December 15, 2020 – The Home Stretch. This is the home stretch for 2020 and also, we hope, the home stretch for the COVID nightmare which has afflicted the world in 2020.

Economic Commentary

The Home Stretch. This is the home stretch for 2020 and also, we hope, the home stretch for the COVID nightmare which has afflicted the world in 2020. For us, 2021 cannot come quickly enough. Nor can deliveries of vaccines. We are reminded that even though these vaccines will hopefully mark the end of this nightmare, there will be plenty of challenges to overcome in 2021. First and foremost, will be the spike in cases we are experiencing because of colder weather and holiday gatherings. Once again, our medical facilities are overloaded and strained.

Overcoming the virus will be only one of the challenges we face in 2021. There are millions of jobs that still need to be recovered. Some industries will need help with their recoveries—especially in the transportation and entertainment segments. Many think that this pandemic will change the way we do business in the future and it will even change how and where we work and live. So, while we are glad to see 2020 go, we understand turning the calendar does not give us a clean slate.

Fueled by record low interest rates, we have mentioned throughout the second half of the year that real estate has led us out of recession in 2020. Many are expecting interest rates to rise in 2021 as the economy continues to recover. However, with all the challenges that we will be facing next year, it is not expected that rates will rise so steeply that the real estate sector will be adversely affected. To the contrary, latent demand is expected to continue to fuel real estate activity in 2021. As long as rates stay low, we hope that this sector can continue to help the economy to recover in the months to come. We need that spark to help us meet the challenges which we will face in 2021.

Weekly Interest Rate Overview

The Markets. Rates remained at their record low last week. For the week ending December 10, Freddie Mac announced that 30-year fixed rates remained at 2.71% from the week before. The average for 15-year loans also remained the same at 2.26% and the average for five-year ARMs fell to 2.79%. A year ago, 30-year fixed rates averaged 3.73%, more than 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Rates on home loans remain at record lows, resisting their typical correlation to Treasury yields, which have recently been moving higher. Mortgage spreads – the difference between rates on home loans and the 10-year Treasury rate – are declining from their elevated levels earlier this year. Although today’s spread is about 1.8 percent and still has some room to move down if the 10-year Treasury continues to rise, it’s encouraging to see that the spread is almost back to normal levels.” 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

FHA has released their 2021 loan limits, with a base loan limit of $356,362 for lower cost areas and a limit of $822,375 in high cost areas. The high cost limits are identical to conforming limits for high cost areas. The FHA national low-cost area limits are set at 65 percent of the national conforming limit of $548,250 for a one-unit property. Additional FHA base limits include: two-unit properties: $456,275; three-unit properties: $551,500; and four-unit properties: $685,400. Additional high cost limits include: two-unit properties: $1,053,000; three-unit properties: $1,272,750; and four-unit properties: $1,581,750. FHA has published a separate list of counties with loan limit increases. You may view this list, along with a list of areas at the ceiling and a list of areas between the floor and ceiling, on the Maximum Mortgage Limits web page or look up individual areas using this link: Click Here. In addition, the national Reverse Mortgage limit (HECM) was set at the conforming high cost limit, or $822,375. Overall, these higher loan limits will mean more choices for the average buyer in 2021. Source: FHA

A report from the experts at First American reveals the link between homeownership and wealth. The report specifically states that homeownership is a great way to build one’s wealth. Economists have long studied homeownership’s links to wealth, and have found owning a home to especially be beneficial in wealth-building in regards to low-income housing. In fact, First American was so adamant about how integral homeownership was in building wealth, the experts revealed that it is among one of the biggest factors: “For the majority of households that transition into homeownership, the most recent data reinforces that housing is one of the biggest positive drivers of wealth creation.” Speaking of data, the 2019 Survey of Consumer Finances, which collects various pertinent information regarding households’ finances, showed that the average homeowner possesses a staggering 40 times the household wealth of a renter (specific data pointed to roughly $254,900 for the homeowner versus $6,270 for the renter). Specifically, data reveals that homeowners are wealthier than renters across the board, in every single income bracket (the one exception being the very top income bracket). To give you an idea with specific numbers, the income group of earners making the least amount of money—who were homeowners— posted an average net worth of $102,500. In contrast, renter households in that same income bracket were worth only $1,500. The report further revealed that in this lowest income category, 92% of total homeowner net worth was directly connected to the specific value of the residence. Source: DSNews

As the pandemic continues, more home buyers are looking for properties that can house their older family members. The goal for these buyers is to keep their aging family members out of senior living—particularly group setting facilities, which have been on heightened alert during the COVID-19 outbreak. This is translating to the desire for larger homes that can accommodate more family members, The Wall Street Journal reports. The National Association of Realtors®’ newly released 2020 Profile of Home Buyer and Sellers showed that buyers purchasing a home since the start of the pandemic have been more likely to purchase a multigenerational home—15% versus 11% who purchased prior to 2020. Home buyers cited multiple reasons, such as the health and caretaking of aging parents and relatives, cost savings, the desire to spend more time with aging parents and relatives, and the need for the delayed independence of children. They also said buying a multigenerational home allowed them to pool multiple incomes to purchase a larger home. Meanwhile, occupancy at assisted-living facilities and independent living centers decreased by more than 2.5% in each of the last two quarters since the pandemic, according to the National Investment Center for Seniors Housing & Care, as reported by The Wall Street Journal. Source: NAR