The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

Lending Coach Forecast 2021 – Real Estate and Mortgage Rates

In taking a look at the 2021 real estate and mortgage rate forecast, I’ll briefly analyze what’s driving the real-estate market and what should impact interest rates over both the long and short term.

Similarly to 2020, the biggest issue will be finding enough homes for buyers, as housing inventory is near all-time lows throughout much of the country. 

At the same time, because of today’s low mortgage rates, housing affordability is at a fantastic level, even with increase in home prices, which is great news for buyers.

Real Estate

First, let’s take a look at 3 different factors regarding real estate that impact pricing – supply and demand, appreciation, and home affordability. 

Supply and Demand

You might remember the idea of supply and demand from your economic or social studies school days. Real estate prices also depend on the law of supply and demand.  When the demand for property is high but property is scarce, prices rise and it becomes what is known as a “seller’s market”. Alternatively, when the number of available properties increases and saturates the market, prices typically drop.

Right now, we are in a time of low supply and high demand – making prices rise.

There are a few reasons for this phenomenon, and we will see them into 2021 and beyond.

Demographics

First of all, the number of first-time home buyers is actually increasing, mainly due to the number of babies born in the late 1980s and early 1990s.  The average age of a first-time buyer is 33…and you can see by the chart below, we are just getting started:

Millennials are expected to drive the market in 2021, while Gen-Z buyers, the oldest members of which will turn 24 in 2021, will also step onto the playing field as first-time buyers.

Over the next 4 to 5 years, there will be more buyers in the marketplace, increasing demand, keeping prices moving slightly upward.

New Construction

Housing development continues to lag across the nation. Thanks to a 3 to 6 month shutdown that started in March of last year due to Covid-19, new construction slowed considerably in 2020:

As you can see by the chart, there just were not as many homes built last year than in years prior.  This is creating shortage of inventory for would-be buyers…which means prices move higher, as well.

Inventory

If you’ve been checking up on the latest real estate news, you’ve probably seen quite a few reports saying that housing inventory is low at the moment. Well, those reports are absolutely correct:

As you can see in the chart above, inventory has acutely been falling since 2011 and has reached all-time lows in 2020.

Frank Nothaft, a senior vice president and chief economist at CoreLogic, said low home inventory has led to rapidly increasing prices across the nation as dedicated buyers compete for a limited number of homes.

However, he said the number of homes for sale will increase with widespread vaccination for the coronavirus, which kept some of the most vulnerable homeowners from selling this year.

Affordability

Believe it or not, current research shows that housing has actually become more affordable this year, despite home appreciation and tight inventory. Affordable homes are possible thanks to lower mortgage rates and greater purchasing power.

For example, weekly earnings are up more than 5.9% versus a year ago.  Additionally, only a portion of your income goes towards paying your mortgage.  A 5.9% rise in income can offset a much greater percentage rise in housing expense.

For the average home buyer, month-to-month housing costs are lower than they’ve been at almost any point in the last four years because real wages are up and interest rates are down, even considering the Covid-19 pandemic.

This tells us that homes are actually more affordable, even though they have appreciated significantly over the last few years.

You can find out some specifics about housing affordability here….

Appreciation

Real estate appreciated at 8.2% year-over-year from 2019 to 2020 according to Core Logic.

This is fantastic for homeowners, and although 2021 might not have the same increase, most experts see appreciation to be in the 4% to 6% range in 2021. 

“The housing market performed remarkably well in 2020 despite the volatile economic state. While we can expect to see lingering effects of COVID-19 resurgences and subsequent shutdowns in the early months of 2021, vaccine distributions and stimulus actions should revitalize economic activity and keep home purchase demand and home price growth strong. Frank Martell, President and CEO of CoreLogic

Interest Rates

Mortgage rates have risen a little during the first 10 days of 2021, due to the market’s concern that there will be increased spending, debt, and inflation with the incoming administration.  The 10-Year Treasury yield is now at its highest level in a year, which is the best tracker of mortgage rates – find out more about that here…

Federal Funds Rate

How can mortgage rates actually rise when the Fed Funds Rate remains at zero?  Let’s remember that the Fed Funds Rate and Mortgage Rates are two very different things.

