As U.S. homebuilder confidence matches record high, mortgage delinquencies rise

U.S. home builder confidence rose for a third straight month in August to match its highest level ever as record-low interest rates spur buyer traffic, data released on Monday showed in the latest indication the housing market is a rare bright spot in the economic crisis triggered by the coronavirus pandemic.

At the same time, however, a growing number of home owners are falling behind on their mortgages with tens of millions still out of work and growing signs that the labor market recovery is softening.

The National Association of Home Builders/Wells Fargo Housing Market Index rose 6 points to 78, matching a series record set in 1998. The median expectation among 30 economists poll was for a rise to 73 from July’s reading of 72.

NAHB’s measures of both current and future home sales improved.

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” said NAHB Chief Economist Robert Dietz. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

But even as home builder confidence surges, more homeowners affected by the crisis have stopped paying their mortgages, a separate report showed.

The delinquency rate for residential mortgages rose to 8.2% in the second quarter, up nearly 4 percentage points from the first quarter and the largest quarterly increase on record, according to the Mortgage Bankers Association.

Loans backed by the Federal Housing Administration, a program used by many first-time buyers and those with lower incomes, saw their delinquency rate jump to almost 16% – the highest since the survey began more than four decades ago.

The figures reflect the struggles faced by millions of homeowners during the crisis, including many participating in a forbearance program that allows people facing financial struggles because of the pandemic to put off their mortgage payments for up to one year. An estimated 4.2 million homeowners had loans in forbearance as of the end of June, according to the MBA.

That forbearance program, combined with rising home values and other loan modification options can offer relief to struggling homeowners, said Marina Walsh, vice president of industry analysis for the MBA.

There was a glimmer of positive news in the delinquency report: The 30-day delinquency rate dropped by 0.33 percentage point to 2.34% in the second quarter.

That suggests fewer homeowners fell newly behind on payments as the unemployment rate dropped in May and June, Walsh said. “The flood of new delinquencies is dropping off,” Walsh said, adding that the mortgage delinquency rate tends to rise when the unemployment rate increases and vice versa.

The U.S. Census Bureau will report July’s housing starts data on Tuesday, and economists poll are looking for an increase to 1.24 million units on an annualized basis from 1.186 million in June.

Housing starts plunged this spring during widespread lockdown orders issued to try to contain the virus, but have rebounded sharply from a six-year low hit in April. The economy fell into recession in February as a result of the COVID-19 pandemic.

A separate report from the New York Federal Reserve Bank on Monday showed the pace of growth in manufacturing activity slowing much more than expected in August from a 14-month high in July.

The New York Fed’s Empire State Manufacturing Survey index dropped to 3.7 from 17.2. Economists poll had expected a reading of 15, with a reading above zero indicating expansion.

The survey’s measures of new orders and shipments both pulled back after three straight months of increases.