February 23, 2021 – Impeachment and Stimulus Redux. We began 2021 with an impeachment trial and a debate concerning the size and need for a stimulus package. Sound familiar?

Economic Commentary

Impeachment and Stimulus Redux. Just in case you are getting nostalgic for the past few years, we began 2021 with an impeachment trial and a debate concerning the size and need for a stimulus package. Sound familiar? And because this commentary is focused upon economics and not politics, we are more concerned with the arguments for and against stimulus. On one side of the equation, some are arguing that the economy is going to roar back after we are vaccinated, and not only is stimulus not needed, but we run the risk of an overheating economy.

A strong economy could raise interest rates and would exacerbate our already humungous deficits as the cost of government borrowing would soar. On the other side of the equation, we can point to ten million jobs which have been lost during the course of the pandemic. And when you figure that we should have created two to three million jobs in the past year, we are actually at a net loss of at least twelve million jobs.

We are definitely experiencing a “K” shaped recovery in which some sectors (real estate and the wealthy) are thriving, while others like travel and dining are hurting. Those from the lagging sectors are struggling and need help. So, who is right? That is where we come back to politics. Last year, the conservative viewpoint had the upper hand. This year the political tides have turned. The question is whether both sides will come together with a package of compromise.

Weekly Interest Rate Overview

The Markets. Rates rose moderately for the first time in several weeks. For the week ending February 18, Freddie Mac announced that 30-year fixed rates increased to 2.81% from 2.73% the week before. The average for 15-year loans rose to 2.21% and the average for five-year ARMs fell slightly to 2.77%. A year ago, 30-year fixed rates averaged 3.49%, almost 0.75% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Reaching its highest point since mid-November, the 30-year fixed-rate mortgage averaged 2.81 percent this week. Economic spending has improved, due to the most recent stimulus, but supply chain shortages are causing downstream inflation, leading to higher interest rates. While there are multiple temporary factors driving up rates, the underlying economic fundamentals point to rates remaining in the low three percent range for the year.” 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

Despite an unrelenting COVID-19 virus and economic recession, U.S. homeownership rose in the fourth quarter of 2020 from the same period last year.  The overall homeownership rate in the fourth quarter of 2020 rose 0.7% above that of the fourth quarter of 2019, according to a new report from the U.S. Census Bureau. The share of Americans who own their own home was 65.8% in the fourth quarter of 2020, rising from 65.1% in the same period a year earlier, the Department indicated. That percentage is a drop, however, from the third quarter of 2020, which reported a robust 67.4% homeownership. The homeownership rate for white Americans in the fourth quarter of last year was 74.5% – a nine-year high, and surpassing the fourth quarter of 2019’s rate of 73.7%. Homeownership rates for Black Americans dipped to 44.1%, the lowest rate since the first quarter of 2020. Hispanic-American homeownership rose to its highest fourth quarter rate in three years, at 49.1%. Asian, Native, Hawaiian, and Pacific Islander homeownership was reported at 59.5% – up from the rate of 57.6% in the fourth quarter of 2019.  Source: HousingWire

This spring will likely be another fiercely competitive one for home buyers. Real estate professionals should prepare their house hunters for record low inventories and rapidly rising home prices. “Demand for housing was already strong coming into the year and we don’t see that slowing down with millennials reaching prime home-buying age, and many remote workers still in the market for more space,” says Danielle Hale, realtor.com®’s chief economist. “At the same time, sellers failed to materialize in January, which has pushed the number of homes for sale to new lows and suggests that our new normal of rising prices and brisk sales is here to stay at least through the first half of the year. Those thinking of getting into the market this spring should brace themselves for a competitive season, especially in the market for existing homes.” If January is any indication of how the spring market will play out, home shoppers will need to be ready to act quickly and have their financing in order. There will be fewer choices and likely continued high buyer competition. The number of homes for sale nationwide in January plunged 42.6% year-over-year, a new low, according to realtor.com®’s records dating back to 2021.  Source: realtor.com®

 Millennials may have delayed their first step into homeownership more than previous generations, but when they do buy, many want to go big and are skipping the traditional starter home. “In the past, people bought a modest property, lived in it until starting a family, and then traded up to a larger property,” Bradley Nelson, chief marketing officer of Sotheby’s International Realty, told Bloomberg. “Millennials are finally coming out of the gate, and it’s not uncommon for the first purchase as a first-time home buyer to be a multimillion-dollar luxury home.”  Millennials—adults born between 1981 and 1996—represent the largest share of home buyers in the country, according to the National Association of Realtors®. They’re becoming a growing force in luxury real estate. As their wealth increases, high-end housing is surging, too. Their inheritance may also help them supersize their homes in the future. Millennials are set to inherit more wealth than previous generations, according to a Brookings Institute report from May 2020.  Source: Bloomberg