Fannie Mae has just quantified a key housing market trend

by David Kitai12 Apr 2021

Fannie Mae has confirmed in data what many mortgage pros have known from experience during the past year - COVID-19 caused a measurable shift in home purchases, from high to low density living.

A recently published report shows that over the course of 2020, largely focused in a period from April to September of that year, high to low density moves as a share of total moves moved from just shy of 9.5% to almost 11%. That amounts to an increase of about 135,000 individual households moving from high to low density. That number gets higher when looking at moves out of metro areas in isolation, where moves from high to low density rose from below 16% to over 18% in 2020. It’s a measurable shift that two Fannie Mae economists agree represents a meaningful change in the shape of America’s housing market and a potential world of opportunity for mortgage professionals.

Mark Palim (pictured above), deputy chief economist and VP at Fannie, and Rebecca Meeker (pictured below), financial economist at Fannie Mae and principal author of the report, explained that within the big takeaway that lines up with the mainstream narrative of America’s housing market, the report contains a number of nuanced insights into its shape and where people are trying to go. They explained that first-time homebuyers have been the biggest driving force in this trend and raised the question of whether COVID-19 has pulled forward demand that would have been felt more gradually over a longer period otherwise. They found that purchase price appreciation has reflected this trend but noted, as well, that the high-density cities that have been seen as the greatest victims of this trend are already showing signs of a real resurgence.

“I would say this is an acceleration [of an existing trend],” Meeker said. “We saw some of these moves happening prior to the pandemic hitting, they were already ticking up through Q1 of 2020. When the pandemic hit you got a sharp increase, accelerating a trend that we’ve heard of anecdotally for a long time.”

With that sharp increase, though, comes the chance that our rapid homebuying market will peter out relatively quickly. Meeker and Palim both expect the ‘pull-forward’ of demand to die out in time and the rate of first-time homebuying to return to historical levels, if only because there are finite amounts of first-time buyers and homes for them to move into.

Palim noted that life stages and the appeal of cities will play crucial roles in how this trend plays out. Fannie expects, and is already seeing, a resurgence in cities as COVID-19 is brought under control. He believes renter behaviour will be a key indicator of where purchase markets might go, as renters have more flexibility. Other potential trends, such as a rise in multi-generational living, could also shift the landscape and increase demand for the larger homes many worried wouldn’t be in demand among smaller millennial families. As could the longevity of remote work.

“If you look out further there’s the issue, of remote work,” Palim said. “If it lasts, a lot of the commuter congestion that drives people to pay up to be close to work could actually be substantially lower. If commuting times do drop, people may keep moving to the suburbs because they want space, good school districts and less crime, with less of that commuting drawback. Everyone still loves the cultural amenities of cities, and some of that is going to come back.”

Palim stressed that the next stage will likely be a cohort effect, as those who have bought in the suburbs are unlikely to immediately flood back into cities. Instead, what we should look for is what the next generation of college graduates will do and where they plan to move to.

As mortgage professionals look to understand what will come next in this trend, Meeker and Palim noted a few key indicators that could be illustrative. Company work-from-home policies will show how geographically tethered workforces may become. Mortgage rates will play a key role in understanding affordability, as will housing starts and underlying commodity prices. The infrastructure bill, too, may play a key role as proposed improvements to rural internet access could further entrench ongoing trends.

Read more: Can the CFPB’s new forbearance rules prevent a foreclosure crisis?

Overall, Palim and Meeker agreed that this trend should inspire hope among mortgage originators and the wider mortgage industry.

“For the single-family mortgage market and mortgage originators, this is a pretty positive trend,” Palim said. “It does mean the weighting between multi-family and single-family probably moves a bit back towards single-family. We’ve had multiple stimulus bills which have helped people’s savings for down payments, too. The only advice I would give is that as the economy reconnects with a 2% growth rate a couple of years from now, a lot of the basics are going to matter again, such as how you help your borrower get down payment assistance or how you help them navigate a potentially weaker market.

“Stay focused on that and on the continued trends of a more diverse workforce, first time homebuyers and multi-generational households looking to buy. If you have adapted to that and keep your client base in mind, I think you’ll be in good shape.”