THE HOUSING MARKET

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MARKETWATCH

"New-home construction records biggest monthly decline since March 1984, as coronavirus pandemic takes a toll"


By Jacob Passy

Published: April 16, 2020 at 9:13 a.m. ET

The numbers:

Builders started construction on new homes in the U.S. at a pace of 1.22 million in March, the Commerce Department said Thursday.

This represented a 22% decrease from a revised 1.56 million in February, but was 1.4% higher than a year ago.

It’s the biggest decline since March 1984.


Permitting activity, however, slowed down less drastically.

Building permits for privately-owned housing units were authorized at a seasonally-adjusted rate of 1.35 million.

That was 6.8% below the revised pace of 1.45 million set in February, but 5% above last year’s rate.

Economists polled by MarketWatch had projected housing starts to occur at a 1.29 million pace and building permits to occur at a rate of 1.25 million.

What happened:

Housing starts and permitting both fell to the slowest pace since last July.

The decrease in permitting activity was driven entirely by a 12% drop in permits issued for single-family units.

Permits for multifamily buildings, duplexes, triplexes and quadplexes increased between February and March.

Meanwhile, the slowdown in new construction projects was led by multifamily buildings.

Multifamily starts plummeted by more than 32%, while single-family starts only decreased 17.5%.

Regionally, the Northeast experienced the most pronounced decrease in overall new-home construction with a 42.5% decline, almost double what was seen in the South, West and Midwest.

However, the Midwest noted the largest decline in single-family starts, while new construction of one-family homes actually increased in the West.

The big picture:

This report is indicative of what can be expected in terms of housing data in future months as a result of the slowdown in economic activity caused by the COVID-19 pandemic.

However, coronavirus only started to become a major factor in the latter half of March.

As a result, the housing sector is poised to see coronavirus hit reflected in the data in an even bigger way in the months ahead.

“Starts could well sink to half this level (0.6 million) in April, as the [National Association of Home Builders] housing market index plunged by a record 42 points, four times more than the next worst month,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a research note Thursday.

This marks a major shift from the beginning of the year when record-breaking permitting activity suggested a building frenzy for later in 2020.

Overall, housing starts are now expected to dip 9.3% this year, according to the latest forecast from Fannie Mae, even though the housing market has seen a major dearth in the supply of homes.

What they’re saying:

“Housing is not safe in the current situation, as job losses mount and prospects for homeownership dim,” Rubeela Farooqi, chief U.S. economist for High Frequency Economics, wrote Thursday morning.

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Re: THE HOUSING MARKET

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MARKETWATCH

"Existing-home sales slump 8.5% in March — but the worst is yet to come as the coronavirus hits the U.S. housing market"


By Jacob Passy

Published: April 21, 2020 at 2:58 p.m. ET

The numbers:

Sales of previously-owned homes slid 8.5% in March as the coronavirus pandemic began to exert pressure on the U.S. real estate market.

Existing-home sales occurred at a seasonally-adjusted annual pace of 5.27 million, the National Association of Realtors reported Tuesday.

March represented a major reversal from the month prior, which featured the strongest sales figure for the month of February since 2007.

Despite the slowdown on a monthly basis, existing-home sales still occurred at a 0.8% faster pace than a year ago, representing the ninth consecutive month in which sales were higher year-over-year.

“Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” said Lawrence Yun, the National Association of Realtors’ chief economist.

“More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”

What happened:

The inventory of homes for sale remained tight.

There was a 3.4-month supply, up from 3 months in February.

A 6-month supply is generally considered to be indicative of a balanced market.

The median existing-home price in March was $280,600, up 8.0% from March 2019.

Prices rose in every region of the country.

On a regional basis, sales fell most notably on a monthly basis in the West, where they were down 13.6%, though every region saw a decrease in sales in March.

Big picture:

The downturn in March aside, the housing market is poised to see worse numbers in the near term.

The figures released Tuesday by the National Association of Realtors barely scratch the surface of the coronavirus pandemic’s impact on real estate.

“March’s data reflects buyer and seller agreements reached in January and February, before the coronavirus was on the radar for most of the U.S.,” said Danielle Hale, chief economist at Realtor.com.

