August 10, 2021 – Slowing Down? Many market analysts, such as Goldman Sachs, are expecting a slowdown for the second half of the year and into next year.


Economic Commentary

Slowing Down? The first half of the year the economy came roaring back from the COVID-induced recession. Subject to revision, we had the economy growing at a 6.4% annualized rate and over three million jobs added during the first six months of the year, as well as almost a million added in July. Now many market analysts, such as Goldman Sachs, are expecting a slowdown for the second half of the year and into next year.

Actually, a slowdown should be expected, considering the fact that the economy can’t continue growing at six-plus percent per year. But there are bumps in the road which are being cited for a sharper slowdown than we expected. The COVID-Delta variant is one such bump. Certainly, any continued outbreaks could cut spending on services, which is a huge contributor to the entire economy.

Any slowing of the economy might bring some welcome news as well. For one, inflation should simmer down as the supply chain catches up. In addition, interest rates are likely to remain lower for a longer period of time. Finally, the housing market might reach a balance with more listings available. Though the listing shortage continues today, we are seeing some signs of abatement as the pandemic has eased.

Weekly Interest Rate Overview

The Markets. Rates eased closer to record lows in the past week, but trended up after the survey was released. For the week ending August 5, Freddie Mac announced that 30-year fixed rates decreased to 2.77% from 2.80% the week before. The average for 15-year loans remained at 2.10% and the average for five-year ARMs fell to 2.40%. A year ago, 30-year fixed rates averaged 2.88%, .11% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – ” With global market uncertainty surrounding the Delta variant of COVID-19, we saw 10-year Treasury yields drift lower and consequently mortgage rates followed suit. The 30-year fixed-rate mortgage dipped back to where it stood at the beginning of 2021, and the 15-year fixed remained at its historic low. This bodes well for those still looking to refinance, renovate or even purchase a new home.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

“It ain’t over till it’s over.” — Yogi Berra, baseball philosopher. In real estate, a house isn’t sold until the Fat Lady sings at the closing. Until then, the seller should keep their options open by accepting backup contracts. Likewise, a buyer whose bid for the property fell short should consider asking the seller to accept their offer as a backup. Simply put, a backup contract is one that moves into the primary position if the first buyer does not close. Some agents disdain them, but others love them. For a variety of reasons, roughly 20% of all sales fall through. Maybe the place doesn’t appraise at the hoped-for value, and the buyer can’t or won’t make up the difference. Perhaps the inspection reveals daunting flaws, or maybe financing falls through. Or perhaps the buyer realizes they acted too hastily in an overheated market. While sellers cannot accept other contracts while one is still active, they can continue to market the property and accept offers, as long as those buyers are told they are in a secondary position. Having standby buyers puts sellers in a stronger position. It places additional pressure on the first buyer to keep the original contract terms in place, and it saves sellers from having to put their homes back on the market. For buyers, the odds aren’t terrific; a 20% chance of the first deal collapsing can seem like a long shot. But if you absolutely, positively want the house and are willing to wait, a backup offer makes sense. To protect yourself, backup offers should be worded properly. Some states have standard backup addendums to cover these situations, but it may be a good idea to call in an experienced real estate attorney. Source: Lew Sichelman, The Miami Herald

Starter home prices are growing nearly seven times faster than renter incomes, making what was likely already the biggest challenge for first-time home buyers ― saving for a down payment ― even more difficult. But there is good news for today’s first-time buyers, said Zillow, Seattle.  The good news?  The Zillow analysis noted with mortgage rates near record lows, monthly payments can remain affordable even with a smaller down payment, and flexible work options are providing new opportunities for many to buy a home in a less-expensive city. The report said if an average renter household saves 10% of its income ― an aggressive target given the average renter savings rate is 2.4% ― it would take about six years and five months to save enough for a 20% down payment on today’s typical starter home, worth about $148,500. That’s a full year longer than it would have taken to save for a down payment on a starter home five years ago. And as prices rise at a record pace, it may take even longer for today’s renters to save up for tomorrow’s homes.  “Without the equity from a previous home sale, first-time home buyers face more challenges in coming up with a down payment,” says Zillow economic data analyst Nicole Bachaud. “In a housing market where prices are rising at record rates, especially when compared to renter incomes, the ever-increasing sum of a 20% down payment can feel out of reach. The good news is that buyers who want to take advantage of today’s low mortgage rates can do so without putting a full 20% down ― most conventional mortgages allow as little as 3% to 5%. That lower upfront payment comes with higher monthly payments, but the opportunity to build equity can outweigh those extra costs for many.” Source: Zillow

A big backyard may be tougher to find nowadays. Single-family homes are getting larger whereas the lots are getting smaller. The median home size is now about 2,260 square feet—up from 2,170 square feet in 2010. The median lot size, however, on a new home has decreased nearly 18% (10,500 square feet in 2010 to 8,700 square feet in 2020), according to a new analysis of U.S. Census Bureau data by StorageCafe. “The demand for housing in many markets is so much higher than the current supply that developers of new residential properties have to make the most of available land,” says Isaac Hiatt of Yardi Matrix, a real estate research firm. “This has led to an increase in what many would call single-family condensed housing.” Homes built in the 1960s or 1970s were often on more expansive plots of land. But many of those homes are being replaced by larger single-family homes or, when zoning allows, by multiple townhouses, the study says. However, during the pandemic, more homeowners are putting greater focus on their outdoor spaces. A big backyard has been in demand. Source: StorageCafe

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