February 2, 2021 – Where There Won’t Be a Difference. Last week we talked about differences with a change of administrations.

Economic Commentary

Where There Won’t Be a Difference. Last week we talked about differences with a change of administrations. We all agree that the challenges facing our nation – the economy, the pandemic, the divisiveness are not going to go away. But there are other areas where there will be no difference and these areas are positive. As a matter of fact, these are also two areas that will help the country dig out of the pandemic-induced economic malaise.

For one, the Federal Reserve Board will continue to maintain an accommodative monetary policy for as long as we need it. In layman’s terms that means that they will do whatever it takes to keep interest rates low for whatever amount of time is necessary. And let’s not forget that the new Treasury Secretary was formerly the Chair of the Federal Reserve. Janet Yellen is likely to fully support this policy.

Another area of positive news is the strength of the real estate market. A shortage of listings has caused a major up-tick in real estate prices. We know from history that prices can’t keep going up at this pace forever. But these higher prices put equity in homeowners’ pockets. And when the foreclosure moratorium is over, owners are not likely to be abandoning homes like they did after the Great Recession. What will many do? Some will renegotiate or modify their mortgages. Others will sell and retain the equity. As a matter of fact, the end of the moratorium may ease the listing shortage and while home prices may not drop, the rapid escalation in prices is likely to ease.

Weekly Interest Rate Overview

The Markets. Rates continued to ease in the past week. For the week ending January 28, Freddie Mac announced that 30-year fixed rates rose to 2.73% from 2.77% the week before. The average for 15-year loans also decreased to 2.2% and the average for five-year ARMs remained at 2.8%. A year ago, 30-year fixed rates averaged 3.51%, more than 0.75% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “As the market reacts to a new administration in Washington and COVID-19 driven economic malaise, mortgage rates continued to decrease this week, just slightly. Even as house prices increase at the fastest rate we’ve seen in years, competition to buy is strong given the low inventory that exists across the country. The fact that there are not enough homes to meet demand is going to be an ongoing issue for the foreseeable future.” 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

Between 2018 and 2028, the number of households is projected to increase by up to 12 million. Generation X and millennials are expected to drive most of that household formation. As they replace dropped households over that time, the two generations could add nearly 25 million new households by 2028, according to the CoreLogic Insights Blog. The largest cohort of millennial buyers have yet to surface on the market, researchers note. That segment, from ages 28 to 30, numbers nearly 15 million and is approaching the average age to buy a first home, 33 years old, CoreLogic reports. Even as younger generations wait to enter the housing market in high numbers, the market already faces a home inventory shortage. The number of homes for sale has reached the lowest level on record. That has prompted home prices to increase faster than incomes. Source: CoreLogic

Expect the housing market in 2021 to “settle somewhere in between where we were before COVID and where we were during COVID,” says Danielle Hale, Chief Economist for Realtor.com’s recent article entitled, “How the Rollout of COVID-19 Vaccines Could Help, and Hurt, the U.S. Housing Market.”  More homes will be on the market in the coming year, wrote Clare Trepasso for Realtor.com. “So desperate buyers won’t need to put in offers and waive contingencies before they’ve even finished touring the properties,” she said.  But inventory can only increase gradually.  “Some people will feel comfortable listing their home during the first half of 2021,” says Ali Wolf, Chief Economist for Zonda, a real estate consultancy. “Others will want to wait until the vaccines are widely distributed. This suggests more inventory will be for sale in late 2021 and into the spring selling season in 2022.”   Realtor.com also predicts prices will not dip, but they also will not continue escalating so rapidly. Increased new-construction starts of late will take some of the pressure off the market, Realtor.com reports. There are likely to be fewer bidding wars as buyers have more homes to choose from, they say, citing CoreLogic’s Chief Economist Frank Nothaft. “The very rapid home price growth that we have seen over the last few months should start to moderate,” he said. “I expect price growth to slow.”  Source: DSNews

As people spend more time at home, freed from long commutes and constant activity, they are discovering their priorities are shifting. Home shoppers are increasingly placing more weight on the neighborhood and how neighborly it feels since the pandemic. Real estate professionals say they’ve noticed that buyers are changing the way they shop for homes, and neighbors have emerged as a critical factor in their home search. Sixty-nine percent of 2,500 Americans recently surveyed by Improvenet say they’ve gotten to know their neighbors better during the pandemic. Sixty-five percent say they’ve made an effort to be more friendly than usual. Further, 57% say their neighbors have helped to fill the void of visiting with friends and family during the pandemic. More than half also said they’ve had at least one socially distanced gathering with neighbors. At-home workers are looking to replace water cooler mingling with co-workers from the office now with strolls around the neighborhood. Driveway cocktail parties are filling the social gap that live events once did too. “Neighborhoods are just so much more important now,” Francie Malina, of the Francie Malina Team in Dobbs Ferry, N.Y. She says buyers are showing more interesting in belonging to a neighborhood, whether for socializing or organizing children’s learning pods for remote learning. Source: The Wall Street Journal