New home sales, which measures signed contracts on new homes, were up 21% in March, and the February number was revised higher, as well.
Taking out the revision, sales would be up 32% from last month’s original number.
Sales are up 67% on a year over year basis, although that is a little bit skewed, due to the economy being shut down this time last year.
Looking at inventory levels – there were only 307,000 new homes for sale in March, down 7% from last year. There are 14% fewer homes for sale under $300,000 compared to last year. The Median home price was reported at $331,000 up not even 1% from last year.
Appreciation
Home prices continue to increase across the country, as the latest S&P CoreLogic Case-Shiller Home Price Index report showed a 12% annual gain in February — up from 11.2% in January.
Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate nationally.
It’s the ninth straight month of increasing prices. The 12% home price gain is the highest recorded increase in the last 15 years!
Phoenix, San Diego, and Seattle reported the highest year-over-year home price gains among the 20 cities in February, with Phoenix leading the way with a 17.4% increase from 2020. San Diego showed a 17% increase, and Seattle showed a 15.4% increase.
“Some recent signs suggest that the historically tight inventory pressures may finally be starting to ease,” said Zillow Economist Matthew Speakman.
“Should those signs materialize, the meteoric rise in home prices may finally have a reason to come back down to earth. For now, red hot home price appreciation shows few signs of cooling.”
If you were a homeowner in 2020, you were a big winner, thanks to fantastic home price appreciation.
Real estate analytics firm CoreLogic reported that the U.S. Home Price Index rose 9.2% in December from a year earlier, largest annual gain in more than six years.
This was primarily due to low inventory and attractive low-interest rates.
“The housing market exceeded expectations in 2020, closing out the year with the highest annual home price gain since February 2014 in December at 9.2%. Despite a blip in April, home-purchase demand surged as record-low mortgage rates persuaded first-time homebuyers to enter the market. Meanwhile, the consequences of the pandemic were seen in the dwindling supply of homes — dropping, on average, 24% below 2019 levels — as homeowners delayed selling.”
Key Findings from 2020
Nationally, home prices increased 9.2% in December 2020, compared with December 2019. On a month-over-month basis, home prices increased by 1% compared to November 2020.
December 2020 gains across all of the 10 select metropolitan areas (see table 1 below) surpassed their December 2019 levels.
Affordability concerns continue to persist as prices continue to steeply rise. For instance, in San Diego, prices increased 10.4% year over year in December 2020 compared to the 3% gain December 2019. San Diego home prices are also forecasted to increase an additional 8.2% over the next 12 months.
At the state level, Idaho, Indiana and Maine had the strongest price growth in December, up 19.1%, 16.1% and 15.2%, respectively.
“Two record lows are fueling home price gains: for-sale inventory and mortgage rates,” said Dr. Frank Nothaft, chief economist at CoreLogic. “Prospective sellers with flexible timetables have opted to delay listing their home until the pandemic fades or they are vaccinated. We can expect more inventory to come available in the second half of the year, leading to slowing in price growth toward year-end.”
Home Ownership
More good news…the percentage of Americans who own a home—67.4% in the third quarter of 2020—was the highest in 12 years. In the third quarter of 2019, the rate was 64.8%.
Fannie Mae and Freddie Mac are tightening the underwriting criteria for second homes and investment properties. They will also begin to limit the number of these mortgages that they will acquire.
“Recent amendments to our senior preferred stock purchase agreement with Treasury impose additional risk criteria on the loans we acquire,” the Government Sponsored Enterprise said in a letter. “One of those restrictions is a 7% limit on our acquisition of single-family mortgage loans secured by second home and investment properties.”
This means that non-owner occupied transactions (2nd homes and investment properties) will become a bit more difficult in terms of qualification and slightly more expensive, in terms of interest rates.
Lenders are now being forced to add to the cost of the loan and raise interest rates – anywhere from 50 basis points to as high as 250 bps. That can mean an increase in rate of 1/8% to 1.25%, depending on the investor.
Finance of America, my employer, has added 50 basis points for all 2nd home and investment property purchases and refinances. This is on the low side, relative to many in the industry, as others that I’ve spoken to have added as much as 250 bps.
From Investopedia: “Basis points, otherwise known as bps, are a unit of measure used in finance to describe the percentage change in the value of financial instruments or the rate change in an index or other benchmark. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.”
Don’t hesitate to contact me for more information to see how this might impact your upcoming purchase.
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.
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.
