3% Interest Rate May be the New Norm

 

A 3% mortgage rate may be

 the new norm

But if home prices can't cool many buyers may miss out regardless

March 18, 2021, 10:20 am By Alex Roha

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For the third consecutive week, mortgage rates pushed past 3% – with the average mortgage rate for a 30-year fixed loan up four basis points last week to 3.09%, according to Freddie Mac’s Primary Mortgage Market Survey.

Rising mortgage rates typically signify a recovering economy, and despite applications for mortgages dropping week-over-week, Freddie Mac’s chief economist Sam Khater expects a 3% rate to sustain market interest for many potential buyers.

A number of economists say rising rates may just be what the industry needs to cool the insane housing demand the market has been struggling to maintain for months. Increased inventory was the initial hope. However, due to consistent materials supply shortages and lumber prices that are up about 200% since April 2020, builders’ confidence index dropped in March. Single-family housing starts declined last month.

“The elevated price of lumber is adding approximately $24,000 to the price of a new home,” said NAHB Chairman Chuck Fowke. “Though builders continue to see strong buyer traffic, recent increases for material costs and delivery times, particularly for softwood lumber, have depressed builder sentiment this month. Policymakers must address building material supply chain issues to help the economy sustain solid growth in 2021.”

Now, economists are keeping a watchful eye on the speed in which interest rates have risen, said Doug Duncan, Fannie Mae’s senior vice president and chief economist.

“Underlying Treasury rates have risen, though lenders have absorbed some of the rise by shrinking spreads, as confirmed by our recent Mortgage Lender Sentiment Survey results,” said Duncan. “While the rate rise will curtail refinances to some degree, 2021 is poised to be a good year overall for housing activity and housing finance, as the economy continues to recover and COVID-19 restrictions ease.”

Duncan said Fannie Mae is watching for risks around monetary and fiscal policy on interest rates moving forward, though none are an immediate threat as the Federal Reserve has not changed its FOMC statement for several months.

Nevertheless, mortgage rates remain near historic lows (they are still 0.8 percentage points below the 2019 average), but if the price of housing can’t cool in time, many first-time homebuyers may miss the chance to take out a record low rate. Despite this risk, Fannie Mae’s baseline view is that the recent rapid rise will not continue but that rates will drift only modestly higher over the remainder of this year.

“Essentially, we believe the Fed will keep policy accommodative for longer, not tightening until inflation clearly exceeds its 2.0-percent target for a substantial period,” Fannie Mae said. “This view is consistent with current market measures, such as Fed Funds futures, not anticipating any rate hikes until 2023 and, even then, at a slow pace.”

More Buyers Open to Relocating

 

Home Buyers Say They're Open                                                                    to Relocating Remote work has Americans spreading out and the trend doesn't look likeit's going anywhere any timesoon. More and more, Americans are moving further from city centers and into suburbs and exurbs.  In fact, according to one recent survey, two-thirds of participants said they either already had, or would like to, move  somewhere within 50 miles of their current home. Some even  wanted to move further, with 4 percent saying they moved more than 50 miles away and 10 percent said they'd like to in the future. In short, there are a lot of Americans who are using their newfound ability to work from home as a reason to move elsewhere - whether for extra space, privacy, or to save money. It's not surprising. It's also likely to continue. That's because, just 17 percent of respondents said they thought their work-from-home arrangement would end when the pandemic subsides, while 72 percent said they expect it to be permanent. More here.

Mortgage Demand Rises 17% After                                                                  the Holidays According to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey, demand for mortgage applications was up 16.7 percent during the first week of January. The increase includes an adjustment for the holidays, but represents a significant spike from the previous week. Refinance activity was up 20 percent, while purchase demand rose 8 percent. Joel Kan, MBA's associate vice president of economic and industry forecasting, says the numbers contain evidence that first-time home buyers are becoming more active in the market. "Sustained housing demand continued to support purchase growth, with activity up nearly 10 percent from a year ago, " Kan said. "The lower average loan balance observed was partly due to a 9.2 percent increase in FHA applications, which is a positive sign of more lower-income and first-time buyers returning to the market. " Also in the report, average mortgage rates were up slightly from the previous week, with increases seen for both 30-year fixed-rate mortgages with conforming loan balances and loans backed by the Federal Housing Administration. The MBA's survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications. More here.