The chart below shows how mortgage rates move in a similar direction to the Federal Funds rate, but still move up-and-down, even when The Fed has rates at 0%.

As you can see, mortgage rates can move up over 1% even with the Federal Funds rate at 0%!

You can find out more about the relationship between the Fed and mortgage rates here…

Mortgage Rates

It’s important to remember that although we’ve seen a little move higher in mortgage rates in the first week of 2021, they are still near all-time low levels.

Per most industry analysts, rates should remain low for 2021, although there may be some ups-and-downs due to inflation related pressure.

Mortgage rates are affected by inflation because inflation erodes the buying power of the fixed return that a mortgage holder receives.  Interestingly, the best way to combat inflation is by raising the Fed Funds Rate.  If inflation begins to rise, and there are already some signs of this, Mortgage Rates will start to climb in response.  All this can occur while the Fed Funds Rate is at zero. 

With that said, the industry experts I follow seem to think that we should see rates in the 3% to 4% range for the 30-year mortgage over the course of 2021.

Debt and Interest Rates

One reason to believe rates will stay low, even with Covid-19 concerns and inflation, has to do with governmental debt loads relative to mortgage rates.  Historically, the higher the debt, the lower rates move. 

The chart above shows the debt level in red (moving upward) and interest rate level in blue (moving downward).  With all of the debt that the US has taken on in the last year, we can probably expect to see rates stay relatively low.

In Conclusion

2021 looks to be a positive one for both buyers and sellers, although the market would clearly be considered a “seller’s market”, because inventory is so low.

However, because real wages are up, home affordability is up, and interest rates are forecasted to remain low, buyers are in a great position to purchase. 

To sum up the 2021 real estate and interest rate forecast:

  • Mortgage rates are likely to remain low
  • Housing inventory will continue to remain low
  • Demand for real estate will rise due to a combination of factors
  • Home prices will continue to move upward
  • Housing will still remain affordable, due to low rates

In reality, now is a fantastic time to purchase or refinance and take advantage of market appreciation and low mortgage rates. Contact me for more information, as it would by my privilege to help you.

Hitting with Torque for Power and Bat Control

There’s a ton of emphasis at the major league level on hitting for power today.  Interestingly, we have seen a fair amount of that moving into the high school and youth levels, as well.  One college coach that I’m following argues that the “little things” are getting overlooked. 

Many high school coaches (including myself) will argue that it’s costing their teams runs and wins. 

When you think about it, there aren’t that many 16 year-old players that can consistently hit the ball out of the ballpark!

Paul Petricca is a great collegiate hitting coach in the Midwest and is a good friend of mine.  He is an astute observer of all things hitting – both baseball and softball….and you can find out more about him here at his blog-site, Torque-Hitting.  He really understands where power comes from and how to convert the power source into bat speed.

His book, Hitting with Torque, would be a great stocking stuffer and you can find it here…

Paul argues that one of the most effective offensive strategies throughout the history of baseball has been all but lost—choking up on the bat!

Greater Bat Control

An excerpt: “Choking up on the bat makes the bat shorter, which enables hitters to control it better. It is also easier for hitters to find the sweet spot of the bat. This improved bat control is especially effective with two strikes or in pressure situations. In 2016, Anthony Rizzo almost always choked up on his bat when he found himself in a two strike count”.

“By choking up, he increased his chances of putting the ball in play, instead of striking out. His sole objective was to force the defense to make a play or to find a hole in-between the fielders.” 

Source: Paul Petricca’s Hitting with Torque

As a high school coach, more often than not, all we are looking for is solid contact from our hitter.

Think about this situation that is all-too common in our game at the lower level: less than two outs and a runner on 3rd base.  There are essentially two things that won’t allow us to score the run if the infielders are at normal depth – the strike out and the pop-up.