The data on what’s happened to the housing market since March paints a bleak picture.

Analysis from Realtor.com suggests that there are roughly half as many home listings as there were a year ago.

That’s in spite of the fact that this time of year is traditionally the best time to list a home for sale in most parts of the country, given the extra foot traffic the spring home-buying season normally brings.

But with most of the country under strict shelter-in-place orders and sellers rightfully concerned about the prospect of having scores of people wander through their homes amid a pandemic, the spring home-buying season may be pushed into the summer — or not happen at all.

“These changes will mean fewer home sales and slower price growth in the months ahead, sapping momentum from the normally busy spring season,” Hale said.

“But some home sales will continue, and the industry and consumers will get better at doing business in a ‘socially distant’ way as we get more practice with it.”

What they’re saying:

“Existing home sales were strong ahead of the outbreak of the virus, even as inventories remained lean,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note.

“However, conditions in housing will weaken over coming months, as job losses mount and incomes are lost, impacting households’ ability to purchase homes."

"Stay-at-home orders are also severely impacting activity.”

Market reaction:

The Dow Jones Industrial Average and the S&P 500 both fell in Tuesday morning trading on the heels of a historic drop in oil prices.

The 10-year Treasury yield was also down.

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Re: THE HOUSING MARKET

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MARKETWATCH

"Home-price gains accelerated in February before coronavirus hit the U.S. economy"


By Jacob Passy

Published: April 28, 2020 at 4:49 p.m. ET

The numbers:

The pace of home-price appreciation continued to hasten in February, according to a major price barometer.

The S&P CoreLogic Case-Shiller 20-city price index posted a 3.5% year-over-year gain in February, up from 3.1% the previous month.

On a monthly basis, the index increased 0.5% between January and February.

The two-month lag in the data included in the price index means that the report has yet to display the effects of the coronavirus pandemic on the housing market.

What happened:

Phoenix led the nation once more with a 7.5% annual price gain in February.

Close behind was Seattle, one of the cities nationwide that became a hot spot for the coronavirus outbreak.

Home prices in Seattle were up 6% year-over-year.

After Seattle, Tampa, Fla., and Charlotte saw the biggest price increase.

In total, 17 of the 20 cities in the index reported more substantial price increases year-over-year in February versus January.

“Prices were particularly strong in the West and Southeast, and comparatively weak in the Midwest and Northeast,” said Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.

The big picture:

The home-price index from the Federal Housing Finance Agency similarly showed a 5.7% increase in home prices between February 2019 and February 2020, underscoring the position of strength the U.S. housing market was in before the coronavirus pandemic reached U.S. shores in earnest.

What will happen to home prices as a result of the viral outbreak remains to be seen.

Fannie Mae has actually forecast that home prices will continue to rise in spite of the pandemic.

While home sales has slowed considerably amid stay-at-home orders and a precipitous drop in consumer confidence, sellers are also taking action.

Home listings have dropped considerably in recent weeks compared with a year.

That’s a sign that sellers are either pulling their listings or refraining from putting their homes on the market.

Sellers who are doing this are likely hoping to protect their asking price in the face of weak demand from home buyers.

Many of the fundamentals that were driving recent price increases remain — namely, the short supply of homes for sale means that buyers in the market must compete for listings.

However, if the coronavirus pandemic’s disruptions last for an extended period of time, home prices could respond in kind.

What they’re saying:

“The big question now is how quickly the home listings will awaken after pause or will unemployment drag down purchase activity going forward,” Bill Banfield, executive vice president of capital markets at Quicken Loans, said.

“If buyers come back faster than sellers, it could cause prices to push even higher as buyers compete over the slim choices.”

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MARKETWATCH

"Pending home sales drop to lowest level since 2011 as coronavirus takes its toll"


By Jacob Passy

Published: April 29, 2020 at 10:39 a.m. ET

The numbers:

The index of pending home sales dropped 20.8% in March as the coronavirus pandemic took a significant bite out of real-estate activity, the National Association of Realtors reported Wednesday.

This represented the lowest level of pending sales since 2011.

The index measures real-estate transactions where a contract was signed but the sale had not yet closed, benchmarked to contract-signing activity in 2001.

