Real Estate Report
What Will Happen with Real Estate?
The prognosticators had promised Armageddon for the economy when the pandemic hit. Don’t get us wrong–it was plenty bad. But it was not as bad as many had predicted. The main reason for this resiliency? The real estate market. This is somewhat poetic justice because the Great Recession of 2008 was led by the real estate market. In 2008, real estate led us into a recession and in 2020, it has led us out of recession.
Thus, this question follows: “now that the economy is recovering and now that the election has come and gone, will real estate continue leading the way?” To answer this question, we must look at the reasons real estate was so strong this year. The biggest reason was record low rates. There is no doubt that if rates go up significantly, the real estate market will likely cool. Because we are a long way from completing our recovery, rates are likely to stay low in 2021. In other words, even if rates rise as the recovery progresses, homes will still be historically affordable.
The second reason driving real estate is demographics. In the decade following the 2008 recession, we did not build enough homes to accommodate our population growth. Millennials are maturing and Generation X’ers are reaching buying age. And now that more can work remotely, they are moving out of cities and spreading out. These demographics will not change in 2021. As a matter of fact, the forecasted increase in foreclosures after moratoriums end will help with inventory to meet demand. If the proposal for a first-time homebuyer tax credit is enacted into law, real estate could get even hotter in 2021. Of course, predictions are often changed when reality sets in.
Weekly Interest Rate Overview
The Markets. Rates fell back to a record low for the 13th time this year. For the week ending November 19, Freddie Mac announced that 30-year fixed rates fell to 2.72% from 2.84% the week before. The average for 15-year loans decreased 2.28% and the average for five-year ARMs fell to 2.85%. A year ago, 30-year fixed rates averaged 3.78%, almost 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Weaker consumer spending data, which accounts for the majority of economic growth, drove rates on home loans to a new record low. While economic growth remains unstable, strong housing demand continues to have a domino effect on many other segments of the economy.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices for Adjustable Rate Mortgages
November 20, 2020
Daily Value Monthly Value
Nov 19 October
6-month Treasury Security 0.10% 0.11%
1-year Treasury Security 0.11% 0.13%
3-year Treasury Security 0.22% 0.19%
5-year Treasury Security 0.39% 0.34%
10-year Treasury Security 0.86% 0.79%
12-month LIBOR 0.330% (Oct)
12-month MTA 0.621% (Oct)
11th District Cost of Funds 0.523% (Sep)
Prime Rate 3.25% (March)
Real Estate News
Young Americans are rushing to become homeowners in the pandemic. While the overall homeownership rate dipped slightly in the third quarter from the previous quarter’s high, it continues to grow among those under the age of 35. Americans in that category had a homeownership rate of 40.2% last quarter, up from 37.5% a year earlier, according to newly released U.S. Census Bureau data. Competition in the housing market has accelerated during the pandemic, and record-low mortgage rates are offering some relief from higher home prices. First-time buyers made up 31% of home sales in September, according to the National Association of REALTORS®. The homeownership rate among those 35 to 44 years old also increased, rising more than three points to 63.9% in the third quarter. Other age groups have the following ownership rates: 72.0% for those ages 45 to 54; 76.4% for those 55 to 64; and 80.7% among those over age 65. Despite the gains among some age groups, the U.S. homeownership rate in the third quarter still dropped overall to 67.4%, a 0.5% decrease from the second quarter’s highest rate since 2008. Still, the homeownership rate is up from 64.8% a year earlier. Source: Mortgage News Daily
A recent report by Zillow predicts that home sales will peak in the fall and then taper off in 2021 and stay above pre-pandemic levels. Additionally, Zillow is predicting seasonally-adjusted home prices to increase by 1.2% from August to November and jump 4.8% between August 2020 and August 2021, according to the report. “Zillow’s predictions for seasonally adjusted home prices and pending sales are more optimistic than previous forecasts because sales and prices have stayed strong through the summer months amid increasingly short inventory and high demand,” according to the report. “The pandemic also pushed the buying season further back in the year, adding to recent sales. Future sources of uncertainty including lapsed fiscal relief, the long-term fate of policies supporting the rental and mortgage market, and virus-specific factors, were incorporated into this outlook.” Source: Zillow
As affordability concerns continue to hinder first-time buyers ready to enter the market, those buyers are finding additional help from their families as parents leverage their own home equity to help their adult children become homeowners. Forty-three percent of home buyers under the age of 35 received either partial or full down payment assistance from their parents or family members, according to a survey by financial services company Legal and General. Housing costs are rising. But “the increased equity parents have enjoyed has often come at the expense of unaffordability for their children,” writes Rayan Rafay, COO and CFO of Fraction, which advises startups, for Forbes.com. The higher prices often require larger amounts to reach an affordable monthly payment. Parents helping their adult children can use a home equity line of credit, if they still have a home loan, or a first mortgage if they fully own their homes. Homeowners should always borrow against the equity from their home cautiously, because it may be needed for retirement or personal emergencies. Experts recommend that owners consult with a financial adviser first and consider all options. Source: Forbes
Courtesy of:
Samuel LaRosa, III
Mortgage Loan Officer
Savings Bank of Danbury
90 Mill Plain Road
Danbury CT 06811
