On February 4th of this year, industry expert Barry Habib joined Finance of America Mortgage for a presentation on the current real estate marketplace and his opinions on interest rates moving forward into this year and beyond.
By way of introduction, Barry Habib is a real estate and mortgage industry executive, bestselling author, and founder and CEO of MBS Highway. Barry is also a well known media resource and TV commentator on the mortgage and real estate markets.
Barry discussed his predictions for the housing market going forward in 2021 and the benefits of utilizing some key tools to show clients and referral partners the power of home ownership.
Also, regarding the AVM reports and “Bid Over Ask” tools that were talked about during the program – I can easily do them for any property or client you have.
Finally, here are a few links that might help, too:
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.
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%!
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.
Making an offer over the asking price on a house often makes buyers wince.
But let’s face it, paying above list price is just a reality in certain circumstances—at least if you really have any hopes of getting that house!
Is it a good idea? Well, this article from Realtor.com outlines a few reasons why it might be. It’s a good read and I highly recommend it.
Reasons to Offer Over Asking
In many parts of the country we are in what would be considered a “sellers market”, so buyers must adapt. A good rule of thumb: ‘If houses are selling in your neighborhood in less than 10 days, it’s a strong seller’s market’.
Here are a few other reasons you may want to bid more than list price:
You love the home and want to make sure you get it
You know there’s a bidding war or lots of competition for the property
The house is undervalued (comparable sales can help you judge this)
There are cash bids on the table
How To Decide
With that said, does it really make financial sense to pay more for a home than the asking price?
The answer is…it depends – and you should do the math to make sure.
My friends at The MBS Highway have put together a tool that helps buyers decide if making an offer over the asking price is a good financial decision.
Their “Buy Over Ask” tool takes into account a myriad of factors – from the asking price itself to expected appreciation – even to a break-even point that shows the exact month you should expect your return.
In the example above, by offering $7,500 over the seller’s asking price, a buyer’s break-even point is only one month away…and they can expect appreciation of nearly $100K over the next 5 years. In this case, it looks like paying a bit over asking would be a good idea, indeed.
Find Out If Offering Over Asking Is Right For You
It would be my pleasure to help any potential buyer find out if bidding over list is a good idea.
Reach out to me and I can easily put together a summary just like the one above for you to help determine if making an offer over the asking price is something you should consider!
A recent report by ATTOM Data Solutions had some interesting findings:
Sellers reap the greatest home sale premiums as the weather warms up
The months yielding the highest premiums are: June (9.6%); May (8.3%); and July (7.3%). August yields a 6.0% premium
Overall, says ATTOM, home sales completed in May, June, and July usually net 7% to 10% above market value.
That equates to roughly $17,000 to $25,000 extra for sellers.
Judging by the numbers, it would appear that sellers have a solid leg up on buyers in the summer months.
How COVID-19 changes the home buying balance
Martin states “some experts think that the coronavirus could alter the usual summer housing market patterns.”
“Consider that the aforementioned data is based on sales between 2011 and 2019. This year is a hard one to predict for numerous reasons — most of all a pandemic that’s likely to have long-lasting effects.”
“We are in uncharted territory,” says Caleb Liu, a real estate investor and owner of House Simply Sold.
“The longer this pandemic lasts, the more economic damage it may cause. Many sellers may be forced to sell their homes. That means an increased housing supply. And when inventory goes up, prices fall.”
That doesn’t necessarily mean homes will priced to sell quickly.
“But if the pandemic extends into the second half of 2020, I believe prices will start to drop,” says Liu.
“If the pandemic extends into the second half of 2020, I believe prices will start to drop” –Caleb Liu, Owner, House Simply Sold
Real estate attorney Rajeh Saadeh also feels buyers may have more leverage than many expect this summer.
“The economy is still relatively strong. And the buyer pool this year will likely be smaller due to job and income loss. Those factors can help give buyers the advantage,” explains Saadeh.
Remember that mortgage rates have recently dropped to all-time lows. Most experts also predict that this low-rate atmosphere will most likely continue throughout the rest of 2020.
Today is a Good Time to Buy
For buyers with stable employment, good credit, and enough cash for the down payment, closing costs, and mortgage payments, this summer could be an excellent time to make that purchase.
Martin quotes Suzanne Hollander, a Florida International University real estate faculty and attorney:
“Interest rates remain enticingly low,” says Hollander. “And if you live in a condo or apartment with common areas and are worried about coronavirus risks, a detached single-family home with your own yard might be just the place for you.”
You can check out another article here on the opportunity that’s presented itself in the housing market during the last few months.
“When the coronavirus pandemic subsides, home prices could very well be higher, and financing could be harder to come by, so buyers should try to find deals now, if they are able.”
In Conclusion
Now really is a good time to act, if you are able. Do reach out to me if you would like some help with financing or to talk strategy this summer – as it would be my pleasure to help!
It might be — but not for the reasons you might initially think.
These really are most unusual times, especially when you consider the Covid-19 pandemic…but really good home buying opportunities are out there, to be sure.
Right now, buyer demand is down, as sellers just aren’t seeing the multitudes of offers they had a little over a month ago. A few have even taken their homes off the market, but the majority are looking to sell now and are forced to consider offers from a smaller buyer pool.
After Covid-19
When the coronavirus pandemic subsides, home prices could very well be higher, and financing could be harder to come by, so buyers should try to find deals now, if they are able.
So says Barbara Corcoran, founder of the Corcoran Group, a New York-based residential brokerage.
“If you’re smart enough to attack the market as an educated consumer, and get out there, and make a bid on a sweetheart deal, you’re gonna be the smartest guy. And everybody’s going to applaud you six months from now,” Corcoran said on Wednesday.
The market could very soon favor sellers even more than it did previously. Many sellers have pulled their homes off of the market, which will further limit inventory and drive prices higher. It’s just simple supply and demand.
On top of that, buyers will have more competition once consumers start buying again.
“The reality is [that] when they [buyers] come to the market, everyone’s going to be in the market at the same time, they’re going to pay more for the home then than they’re going to pay now,” said Corcoran.
While the current lock down is making buying real estate difficult, buyers should still keep an eye on their local market so they can recognize a good deal when they see it, Corcoran said.
To identify good deals, buyers should learn about their local market, monitor sales data and find the right real estate agent.
“Because then they’re [the educated buyer] in the position to actually recognize a sweetheart deal when they see it. And if they pounce on it, they’re going to get the deal of a lifetime,” said Corcoran.
“Every real estate cycle that has gone up and down, the deals weren’t made in the down cycles, nor in the up cycles. They were always made in the times where there’s the greatest uncertainty where everybody’s guessing.”
In Conclusion
Now really is a good time to act, if you are able. Do reach out to me if you would like some help with financing – and I’d be glad to point you in the direction of the right real estate agent, as well!
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