It serves as an indicator for existing-home sales reports in the coming months.

What happened:

Compared with March 2019, signings were down 16.3% nationally.

On a monthly basis, pending sales dropped in every region with the West seeing the largest decline at 26.8%, followed by the Midwest (down 22%) and the South (19.5%).

In the Northeast, contract signings only decreased 14.5%.

The big picture:

While the coronavirus outbreak has not caused real-estate activity to stop entirely, it has put a major damper on what economists had anticipated would be a strong spring home-buying season thanks to low mortgage rates and pent-up demand among buyers.

Without the spring home-buying season, home sales are expected to drop 14% in 2020.

“As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates,” said Lawrence Yun, chief economist at the National Association of Realtors.

“The usual spring buying season will be missed, however, so a bounce-back later in the year will be insufficient to make up for the loss of sales in the second quarter.”

With stay-at-home orders and social-distancing guidelines in effect for most of the country, the process of buying a home (and then moving) has become more complicated.

Nearly one-fifth of Realtors said that stay-at-home orders made it nearly impossible to finish deals, according to a recent poll by the National Association of Realtors.

(Another 40% of Realtors meanwhile said some aspects of the home-buying process still required in-person interaction, but that wearing masks and gloves could make it safer.)

Amid these orders, open houses have gone virtual, and documents are now being signed in parking lots rather than the offices of title insurers and attorneys.

In some parts of the country, the closure of government offices means that sales cannot be recorded as quickly as usual.

Some would-be sellers have held off on listing their homes, worried about a potential dip in prices or demand.

Between the first and last weeks of March, the number of new listing was down 30%, according to data from Realtor.com.

Comparatively, the number of listings grew by 15% during that same stretch of time last year.

What they’re saying:

“New listings continued to fall in April, as COVID-19 concerns prompted sellers to wait, which means additional declines in pending and closed home sales are likely ahead,” said Danielle Hale, chief economist at Realtor.com.

“Although fewer buyers signed contracts to buy as they stayed home to prevent the spread of COVID-19, surveys suggest that most home buyers expect just a few months delay in their journey.”

“How infection rates respond in states reopening will be a telling sign as we move forward on how long we can expect a slump in sales to persist,” said Ruben Gonzalez, chief economist, Keller Williams.

“If we see no resurgence in infections, we could see sales begin to stabilize in early June; however, if there is a resurgence in infection rates, a substantial backslide across all sectors of the economy is likely.”

Market reaction:

The Dow Jones Industrial Average and the S&P 500 were both up in Wednesday morning trading in spite of the downturns in pending home sales and GDP.

The yield on the 10-year Treasury note was down slightly.

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Re: THE HOUSING MARKET

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MARKETWATCH

"Mortgage rates rise from record lows — and signs are emerging that Americans are preparing to re-enter the home-buying market"


By Jacob Passy

Published: May 8, 2020 at 9:15 a.m. ET

Mortgage rates remain close to the record lows set a week ago.

And that could help move Americans off the sidelines and back into the home-buying market.

The 30-year fixed-rate mortgage averaged 3.26% during the week ending May 7, three basis points higher than last week, Freddie Mac reported Thursday.

The 15-year fixed-rate mortgage dropped four basis points to an average of 2.73%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.17%, down three basis points from a week ago.

Freddie Mac’s report is based on a survey of lenders, reflecting the dollar volume of conventional loans, meaning loans eligible for purchase by Freddie Mac or Fannie Mae.

As a result, the survey does not reflect the rates for loans backed by other agencies, such as the Federal Housing Administration or the Department of Veterans Affairs.

It also doesn’t include rates for jumbo loans.

Rates have remained so low in large part because the Federal Reserve continues to purchase mortgage-backed securities, which provides lenders with the liquidity they need to be able to offer more loans at a lower price.

Because the Fed’s bond buying is driving this ship though, not all loans are seeing the same benefits.


“The Fed’s policy on mortgage rates applies to most home loans — those that, in one way or another, have federal backing,” Holden Lewis, housing expert at NerdWallet, wrote in a report this week.