By gaining better bat control and choking-up a bit on the bat, the hitter really does have a better chance to hit that ground ball up the middle that enables the run to score.

Increased Bat Speed and Power

Petricca argues that swinging a shorter and lighter bat increases bat speed, which translates directly into more power. He states that “Barry Bonds was able to hit with consistent power, even though he choked up on the bat, because he was able to generate enough home run bat speed with a shorter bat. I believe if Anthony Rizzo continues his two strike strategy, he will begin to hit more home runs with his hands choked up on the bat.”

Paul is often asked by his hitters whether they should swing a slightly larger or smaller bat.  His answer:

“If baseball and softball hitters can swing a larger bat without sacrificing bat speed, then the change would be appropriate” 

More importantly, he states that:

“If hitters begin using a slightly smaller bat, then their bat speed should naturally increase to allow them to hit with the same power as using a larger bat. Choking up on the bat to make it smaller and lighter has the same positive effect.”

Defense Against Getting Jammed

In addition to more bat speed and bat control, hitters can choke up on the bat as a way to get a bigger part of the bat on the ball to eliminate getting jammed inside. Instead of hitting the ball near the handle, the hitter can now hit inside pitchers on a bigger part of the bat.  Even if you don’t find the “sweet spot” of the bat, that extra inch or two can often be the difference between an infield pop-up and a soft line drive to the outfield.

Petricca finishes his piece by stating “hitters should welcome any technique or strategy to gain more bat control without sacrificing power, especially in pressure situations. It is time for choking up on the bat a few inches to make a comeback in baseball and softball.”

I say “Amen”.

New Conforming Loan Limits for 2021

The Federal Housing Finance Agency announced new baseline conforming loan limits for Fannie Mae and Freddie Mac in 2021: $548,250.

This is a 7.5% increase from the 2020 limit of $510,400 and marks the fifth consecutive year of increases from the FHFA.

This is important because now buyers and borrowers can purchase a higher priced home and still stay within conforming loan guidelines. That means easier qualifications at higher price points.

In 2016, the FHFA increased the Fannie and Freddie conforming loan limits for the first time in 10 years. Since then, the baseline loan limit has gone up by $131,250.

You can find out more here…

These new limits apply to conventional, conforming loans (those sold to or backed by Fannie Mae and Freddie Mac), for both refinances and purchases.  Any loan amounts above these limits would be considered “jumbo” loans and fall outside of conventional guidelines.

Do I have to wait until 2021 to take advantage of a higher conforming loan amount?

Actually, no.  The change actually applies to the date that Fannie and Freddie sign off on the new loan (either via “delivery” or “securitization”). 

Essentially, any loan originated today would most likely close in 2021 and fall under the new loan limits.

Please do contact me for more information!

Stay Positive On The Field – Don’t Re-Visit Negatives

As you probably know by now, one of my favorite mental coaches is Dr. Patrick Cohn of Peak Sports Performance. Dr. Cohn is a sports psychologist out of Orlando Florida.

He’s always preaching about mental toughness – as well as the techniques athletes can use to grasp it.

He sent out an e-mail blast recently that I’ve posted below regarding eliminating negative thoughts regarding past performance – and how to best get past it.

For instance, you whiffed the last two at-bats swinging at balls in the dirt and now you are facing the same pitcher with a runner in scoring position, “Here we go AGAIN!”

Or you walked the bases loaded and are having difficulty with your control and are now facing a hitter that has torched you in the past, “Here we go AGAIN!”

Or your team has blown the lead in the ninth inning the last two games and now you are clinging to a one-run lead in the bottom on the ninth, “Here we go AGAIN!”

This is a common problem among baseball players, but this mindset is based on a misconception. This misconception happened in the past will continue to happen in the present.”

It is an over generalization to believe the past will repeat itself but many baseball players, in the moment, buy into the “here we go again…” mindset.

When you allow past outcomes to influence your mindset in the present, the pressure heightens, which creates anxiety and tension.

Playing anxious and tight ball is a recipe for athletic disaster and under-performance.

