August 24, 2021 – Is This Where the Market Turns?The strong July jobs report caused a stir in the markets.


Economic Commentary

Is This Where the Market Turns? The strong July jobs report caused a stir in the markets. Most notably, long-term interest rates – which were trending down – reversed course quickly. Was this an indicator that the economy is going to pick up steam from here? It should be noted that the rise in rates did not last long and our previous commentaries were filled with warnings from analysts who were predicting the economy could slow towards the end of the year. Which view is right?

For one thing, COVID will continue to have a lot to say within this argument. If the most recent surge due to the Delta variant intensifies, then the economy likely will slow as expected. Already we are seeing more masks in stores and larger events being cancelled. While the economy might not be locked down as it was early last year, a cautious consumer does not paint a picture of a burgeoning recovery.

On the other hand, if vaccinations rise due to the surge and Delta’s effects are short-lived, the momentum is less likely to be interrupted. Either way, we still have a long road to travel before we reach the employment levels we saw before the recession hit. Plus, supply constraints are likely to stay with us for the near term. These constraints contribute towards our “transitory” inflation. The answer? The market might be turning, but we don’t know in which direction. Either way, we are not expecting a sharp turn.

Weekly Interest Rate Overview

The Markets. Mortgage rates were stable in the past week. For the week ending August 19, Freddie Mac announced that 30-year fixed rates decreased one tick to 2.86% from 2.87% the week before. The average for 15-year loans rose one tick to 2.16% and the average for five-year ARMs decreased slightly to 2.43%. A year ago, 30-year fixed rates averaged 2.99%, slightly higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Mortgage rates stayed relatively flat this week. Housing is in a similar phase of the economic cycle as many other consumer goods. While there is strong latent demand, low supply has caused prices to rise as shortages restrict the amount of sales activity that otherwise would occur.”  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

In a two-year analysis, homes on a mid-Atlantic MLS sold for more money than similar homes that sold off of it. Bright MLS, a multiple listing service that supports more than 95,000 real estate professionals from Pennsylvania to Virginia, conducted the study of 442,829 records for home sales transactions completed between January 2019 and December 2020. The median sold on the MLS was about 17% higher than homes sold off of the MLS, the study found. “We have always known the power of the MLS network, and past studies have shown that homes shared cooperatively on the MLS sold for more,” said Brian Donnelley, Bright MLS president and CEO. “We’re proud to be able to confirm with our extensive data that promoting homes through our MLS delivers significant value over other methods.” The study also analyzed properties that were labeled as “office exclusive” listings and marketed solely within one brokerage. The majority of those listings were ultimately marketed through the MLS before they were sold. Homes that Bright MLS promoted from the beginning were under contract faster than properties that started as office exclusives. Also, comparable homes that were marketed through the MLS sold for more than those marketed otherwise through exclusive arrangements, the study found. “There is a perception that selling outside the multiple listing service, either with an agent or as a For Sale By Owner, can save time and money for the consumer,” said Elliot Eisenberg, a real estate economist and a former senior economist for the National Association of Home Builders and also an author on the study. But Eisenberg said the study shows otherwise and that the fastest sales for the most money use the MLS to market the homes for sale. Source: Bright MLS

Home equity surged nationwide in the second quarter of 2021, with more than a third of mortgaged residential properties in the United States considered equity rich, according to a new report. The 2021 U.S. Home Equity & Underwater Report, produced by ATTOM, the real estate and property data provider, showed that 34.4% of mortgage residential properties in the U.S. were considered equity rich in the quarter, up from 31.2% in the first quarter of 2021 and from 27.5% in the second quarter of last year. A mortgage residential property is considered equity rich if the estimated amount of loans secured by the property is no more than 50% of its estimated market value. “The huge home-price jumps over the past year that helped millions of sellers earn big profits also kicked in big-time during the second quarter for other owners who saw their typical equity improve more than at any time in the last two year,” said Todd Teta, ATTOM’s chief product officer. “Instead of the virus pandemic harming homeowners, it’s helped create conditions that have boosted the balance sheets of households all across the country.” The report also shows that just 4.1% of mortgaged homes, or one in every 24, were considered severely underwater in the second quarter of 2021. A home is considered underwater when the combined estimated balance of loans secured by the property is at least 25% more than its estimated market value. Source: ATTOM

The latest report from the National Association of Homebuilders (NAHB) suggests prospective borrowers might be discouraged by the state of today’s market, which includes high prices, intense competition, and a shortage of available, affordable inventory. Still, some 17% of Americans plan to purchase a home within the year, according to NAHB’s Housing Trends Report (HTR), covering data collected June 16-20. The last, and only, other time the share of prospective buyers stood at 17% was in the first quarter of 2018, the researchers noted. The organization’s research team surveyed those who said they were looking to buy a home in the coming year about their perceptions of the housing market. Rose Quint, NAHB Assistant VP for survey research summed up some highlights from the report. “In the first quarter of 2018, the starting point of the Housing Trends Report (HTR), only 16% of buyers expected easier availability for a home in the months ahead,” noted Rose Quint, NAHB Assistant VP for survey research. “The share soared to 36% by the final quarter of 2020 (during the COVID-19 pandemic), but then went on to decline to 33% and 28%, respectively, in the first two quarters of 2021.” She went on to explain some of the findings about homebuyers’ perceptions related to affordability. “In the final quarter of 2019, a series-high of 82% of prospective buyers could afford less than half the homes available in their markets. The share went on to decline throughout 2020, reaching 63% by the final quarter of that year. But affordability expectations have worsened recently. In the first and second quarters of 2021, the share who can only afford less than half the homes in their markets rose again, to 65% and 71%, respectively,” Quint said. The report also revealed a high and increasing share of first-time buyers—a 56% share in the third quarter of 2020 increased each quarter hitting 64% this past quarter. The share of millennials planning a home purchase jumped from 19% to 29% in Q221. Among Gen Z buyers, it rose from 14% to 21%. Gen X and Boomers did not change much during this period. Source: DSNews

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