“But jumbo mortgages aren’t backed by the federal government, and they haven’t been as readily available during the COVID-19 crisis because the secondary market for them has dried up.”

Until now, lenders’ loan application volume in recent months was largely dominated by homeowners looking to refinance, given the low rates.

But that trend has begun to shift, according to the latest data from the Mortgage Bankers Association.

The number of refinance applications dropped, according to the mortgage industry trade group’s latest weekly mortgage applications survey.

That’s in spite of the fact that rates hit a new record low.

“Despite lower rates, refinance applications dropped, as many lenders are offering higher rates for refinances than for purchase loans, and others are suspending the availability of cash-out refinance loans because of their inability to sell them to Fannie Mae and Freddie Mac,” said Mike Fratantoni, MBA’s chief economist.

It’s been a different story when it comes to applications for home loans used to purchase a property.

The volume of purchase loans increased for the third straight week, according to the MBA survey.

Purchase volume is now only 19% below the level it was at in May 2019.

That’s a big shift from mid-April, when the number of purchase mortgage applications was 35% below the previous year’s figures.

Application volume for purchase loans rose notably in California, Texas and Arizona, and Fratantoni noted that the data suggest pent-up demand among home buyers that could translate into stronger sales as states reopen from their coronavirus-related shutdowns.

That isn’t to say the going won’t be tough for prospective home buyers looking to secure financing.

While average rates are near all-time lows, the spread of rates available in the markets varies considerably.

And lenders continue to impose tough standards that would-be borrowers need to meet in order to qualify for a home loan.

“These relatively easy borrowing conditions remain available largely only to those with a hefty down payment, high credit score and seeking a plain-vanilla loan,” said Zillow economist Matthew Speakman.

“Borrowers not meeting these criteria continue to be presented with much higher-than-expected rates when filing an application.”

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MARKETWATCH

"Housing starts slide 30% to lowest level since 2015"


By Jacob Passy

Published: May 19, 2020 at 8:44 a.m. ET

Housing starts occurred at an 891,000 seasonally adjusted annual rate in April, the Commerce Department said Tuesday, representing a 30% drop from March.

It was the slowest pace of new home construction since February 2015.

Permitting activity for newly-built homes fell 20.8% between March and April to a seasonally adjusted annual rate of 1.07 million.

Housing starts fell short of the consensus forecast of economists polled by MarketWatch - they estimated new home construction to take place at a 900,000-unit annual rate.

Building permits beat economists' consensus forecast of 996,000.

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MARKETWATCH

"Over 4 million Americans are now skipping their mortgage payments"


By Jacob Passy

Published: May 19, 2020 at 1:28 p.m. ET

Fewer Americans are calling their mortgage servicers to ask for relief from mortgage payments, but the housing industry isn’t out of the woods yet.

More than 4.1 million homeowners are in forbearance plans now, according to the latest data from the Mortgage Bankers Association.


While mortgage servicers are still facing stress because of the record deluge of requests for payment relief, signs suggest that homeowners’ prospects have improved as parts of the country have begun to emerge from coronavirus stay-at-home orders.

Overall, 8.16% of all mortgages were in forbearance as of May 10, meaning borrowers can either skip or make reduced payments, the trade group said.

That was up from 7.91% as of May 3, which is the smallest increase since March.

Forbearance requests dropped from 0.52% of the total mortgage volume to 0.32%.

“There has been a pronounced flattening in loans put into forbearance — despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates,” Mike Fratantoni, chief economist for the Mortgage Bankers Association, said in the report.

The potential exception to this trend is the segment of the market for loans backed by Ginnie Mae, including Federal Housing Administration (FHA) and Veterans Affairs (VA) loans.

More than 11% of Ginnie Mae loans are in forbearance because of the coronavirus outbreak.

These loans tend to go to borrowers who are first-time homeowners with weaker credit — people who could be more exposed to the economic downturn the pandemic has caused.

While the pace of homeowners requesting forbearance has slowed, the end of the mortgage industry’s troubles isn’t necessarily in sight.

A recent report from U.K.-based economic forecasting firm Oxford Economics estimates that 15% of homeowners will fall behind on their monthly mortgage payments.

