Mortgage rates are hovering near record lows, and no one really knows how low they’ll go. If I knew that, I probably wouldn’t be working here, because I could make a ton of money in the markets by having all the answers.
Sadly, no one has managed to bring to life the exploits of Biff Tannen in “Back to the Future Part II.” So, until time traveling technology is invented, I’ll stick to my day job.
The Big Story
Mortgage rates have been incredibly low now for quite a while. There are a couple of big reasons for this that we’ll touch on below. There’s no doubt that part of this was due to spooked equities last week as tech stocks in particular have seen volatility. Much of the selloff was based around stocks such as Apple and Amazon.
These had been viewed as winners of the pandemic because they’re largely digital and e-commerce business is not as affected by lockdowns and other business limitations.
There doesn’t seem to be any one thing that caused the change in sentiment, but it appears investors may be wary of the state of the economy in general. There’s also been some speculation in the market, which pushed some money back into bonds and away from stocks.
However, the beneficiary has definitely been the housing market. We’ve got a ways to go when it comes to housing starts, but the demand is definitely there with both existing and new home sales on pace to outdo projections from before the virus hit. Housing is one of the only areas that’s running hot right now in the economy.
Second, the Federal Reserve has committed to a policy of keeping short-term interest rates low, likely until 2024. Essentially, inflation has been on the weak side, which doesn’t help the economy because people aren’t motivated to buy now. Short-term rates are correlated with the longer-term rates for things like mortgages.
Additionally, the Committee pledged to keep buying agency mortgage-backed securities. The more buyers there are in that market, the lower mortgage rates can be because the bonds underlying the loans don’t need to offer as high of a return to attract a buyer.
For you, this means it’s a good time to be in the real estate business. Take advantage of the opportunity to help as many clients as you can.
Analysis from Econoday contributed to this report.1 Let’s see what happened!
Existing Home Sales
Existing home sales were up a staggering 24.7% in the month of July to come in at a rate not seen since the last housing crisis: 5.86 million on a seasonally adjusted basis. Sales are now up 8.7% on the year after being down 11.7% in June revisions.
The increased demand doesn’t seem to be coming at the expense of housing prices either. These were up 3.3% in July at a median of $304,100, which is up 8.5% for the year.
There’s probably no end to rising existing home prices in the near future because the supply of existing homes is down 21.1% from a year ago at 1.5 million units on the market. This means that at the current pace of sales, there’s only 3.1 months’ worth of supply.
Case-Shiller House Price Index
Case-Shiller has a 3-month average and the numbers are released 2 months behind the actual data that they cover, so it does help explain some of the difference you see in the home value data that comes from existing and new home sales.
On an adjusted basis, home prices were flat in June. Taking out the seasonal adjustment, they were up 0.2%. They’ve risen 3.5% overall on the year across the 20-city index.
FHFA House Price Index
The FHFA index, which also covers June but isn’t a 3-month average, showed home prices being up 0.9% and 5.7% on the year. The year-on-year pace of appreciation is now very close to where it was before COVID-19.
Consumer confidence in August may have been the one area of concern if you’re a real estate agent. Overall confidence was down 6.9 points to 84.8. However, additionally, home buying plans over the next 6 months fell according to the survey.
With that said, this doesn’t seem to match up with the market index from the National Association of Home Builders, so we’ll see whose survey is right.
New Home Sales
New homes sales were up to a seasonally adjusted annual rate of 901,000, which is way above a 700,000 tendency for the level before any of this started. It’s worth noting that this report is incredibly volatile, but it’s hard to see a 16.1% increase in July and a 36.3% uptick since the same time a year ago as anything but a positive.
Prices were discounted a little bit last month, down better than $6,000 at $330,600. However, analysts note that this is still about where prices were going into March. There are only 299,000 new homes on the market which means about 4 months’ worth of supply at the current pace of sales.
Gross Domestic Product (GDP)
As much of the second quarter was about trying to slow the spread, the economy shrank at a rate of 31.7% and consumer spending was down 34.1%.
The important part for real estate agents to know is that residential investment (houses) contracted less severely than previously thought at a downturn of 37.9%. Because the death was less severe, it has no doubt aided in the bounce back that we’ve seen in recent months.
Consumer Price Index (CPI)
Consumer prices were up 0.4% both overall and when excluding food and energy. The pace of the year-to-year appreciation is up 1.3% a 1.3% overall increase and a 1.7% uptick for its core counterpart.
Of interest to agents, shelter, a category which includes housing, saw costs rise 0.1% in August according to this index.
MBA Mortgage Applications
Mortgage applications are released weekly, so I’m not as concerned with those numbers since this is a monthly report, but I do feel it’s nice to take a look at the purchase rate, which is up 6% over this time a year ago in the latest data.
In terms of rates, the average rate on a 30-year fixed conventional loan was flat at 3.07%. Meanwhile, on the jumbo end, the rate for a 30-year fixed mortgage was up a single basis point to 3.41%.
Housing Market Index
In September, the National Association of Home Builders was feeling really good about the market. How good? New record good. The index came in up 5 points at 83.
Traffic of prospective buyers walking through now homes was up 9 points to come in at 73. Meanwhile, current sales were up 4 points at 88 and sales in the next 6 months rose 6 points to 84.
Housing Starts And Permits
Housing starts were down 5.1% in August to a seasonally adjusted annual rate of 1.416 million. However, they’ve been incredibly hot lately, so the rate is still 2.8% above where it was at this time last year. The even better news is that starts were up 4.1% on the single-family side to 1.021 million. Multifamily starts were 375,000.
On the permit side, these were down 0.9% to 1.47 million, which is 0.1% below August of last year. However, single-family permits were up 6% to 1.036 million with multifamily permits kicking in the remaining 381,000.
Finally, when taking a look at completions, these were down 7.5% overall at 1.233 million, which won’t help housing supply in September. Single-family completions fell 4.4% at 912,000. Multifamily completions accounted for the remaining 312,000.
As mentioned above, mortgage rates are looking really good right now. I do want to make one special note because I know you’re constantly talking to clients past and present.
In December, the 0.5% refinance fee imposed by the FHFA on Fannie Mae and Freddie Mac to cover costs related to COVID-19 goes into effect.
Because lenders want to make sure turn times are accounted for, this is likely to show up on rate sheets again at the beginning of October. If you have a client who can get a better rate, but isn’t sure of the timing, now might be a good time to reevaluate.
The average rate on a 30-year fixed mortgage with 0.8 points paid in fees was 2.87%, up 1 basis point in the week of September 17. This had fallen from 3.73% a year ago.
The average rate on a 15-year fixed mortgage with 0.8 points paid was down 2 basis points to 2.35%. This represents a sizable drop from 3.21% last year.
Finally, on a 5-year treasury-indexed, hybrid adjustable rate mortgage with 0.3 points paid was down 15 basis points to . 2.96%. This is down from 3.49% in mid-September last year.
Hopefully this has helped broaden the market knowledge you can share with your clients. For even more news, tips and tricks check out our real estate agent page.
1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2020 Econoday, Inc. All rights reserved.
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