February 16, 2021 – It was a Roller Coaster Year. A few weeks ago, we saw the first reading of economic growth for the 4th quarter of last year.

Economic Commentary

It was a Roller Coaster Year. A few weeks ago, we saw the first reading of economic growth for the 4th quarter of last year. Though this number is subject to two revisions, the increase of 4.0% is not expected to change all that much. Taken by itself, a rise of 4.0% would be seen as fairly substantial. However, when you look at all of 2020, you see a different picture.

We entered the year with a slowing economy, as the economy grew only 2.4% at the end of 2019. That slow economy shut down at the end of the first quarter (-5.0%) and stayed shut down through most of the second quarter (-31.4%). We then had a steep rebound in the third quarter (+33.4%) and then the +4.0% finish. If you add up the numbers, this was 36.4% on the downside and 37.4% on the upside. Regardless of the math, the economy actually fell 3.5% for the year because the growth was from a smaller number.

These somewhat even numbers at the end mask the roller coaster ride we saw in 2020. This was the first negative year for economic growth since the great recession and the largest annual drop since just after World War II. Here is the good news — most economists are looking for positive economic growth this year, but we will still have some time to dig out, as growth is not supposed to accelerate until the second half of the year. It takes a while for most to recover from a dazzling roller coaster ride. That just must be how riders will feel after they get off the tallest roller coaster in the world, due to open in Saudi Arabia in 2023 – peaking at 155 miles per hour!

Weekly Interest Rate Overview

The Markets. Rates were steady for the second straight week. For the week ending February 11, Freddie Mac announced that 30-year fixed rates remained at 2.73%, the same as the week before. The average for 15-year loans fell to 2.19% and the average for five-year ARMs rose slightly to 2.79%. A year ago, 30-year fixed rates averaged 3.47%, almost 0.75% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “It’s a tale of two economies. The services economy remains in the doldrums, but the production side of the economy remains strong. New COVID-19 cases are receding, which is encouraging and that has led to a rise in Treasury rates. But the run-up in Treasury rates has not impacted mortgage rates yet, which have held firm. The residential real estate market remains solid given healthy purchase demand while implied real-time home price growth is high, due to the inventory shortage that is plaguing the housing market.”  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

After a slowdown in rental growth during the spring and summer of 2020, rents are back on the rise. A new report from CoreLogic shows that national single-family rental prices increased 3.7% year over year in November and are now above the levels before the COVID-19 pandemic started. “This is in contrast to rents for multifamily properties, which have decreased as tenant preferences shifted away from high-density apartment buildings to low-density, single-family homes,” said Molly Boesel, principal economist at CoreLogic. Meanwhile, single-family homes for rent are becoming more of a draw due to their extra space. Single-family rental inventories, however, have fallen across price tiers. Lower-priced rentals are seeing the greatest vacancies, and rent growth in that area has lagged the most behind other price tiers, CoreLogic said. “Employment rates continue to fluctuate across the country, with some regions and metros experiencing higher job loss rates than others,” CoreLogic said in its report. “Still, as employment slowly improves, the rental market likewise continues to stabilize.” Source: CoreLogic

ATTOM Data Solutions, Irvine, Calif., said home sellers nationwide in 2020 realized a home-price gain of $68,843 on the typical sale, up from $53,700 in 2019 and $48,500 two years ago. The company’s Year-End 2020 U.S. Home Sales Report also said profits rose in more than 90 percent of housing markets, based on median purchase and resale prices, marking the highest level in the United States since at least 2005. The $68,843 profit on median priced single-family homes and condos represented a 34.7 percent return on investment compared to the original purchase price, up from 29.4 percent last year and 27.2 percent in 2018, to the highest average home-seller return on investment since 2006. The report said both raw profits and return on investment have improved nationwide for nine straight years. Last year’s gain in ROI – up more than five percentage points – marked the largest annual increase since 2017. Profits shot up as the national median home price rose 12.8 percent in 2020 to $266,250 – a record high. Todd Teta, chief product officer at ATTOM Data Solutions, said “Despite skyrocketing unemployment levels and millions of closed businesses, the housing market was not deterred and continued its ninth consecutive year of growth, buoyed by low housing inventories that pushed home prices higher. Source: Mortgage Bankers Association

A new year may be upon us but the housing industry’s success of 2020 is still as impressive as ever. Zillow reported that U.S. housing gained nearly $2.5 trillion in value for 2020, the most in a single year since 2005, according to the report. That’s not all — the company is predicting the possibility that 2021’s gains may eclipse last year’s exceptional gains. With demand being at one of its all-time highs in 2020, driven by low-interest rates, homes were snatched off the market at the fastest pace Zillow has recorded. With inventory being swallowed up, the homes that were left on the market saw large price hikes. Zillow also noted that the Millennial generation aged into prime first-time homebuying age. “2020 was a record-breaking year for the housing market with intense competition among buyers driving up home prices,” said Zillow economist Treh Manhertz. “While many faced financial hardships because of the pandemic, others fortunate enough to maintain stable income took a step back to contemplate what they wanted their home to be and hopped on Zillow to help find a place that filled their wish list. Builder confidence, perhaps in reaction to the boosted demand, hit record highs and more homes are being built as a result. Add that together and you see why the housing market gained more than in any year since the Great Recession.” Source: Zillow