January 5, 2021 – Looking Through The Looking Glass. You cannot look back at 2020 without using an acronym most of us had never heard of before 2020.

Economic Commentary

Looking Through The Looking Glass. You cannot look back at 2020 without using an acronym most of us had never heard of before 2020. Of course, that acronym is COVID. We started the year somewhat normally. The economy was slowing down a bit and the real estate sector was doing well. Then in March, the economy shut down like it never had before. In March we had a historic drop in the stock market, and it looked as though we were going to have a rough year in equities. Yet, by the end of the year, stocks were convincingly higher compared to the end of 2019.

Interest rates plunged as the Federal Reserve pulled out all the stops to help rescue the economy. Even though stocks rebounded, rates stayed at historic lows the rest of the year. Congress also acted to stimulate the economy, passing trillions of dollars of economic relief, along with foreclosure and eviction moratoriums. This medicine helped as the economy recovered just over half of the over 20 million jobs lost during the sharp and brief recession.

The economy itself recovered from a record plunge it experienced in the spring, but we still expect to see negative growth for the year. This winter we head into the new year with surging COVID cases, high hopes for vaccinations, a very hot real estate market bolstered by record low interest rates and an economy still on the mend with millions of jobs still to recover. Hopefully 2021 will be the year of recovery in more ways than one.

Weekly Interest Rate Overview

The Markets. Rates remained close to their record low to end the year. For the week ending December 31, Freddie Mac announced that 30-year fixed rates rose one tick to 2.67% from 2.66% the week before. The average for 15-year loans decreased to 2.17% and the average for five-year ARMs fell to 2.71%. A year ago, 30-year fixed rates averaged 3.72%, more than 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “All eyes have been on mortgage rates this year, especially the 30-year fixed-rate, which has dropped more than one percentage point over the last twelve months, driving housing market activity in 2020. Heading into 2021 we expect rates to remain flat, potentially rising modestly off their record low, but solid purchase demand and tight inventory will continue to put pressure on housing markets as well as house price growth.” 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

The appraisal can be a stressful process and may threaten to derail transactions. Twenty-one percent of Realtors® say “appraisal issues” delayed their sales contracts in October, according to the most recent Realtors® Confidence Index. Appraisal issues led to 13% of contracts being terminated. The appraiser evaluates the home’s lot size, condition (both inside and out), foundation, neighborhood, and any other amenities that add or decrease value. Real estate professionals should prepare their sellers for the appraiser’s visit. Advise your clients to do a deep cleaning inside and outside the home, touch up paint, fix any minor maintenance issues, and have relevant paperwork—such as details about the home and comps—ready to hand over to the appraiser. Appraisals can come in below a property’s sale price for several reasons. For example, buyers in competitive markets may have driven up a home’s sale price in a bidding war, or an appraiser may find a property defect. Perhaps an addition to the house didn’t have a construction permit, which the appraiser would label as “cost to cure,” according to an article from HomeLight. If an appraisal comes in low, the seller likely will have to negotiate with the buyer over the price again. Homeowners can challenge a low appraisal, but success is likely limited as homeowners will have to prove a mistake was made during the appraisal, such as incorrectly recorded square footage — or provide stronger comparable sales. Source: RISMedia’s Housecall

Homeowner equity rose again in the third quarter of 2020, reaching the highest total in over six years. CoreLogic’s quarterly report on that asset says that those homeowners with financing, about 63 percent of the total, saw their equity grow by 10.8 percent since the third quarter of 2019. This equates to an increase in homeowner wealth of about $17,000 per household, the largest since the first quarter of 2014, and an aggregate national gain of about $1 trillion. At the same time, the number of mortgages that were in negative equity fell by 18.3 percent on an annual basis. The equity growth was due to a surge in home prices during the summer and fall, as homebuyers emerged from the pandemic lockdown and competed for a low supply of homes on the market. CoreLogic says these equity gains are likely to persist over the next several months as home purchase demand is expected to remain high, pushing prices up. However, the company expects appreciation to slow over the next 12 months as new home construction and more existing for-sale homes ease supply pressures. Source: Mortgage News Daily

One in three American adults has transitioned to partial or full remote work during the COVID-19 pandemic, freeing them up to move further distances. “Some of them seek out bigger houses with bigger yards for their kids to play in and office space for them to work,” Nadia Evangelou, a research economist for the National Association of Realtors®, writes in a recent post on the association’s Economists’ Outlook blog. “Others seek more affordable homes in less dense places away from large city centers since they can telework.” NAR tracked change-of-address data from the U.S. Postal Service from March to October to determine mobility changes since the pandemic began. A total of 8.93 million people have relocated since the start of the pandemic, the data shows. Most people moved at the beginning of the pandemic and during the summer months. NAR cautions that the data is not a full-year comparison and may not yet fully represent true migratory trends. Source: NAR