NEW YORK–Moody’s Investors Services has released a new report on the housing sector that has found the coronavirus pandemic has created “cracks” in once solid foundations.
“The severe disruptions and economic contraction sparked by the coronavirus outbreak will have far-reaching implications for the US housing market and housing-related issuers,” Moody’s reported. “Although most sectors will experience material credit negative effects, the fallout will vary and will likely be much less severe than the damage from the housing-led recession of 2007-09.”
According to Moody’s, the effects on particular sectors include the following forecasts:
- Banks' strengthened residential mortgage portfolios will suffer comparatively less asset quality deterioration than other major asset classes
- Mortgage insurers brace for higher delinquencies as unemployment spikes
- Non-bank mortgage firms’ liquidity issues persist, but higher origination volumes and strong gain-on-sale margins support profitability
- Fannie Mae, Freddie Mac will face weaker asset quality; however, their very high ratings reflect expectation of a high level of government support
- Federal Home Loan Banks' asset quality is unlikely to be affected by coronavirus disruption, but member demand for advances increases
- Homebuilding sector hurt by unemployment, lower consumer confidence
- Apartment REITs' strong balance sheets, liquidity help buffer against coronavirus’ effects
- Home improvement has been outperforming much of retail during pandemic
- Residential mortgage-backed securities (RMBS) structures will shape credit effects from unemployment and obligor debt relief
- Commercial mortgage-backed securities (CMBS) risk increases because of hotel and retail exposures, but multifamily well positioned
- State housing finance agency (HFA) single-family programs will grapple with reduced cash flow resulting from forbearance, while multifamily programs have yet to face challenges from forbearance due to use of available reserves
The full Moody’s report can be found here.