MORTGAGE NEWS

More Buyers Buying Homes Sight Unseen How we buy homes has undergone a significant transformation in the past year. The proof is in newly released data that shows a record number of recent home buyers made an offer on a home without having ever visited it in person. The numbers, from an online real-estate portal, show 63 percent of buyers who purchased a home last year made an offer without having seen the property. That's up from 32 percent one year earlier and 45 percent in July 2020. So what's driving the trend? Well, mostly it's the COVID-19 pandemic. The virus caused us all to changethe way we do things,including buying a home. After its onset,home buyers became more comfortable using technology like virtual home tours to further explore listings that caught their eye online. It also meant more Americans working from home,which lead home shoppers to look for houses in areas that weren't as easy to get to for an in-person walkthrough. The combination of pandemic, technological advancement, and remote work means an increasing number of us have had to - or have chosen to - take our home search virtual. It remains to be seen, though, whether or not the trend will continue after the virus subsides. More here.

ECONOMIC NEWS

Will There Be a Buyer's Market In 2021? A buyer's market means there are more homes available for  sale than there are interested home buyers. When this happens, home shoppers have more negotiating power and time to choose - since sellers are less likely to have more than one offer to pick from. This was the case after the housing crash and financial crisis, when the market was flooded with homes but had few buyers, outside of real-estate investors looking to capitalize. So what should we expect from 2021? Well, most likely, not a buyer's market. The number of homes for sale fell significantly last year and remains low. Conversely, home buyer demand is elevated and has been for a while. That means, more buyers than homes,  which leads to competition and higher prices. But while home buyers aren't likely to find a buyer's  market, they will find conditions softening from last year. With mortgage rates still at record lows and  new-home construction improving, experts expect home-price increases to moderate and inventory to begin its recovery. In other words, the 2021 housing market won't be a buyer's market, but it should be  better than last year. More here. Thanks to Sue Baxter at FM Home Loans for sharing this information

Manhattan Real Estate 2018

Since many of our new buyers are coming from Manhattan, and can directly affect our market, I keep up with what is going on there through several contacts at different agencies. 

The information herewith was compiled through the efforts of The Corcoran Group.

2018 was a challenging year in the Manhattan real estate market, with total sales volume  declining 11% year over year to 11,790 closings.  Those numbers dwarf the numbers in Lower Fairfield County, but  from our perspective we have been surprised that a correction in Manhattan real estate has not come sooner.  Foreign investment has in many ways helped to shield Manhattan from the big
drops that we saw after the 2008 stock market crash. 

From afar, it looks like the situation is akin to what we have been seeing over the past 5 years or so in our market. Inventory in Manhattan has been on the increase, up 10% in 2018. That is likely because potential sellers have noticed that prices are also correcting.  The median price was down 4% in 2018
to $1,100,000.  That pricing difference was less than what we experienced in most mid-Fairfield towns last year (refer to my previous blog about 2018 year end statistics).  At the end of the first quarter there should be some early indications of where the market in Manhattan (and Fairfield County) are trending.

What seems troubling as an observer is that new development sales fell at a rate five times the amount of either resale condos or resale co-ops, dropping 35% year over year.  The 1500 closings represented the fewest number of closings in 10 years.  It seems that there is a tremendous amount of new construction still underway in Manhattan. 

'Resales also saw fewer sales compared to 2017, but had more moderate declines of 7% for condos and 6% for resale co-ops'.  The high end ($5 million+) fell to the lowest level (766) since 2014.  For new developments there was a decrease of 42% year over year. 

Don't Fret about moving-There is Help

I've noticed that many people don't realize the diversity of services that are on our doorstep, and I will be writing about some of these local companies in future blogs.

One of these companies, Coastal Town Moves, provides all the services involved with moving including organizing & home staging.  It's rare to find a one stop shopping for movers.  They offer to help clients declutter/store/dispose of household items and then pack what remains so they can move more easily. The next step is to coordinate the moving company to load, transport & unload. They offer unpacking services as well.  So if it's all feeling a little overwhelming this may just be what the doctor ordered.  

They offer a free consultation and provide an estimate of what it will cost. According to the owner,

Laurie Maggio,  "Moving is truly a stressful time for most people, we try to keep the mood light and treat the move like a special event .... we really get to know our clients well and sometimes continue our relationships well into their new homes."  They can be reached at  (203) 216-1376.