added that the industry doesn't know how many of the borrowers seeking forbearance actually needed the relief, as opposed to simply applying as a "backup measure" in case they lose employment. "The mortgage credit markets are rightfully concerned—spooked if you will—about what is mostly still unknown. How long will the economic shutdown last, and how many will suffer financially?" Buege said. Kushi said rising jobless claims—with more than 36 million Americans filing for unemploy- ment since the middle of March— indicates a higher risk of mortgage delinquencies. Lenders, in reaction to this, are tightening credit criteria to account for a higher likelihood of forbearance and delinquency. "First-time home buyers tend to have lower credit scores and down payments than repeat-buyers, indicating that this will be a sig- nificant credit hurdle for first-time home buyers," Kushi said. "Despite the uncertainty and stricter credit standards, mortgage rates hit a historically low point of 3.2%, and homebuyers responded, with pur- "Affordability looking ahead will depend on the tug-of-war between lower mortgage rates and continued house price appreciation amidst a backdrop of rising unemployment." —Odeta Kushi, Deputy Chief Economist, First American Financial Corporation