August 3, 2021 – Optimism With Caveats. The economy is getting stronger and consumer optimism is rising.


Economic Commentary

Optimism With Caveats. The economy is getting stronger and consumer optimism is rising. We have had a string of positive economic reports which tell us that we are moving in the right direction. For example, retail sales have indicated that consumers are spending, we added close to one million jobs in June and the first reading of economic growth for the second quarter showed that our economy grew by a robust 6.5%, though this did not meet even more lofty expectations.  

Yet, every so often we get a reminder that COVID remains a lurking danger in our path to normalcy. The stock market has roared this year, but a 700+ point drop in the Dow in one day in the middle of July indicated that the markets recognize this danger. Those who sold stocks seemed to have purchased bonds, because long-term Treasury rates are moving lower as the year moves on.

What happened to the higher interest rates analysts projected as the economy recovered and inflation rose? The statement of the Fed after their meeting last week, reiterated the fact that we still have a long-way to go—even without taking into consideration the danger of COVID variants. This week’s jobs report will give us an indication of whether the economy is continuing to gain strength – though the data in the report is not likely to reflect the more recent increase in COVID cases.

Weekly Interest Rate Overview

The Markets. Rates were stable last week, holding the lows they hit the previous week.  For the week ending July 29, Freddie Mac announced that 30-year fixed rates increased slightly to 2.80% from 2.78% the week before. The average for 15-year loans fell slightly to 2.10% and the average for five-year ARMs fell to 2.45%. A year ago, 30-year fixed rates averaged 2.99%, .19% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “As the economy works to get back to its pre-pandemic self, and the fight against COVID-19 variants unfolds, owners and buyers continue to benefit from some of the lowest mortgage rates of all-time. Largely due to the current environment, the 30-year fixed-rate remains below three percent for the fifth consecutive week while the 15-year fixed-rate hits another record low.” 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

The majority of consumers continue to mistakenly believe they need at least a 20% down payment to purchase a home, but the truth is the average down payment among all buyers is just 12%, according to National Association of REALTORS® data. Younger buyers tend to put down the least: For example, those between the ages of 22 and 30 put down an average of 6%, and those between the ages of 31 and 40 make an average 10% down payment. Financial experts often say a 20% down payment is ideal because it helps borrowers qualify for a mortgage and avoid the extra costs of private mortgage insurance. But it’s not always practical advice. Many conventional lenders allow buyers to purchase a home with a down payment as low as 3%, while some government-backed programs such as VA issue loans with no money down. Borrowers may find such options through FHA, USDA, or VA loans as well as down payment assistance programs. Young adults, in particular, may be missing out on key information to move forward in the housing market. Two out of three recently surveyed say they are waiting for lower mortgage rates before starting the homebuying process, according to a survey of 1,000 millennials (ages 25 to 40) conducted by Lombardo Homes. However, economists have largely predicted that mortgage rates will edge upwards as the year progresses. Further, one in four millennials underestimated their buying potential by $150,000 or more, the study finds. Real estate pros are in position to educate buyers on common terms and financing resources. Source: Motley Fool

Construction of new housing in the past 20 years fell 5.5 million units short of long-term historical levels, according to a new National Association of Realtors report, which is calling for a “once-in-a-generation” policy response. The industry lobbying group said it hopes the report, persuades lawmakers to include housing investments in any infrastructure package. U.S. builders added 1.225 million new housing units, on average, each year from 2001 to 2020, according to the report, which was prepared for NAR by Rosen Consulting Group LLC. That figure is down from an annual average of 1.5 million new units from 1968 to 2000. The 5.5 million-unit deficit includes about two million single-family homes, 1.1 million buildings with two to four units and 2.4 million buildings of at least five units, the report says. “The scale of the problem is so large,” said David Bank, senior vice president of Rosen Consulting Group and one of the report’s authors. “We need affordable [housing], we need market-rate, we need single-family, we need multifamily.” Source: The Wall Street Journal

Home prices in car-dependent areas are up 33% since before the pandemic versus 16% for transit-accessible neighborhoods, according to a new report from Redfin, Seattle, reflecting the rise in remote work and the declining importance of proximity to public transportation. Redfin reported the median home sale price in car-dependent areas nationwide increased by 32.8% to a record $418,100 since January 2020, while it has risen 15.6% to a record $540,500 in transit-accessible neighborhoods. Both increases are significant, said Redfin Chief Economist Daryl Fairweather, and reflect the uptick in overall demand for homes driven by the pandemic and low mortgage rates. But the outsized price growth since before the pandemic for homes in car-dependent areas—which tend to be suburban and rural rather than urban—signifies the rise of remote work, with house hunters able to prioritize affordability over commute times. Suburbs, rural areas and small towns have been hot since the beginning of the pandemic, with searches for rural areas and small towns spiking last spring and housing markets in the suburbs heating up more than other neighborhood types throughout 2020. The report found homes in car-dependent neighborhoods are more competitive than those in transit-accessible neighborhoods. Fifty-six percent of homes in car-dependent neighborhoods sold for above asking price in May, versus 36% of transit-accessible homes. The typical home in a car-dependent neighborhood was on the market for 19 days before going under contract, half the time of the typical transit-accessible home (38 days). Source: The Mortgage Bankers Association

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