Credit Quality Leads to ‘Stable’ Housing-Sector Outlook

The national housing market was solid in 2020 and economists expect positive momentum in sales and property price appreciation to continue in 2021, according to a Housing Finance Agency (HFA) Housing Sector Outlook study from HilltopSecurities. Researchers add that the HFA single-family program credit quality will remain strong despite COVID-related setbacks, such as increased forbearance rates.

The researchers said they are keeping a "stable" sector outlook on housing as we begin 2021.

"The main reason we have kept a stable outlook on the Housing sector (again with a concentration on state HFAs) is the very strong credit quality that still exists generally in the sector. State HFA credit quality remained resilient, even in the depths of the last recession, which significantly pressured housing markets across the country. We expect that state HFA credit quality will remain solid during and in the wake of the COVID-19 crisis."

The researchers acknowledge that loan forbearance is a common concern in the current environment.

"A closer look at the amount of loan forbearance activity in the second quarter of 2020 among HFA single-family whole loan borrowers helps us get a better understanding of the broader picture," they noted. "As of the second quarter of 2020, 9.13% of HFAs’ Moody’s-rated whole loans are considered in delinquency, foreclosure or forbearance (as of June 30, 2020 according to Moody’s). While the forbearance category rose substantially, the rating agency also notes, 'Partially offsetting the increase in forbearance is the fact that many HFAs report that a portion of their borrowers on forbearance plans are still paying their loans in full.'"

This is the first sector-outlook update from HilltopSecurities since May 2020.

"The economic status and outlook around the world and in the U.S. were much different then," noted Tom Kozlik, Head of Municipal Strategy & Credit. " There was still a very high level of uncertainty about the path of COVID-19. Uncertainty still exists, but there have been changes and steps taken that have shown us there is likely an end to COVID-19 ...Most important is the fact that the coronavirus is still the leading theme likely to impact events in 2021."

The full report is accessible at Hilltopsecurities.com.