The outlook for homeowners will likely depend on their ability to bounce back, particularly for those who have lost their jobs.

The good news for mortgage lenders is that job losses caused by the coronavirus have largely been concentrated in the service sector, according to a report from First American Financial, a title insurance company.

Because these jobs are lower skilled and lower paid, it’s less likely that the newly unemployed already owned homes.

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MARKETWATCH

"New U.S. home sales rise slightly in April despite coronavirus-related shutdowns"


By Jacob Passy

Published: May 26, 2020 at 10:07 a.m. ET

Sales of newly-built single-family houses occurred at a seasonally-adjusted annual rate of 623,000, the government reported Tuesday.

That was 0.6% above the revised pace of 619,000 in March.


Analysts polled by MarketWatch had forecast new-home sales to occur at a seasonally-adjusted annual rate of 480,000.

The supply of homes for sale, meanwhile, held steady at 6.3 months.

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MARKETWATCH

"Home-price gains continued in March as the coronavirus pandemic swept the U.S., Case-Shiller index shows"


By Jacob Passy

Published: May 26, 2020 at 9:47 a.m. ET

The numbers:

The pace of home-price appreciation again ramped up in March, even as the coronavirus pandemic hit the U.S., according to a major price barometer.

The S&P CoreLogic Case-Shiller 20-city price index posted a 3.9% year-over-year gain in March, up from 3.5% the previous month.

On a monthly basis, the index increased 0.5% between February and March.

Because of the two-month lag in the data included in the price index, the effects of the coronavirus pandemic on the housing market were not yet fully reflected in the data.

Is this good news?

As for where home prices will go because of the coronavirus pandemic, the jury is out.

A report from Zillow indicated that home prices could fall as much as 4% in a worst-case scenario because of the outbreak, while Fannie Mae has forecast home prices to continue rising in spite of the pandemic.

As buyers return to the market as the country rebounds from the pandemic, a limited inventory of homes for sale could fuel bidding wars and push prices higher.

What they’re saying:

“While March was still early days, it’s looking likely that the initial impact will be felt mostly on plunging sales and listings volumes, not prices,” Robert Kavcic, senior economist at BMO Capital Markets, said in a research note.

What happened:

Phoenix led the nation yet again with an 8.2 % annual price gain in March.

However, what could be more notable is the city that came in second: Seattle.

Seattle experienced an annual rate of home-price appreciation of 6.9%, despite the fact that it was one of the first hot spots for the coronavirus outbreak in the U.S.

Overall, the pace of price growth increased in 17 of the 19 cities Case-Shiller analyzed — the 20-city didn’t include Detroit this month because transaction records for Wayne County, Mich., were unavailable, Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said.

“March’s year-over-year gains were ahead of February’s, continuing a trend of gently accelerating home prices that began last autumn,” Lazzara said.

“Housing prices have not yet registered any adverse effects from the governmental suppression of economic activity in response to the COVID-19 pandemic."

"As much of the U.S. economy remained shuttered in April, next month’s data may show a more noticeable impact.”

The big picture:

The Federal Housing Finance Agency also released its quarterly home-price index, which showed that home prices rose 5.7% between the first quarters of 2019 and 2020.

The state that displayed the most significant rate of appreciation was Idaho, where home prices have risen 12.6%, followed by Montana (up 10.2%) and Wyoming (up 9.9%).

Only two states saw declines in home prices during the first quarter, per the FHFA’s report: West Virginia, where home prices fell 2.1%, and Alaska, where prices dropped 0.1%.

“Leading up to the COVID-19 crisis, housing markets were tight and home prices appeared to be reaccelerating,” said Lynn Fisher, deputy director of the division of research and statistics at FHFA.

But both the FHFA and the Case-Shiller indexes have not displayed the true impact on the coronavirus pandemic on home prices, even though both reports capture activity in March.

The FHFA report, for instance, is based on closings through March 31 — but there’s a significant lag between contract signings and closings.

As a result, March closings are reflecting prices set in January and February, before the effects of COVID-19 were felt in earnest across the U.S.

Fisher further noted that FHFA report isn’t able “to account for any modifications or cancellations of sales later in March.”