In Action

The San Francisco Giants could have easily defaulted to the “here we go again” mentality after a breakdown against the Texas Rangers.

The Giants started out the first game of a three-game series against the Rangers with a tough game, blowing a six-run lead to lose in extra-innings at home.

To add to the potential pressure, the Giants had lost 10 of the previous 13 at their ballpark.

The San Francisco Giants had to quickly re-focus in Game 2 of their series.

The Giants quickly jumped out to a 5-0 lead but gave up three runs in the eighth inning.

Despite similar circumstances, the Giants fought forward and San Francisco relief pitcher Mark Melancon closed out the game with the bases loaded to secure a 5-3 win over Rangers.

Hunter Pence, who had a pinch-hit home run in the seventh, talked about their “keep attacking” mindset rather than succumbing to the “here we go again” mindset.

AP Photo/Ben Margot)

PENCE: “It’s very important to continue to send that message of relentless attack. Even where we are and as clouded as it may seem, you still never know. When there’s still a chance in this game of baseball, things can get hot in an instant.”

Knowing there is a chance is a great strategy to keep your head in the game and avoid the pitfall of “here we go again.”

Keeping Your Head in the Game

Knowing you have a chance comes in many forms:

*Knowing there is a chance to still win.

*Knowing there is still a chance to bounce back the next game.

*Knowing there is still a chance to hone your skills and improve your game.

*Knowing you can learn from the past and adjust.

If you can adopt the “there’s still a chance” mindset, you can focus on making things happen in the moment.

Let go of what’s already happened, look for signs to build momentum, and get things moving in a positive direction. Instead, take a trip down memory lane to when you did drive in that run!

Down Payment Options – 20% Down Not Necessarily Required

“How much should my down payment be for a house?”

It’s a question that I hear all the time from would-be home buyers.

And, the answer is:  “it depends,” as it really will vary by buyer.

I’d highly recommend that you check out Dan Green’s article at The Mortgage Reports for more.

Per Mr. Green: “If you’re a home buyer with a good deal of cash saved up in the bank, for example, but you have relatively low annual income, making the biggest down payment possible can be sensible. This is because, with a large down payment, your loan size shrinks, reducing the size of your monthly payment.”

Or, perhaps your situation is reversed.

“Maybe you may have a good household income but very little saved in the bank. In this instance, it may be best to use a low- or no-down-payment loan, while planning to cancel your mortgage insurance at some point in the future.”

Dan continues: “One thing is true for everyone, though — you shouldn’t think it’s “conservative” to make a large down payment on a home. Similarly, you shouldn’t think it’s “risky” to make a small down payment. The opposite is actually true.”

“About the riskiest thing you can do when you’re buying a new home is to make the largest down payment you can. It’s conservative to borrow more, and we’ll talk about it below.”

For today’s most widely-used purchase mortgage programs, down payment minimum requirements are:

Remember, though, that these requirements are just the minimum. As a mortgage borrower, it’s your right to put down as much on a home as you like and, in some cases, it can make sense to put down more.

Larger Down Payments Actually Increase Risk

Green continues: “As a homeowner, it’s likely that your home will be the largest balance sheet asset. Your home may be worth more than all of your other investments combined, even.

In this way, your home is both a shelter and an investment and should be treated as such. And, once we view our home as an investment, it can guide the decisions we make about our money.

The riskiest decision we can make when purchasing a new home?

Making too big of a down payment.”

The Higher The Down Payment, The Lower Your Rate of Return

The first reason why conservative investors should monitor their down payment size is that the down payment will limit your home’s return on investment.

Consider a home which appreciates at the national average of near 5 percent.

Today, your home is worth $400,000. In a year, it’s worth $420,000. Regardless of your down payment, the home is worth twenty-thousand dollars more.

That down payment affected your rate of return.

  • With 20% down on the home — $80,000 –your rate of return is 25%
  • With 3% down on the home — $12,000 — your rate of return is 167%

That’s a huge difference. Please do reach out to me for more information so we can figure out the best down payment strategy for you!

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