August 31, 2021 – Conflicting Factors. Today there has never been so many factors affecting the economy all at once.


Economic Commentary

Conflicting Factors. Today there has never been so many factors affecting the economy all at once – and many of these are pushing us in different directions. We have discussed many of these previously. First and foremost, we have COVID. The recession was COVID-induced, and our recovery depends upon the pace of vaccinations and the rise of the Delta variant.

The pandemic also brought us record low interest rates and a subsequent fire-sale on housing. Housing has been hot, and this strength has helped the economy add jobs rapidly on the other side of the equation. The strength of the recovery has also been characterized by supply shortages which has ignited inflation. We have termed this inflation as transitory, as many feel that this inflation will soften as the shortages ease during the recovery.

Let’s add one more factor—the change in weather. Climate change is certainly affecting our economy. From raging wildfires to droughts and intense storms, each year the weather events seem to be getting worse. You can’t have millions of acres destroyed each year without negatively affecting the economy. Thus, there are many factors pulling the economy in different directions. The Fed will have a tough time trying to decide when to remove support from the recovery. In the meantime, we would not be surprised to see additional volatility in the markets as this situation unfolds.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to be stable in the past week. For the week ending August 26, Freddie Mac announced that 30-year fixed rates remained at 2.87%, the same as the week before. The average for 15-year loans rose one tick to 2.17% and the average for five-year ARMs decreased slightly to 2.42%. A year ago, 30-year fixed rates averaged 2.91%, slightly higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “The tug-of-war between the economic recovery and rising COVID-19 cases has left mortgage rates moving sideways over the last few weeks. Overall, rates continue to be low, with a window of opportunity for those who did not refinance under three percent. From a homebuyer perspective, purchase application demand is improving, but the major obstacle to higher home sales remains very low inventory for consumers to purchase.”  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

Pandemic relief is set to run out for over 1 million Americans in the coming months, which means that many homes could be listed for sale, according to a new report. When the COVID-19 crisis began in the spring of 2020, federal regulators and lawmakers quickly acted to provide relief to homeowners who suddenly found themselves in no position to afford their monthly mortgage payments. Homeowners were initially allowed to request up to 12 months of forbearance on their home loans, during which time they could stop making their monthly payments entirely. The program was extended a few times over the course of the pandemic. Today, an estimated 1.7 million homeowners are in forbearance plans, according to recent data from the Mortgage Bankers Association. And now, barring any last-minute policy changes, most of these homeowners will be forced to exit these programs. A new report from Zillow estimated that around 850,000 borrowers will exit their forbearance plans between August and October. If the past proves to be precedent, a significant chunk of these homeowners will opt to list their homes for sale. Over the past year, Zillow calculates that roughly 25% of borrowers listed their property for sale following their exit from forbearance. “Unlike 2008, when financial conditions and a souring housing market pushed many homeowners into involuntary foreclosure, strong equity growth and a robust sellers’ market are likely to ensure that even distressed homeowners have more options,” the Zillow researchers wrote. In other words, a homeowner who exits forbearance but is still in such financial straits that they can’t afford to resume their mortgage payments could manage to sell their home, given the strength of the housing market. Based on that logic and what’s occurred previously, Zillow projects that the wave of people exiting their mortgage relief programs will create an additional 0.4 months of housing supply from August through October, which would represent a 15% increase relative to the inventory of homes for sale as of June. That 0.4-months’ supply equates to an additional 211,700 homes going on the market, based on Zillow’s estimates. Source: MarketWatch

Since the pandemic began, vacation home sales have soared as Americans have looked for an alternate work-from-home space and a place to relax and spread out. That has prompted a vacation-town boom. Vacation home sales have jumped 57% this year compared to 2020, according to the National Association of REALTORS®. Lawrence Yun, NAR’s chief economist, told Marketplace that he expects the vacation-home market to stay elevated through the rest of the year. Many employers have chosen flexible work options that will continue to drive demand in the vacation-home market, he says. But some of these vacation towns aren’t used to the rising number of year-round residents. Longtime full-time residents are complaining about increasing traffic, lack of parking, and crowded stores. Also, bidding wars for homes are driving up prices. Buyers of vacation homes are more likely to pay with cash, a tactic that can give them an edge in today’s market. From January through the end of April 2021, all-cash sales rose to 53% of all vacation-home purchases compared to 22% of all-cash purchases for existing-home sales over that same period, according to NAR’s data. Source: Marketplace

For the first time since early March, the median home sales price missed hitting a month-over-month record high, remaining relatively flat from June through July yet still significantly elevated since last year during the same period, according to Redfin’s latest Housing Market Update. “Although homes are much pricier than they were before the pandemic, homebuyers now have the benefit of very low mortgage rates and a little less competition than they faced earlier in the summer,” said Redfin Chief Economist Daryl Fairweather. The economist offered an anecdote of what could be things to come. “This week a young first-time buyer with an FHA loan had her offer accepted on a home near Myrtle Beach, South Carolina after losing out in five bidding wars. I am hopeful that more opportunities like this will arise in the coming weeks if things continue to stabilize.” Fairweather’s hopes are supported by some of the key findings in the study covering the four-week period ending August 1. The median home-sale price increased 18% year over year to $362,750, but decreased .2% from the four-week period ending July 25. Asking prices of newly listed homes were up 12% from the same time a year ago to a median of $358,475, but down 1% from their all-time high posted during the four weeks ending June 27. Source: DSNews

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