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MARKETWATCH

"Government backstop grows to 98% of new financing in residential mortgage-bond market as private finance vanishes during pandemic"


By Joy Wiltermuth

Published: June 3, 2020 at 5:11 p.m. ET

The U.S. government has guaranteed nearly all new home loans in the $11 trillion housing debt market in the months since the coronavirus took hold across American, a situation that isn’t likely to change soon, according to Barclays.

For decades, the majority of all U.S. home loans have ended up bundled into mortgage-backed securities that are sold to investors like pension funds, either with or without government backing, rather than kept by lenders.

Government backstops have become the norm in the decade since the 2007-08 global financial crisis, which was fueled by a boom in subprime mortgages and exotic financial products.


But many industry participants have hoped to see private-sector players take a bigger slice of the pie, to spread the risk, encourage new entrants and lessen the government’s dominant role in the mortgage-finance supply chain.

This chart shows the share of residential mortgage bonds sold with government guarantees from housing giants Freddie Mac, Fannie Mae, and Ginnie Mae falling as low as 30% of all new home loans in 2005, but shooting past 90% in recent years.

One major piece of unfinished business since the financial crisis, which saw millions of homes lost to foreclosure, has been figuring out how to safely bring more private capital back into U.S. housing finance, while easing taxpayer exposure to mortgages.

To that end, the Trump administration has vowed to revive efforts to privatize Freddie and Fannie, some 12 years since they were bailed out by taxpayers.

Earlier in May, steps in that direction were taken with the unveiling of a new framework for the privatization of Freddie and Fannie, including a proposal to require the housing giants to keep a more than $200 billion capital buffer.

For their part, a slew of big banks have returned as issuers of private residential mortgage bond deals in recent years.

Those include Credit Suisse and Citigroup to JPMorgan Chase & Co. and Wells Fargo & Co.

The return of major banks, along with the sale of derivative mortgage securities from Freddie and Fannie that reduce taxpayer exposure to their hulking mortgage portfolios, helped boost private mortgage bond issuance between 2016 and 2018, with February of this year seeing nearly $18 billion of supply for the month.

Growth in the sector reflects favorable economics for banks putting together such deals, as well as more credit flowing to borrowers who otherwise might not qualify for the stricter, government-backed financing channels, according to Barclays.

“However, this dynamic was completely upended with COVID-19,” wrote Barclay’s credit researcher Dennis Lee, in a client note Monday.

“Over the past two months, agency mortgages represented approximately 98% of total RMBS issuance, up from 91% in all of 2019.

Residential mortgage-backed securities refers to bonds backed by home loans.

Banks and other mortgage lenders often will pool home loans together and sell them as securities, using those funds to create more mortgages.

The “agency” segment includes all bonds with some form of government backing, a massive $6.9 trillion market that some view as a surrogate for U.S. Treasury debt, since their guarantees make their risk of default nearly as low as those of U.S. Treasurys.

The 10-year Treasury yield rose 8.2 basis points on Wednesday to 0.761%, its highest since early April as global equities gained on economic data that showed the worst damage to the U.S. economy may have passed.

The Dow Jones Industrial Average advanced more than 500 points, closing at its highest level since early March.

U.S. stocks and other risk assets have been rallying over the past three months, after the Federal Reserve outlined a historic crisis response to the pandemic, including unlimited buying government-backed debt and providing more than $2 trillion of emergency funding to keep credit flowing to big and small businesses, municipalities and households.

In the meantime, nearly 4 million U.S. homeowners in May already tapped forbearance options triggered in the wake of COVID-19, or only 7.54% of all mortgages, but that figure could rise to 15%, according to one study.

Does that mean the pandemic will put an end to the Trump team’s plans to force Freddie and Fannie out of conservatorship?

“We believe that COVID-19 will drive mortgage lenders to shift more of their production into the agency RMBS market, lead to tighter underwriting standards for at least a few years, postpone - but not eliminate - the exit of the GSEs from conservatorship, and reduce the presence of REITs in the RMBS sector for some time,” Lee wrote, referring to real-estate investment trusts.

In other words, the long, winding road to overhauling Freddie and Fannie may have hit another detour.

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