Fitch: Remote Work Will Not Affect RMBS Rating

Credit-rating agency Fitch recognized that remote working patterns across America are influencing homebuying trends, but the company concluded this will not affect residential mortgage-backed securities (RMBS) ratings.

"Remote working in the U.S. accelerated as a result of the coronavirus pandemic, and is reducing the importance of proximity to offices and causing migration from urban to suburban and exurban areas. As more people seek larger spaces for home offices and families, home prices in high-density areas are softening, and those in lower density areas are increasing," said Fitch. "We do not expect this shift in housing demand to have material effect on the credit quality of Fitch-rated US RMBS pools, because they are typically geographically diversified, and ratings reflect stress scenarios that apply severe home-price declines to all properties in the portfolios."

Furthermore, Fitch predicted the work-from-home trend will become permanent, as it "has proved to be viable and efficient for a large percentage of jobs in developed economies."

However, Fitch added, even for those working from home, proximity to their employers home base will remain important.

"We expect a large number of people working from home will do so on a part-time basis over the long term ... As a result, housing prices in areas that are still within commuting distance to urban commercial districts have seen the greatest increase and are expected to remain elevated relative to pre-pandemic levels," Fitch reported.

Home purchase activity data supports this, Fitch said.

"Over the last decade, the urban-core of the US has accounted for over 75% of all home purchase activity, but this has declined since the onset of the pandemic, which we expect to settle into a longer term trend."

Fitch additionally looked at REALTOR.com data overlaid with U.S. Census density data.

"Looking at the 10 most populated core-based statistical area (CBSA), the least dense areas show a dramatic uptick in listing views by prospective buyers," Fitch said. "The least dense areas show the highest median price increases based on property size. Homebuilding has accordingly increased in the last six months to meet this new demand."

 

Fitch said that while it has observed "early indications of home price changes based on density," it predicts home price changes in most areas "to be curbed in the long run by the effects of the global recession and potential related credit tightening. This will weigh on the households’ ability to transform changed housing preferences into actual home purchases, in spite of the positive influence of low interest rates on affordability."

Fitch-rated RMBS pools in the U.S. predominately are made up of suburban properties. Thus, performance should be bolstered by strong demand for these areas.

Less than 5% of the Fitch-rated RMBS portfolio contains "any notable geographic concentrations." Furthermore, Fitch reported, "only two metropolitan statistical areas account for more than 4% of the rated mortgage portfolio."

For its analysis, Fitch assumed "a scenario where pools are 100% concentrated in areas that are expected to see home price declines."

They continue, "The stresses we apply to all properties range from a minimum decline of 10% to an average housing stress of 40% for the ‘AAA’ rating stress. These compare with the 27% price decline observed during the 2008 financial crisis. If there is outsized exposure to any one geographical area, Fitch applies geographic and loan-concentration penalties at a mortgage pool level."

For a full report and methodology, see Fitch Ratings' research.