July 13, 2021 – The Housing Market. To put it mildly, we have seen a quite interesting housing market through the pandemic.

Economic Commentary

The Housing Market. To put it mildly, we have seen a quite interesting housing market through the pandemic. During most recessions, falling incomes and tighter guidelines cause the housing market to slow and lead to stable or lower housing prices. During the Great Recession, it took almost a decade for the housing market to recover.

No such thing happened during this recession. Interest rates moved to record lows and housing sales increased. Demand has been so high that prices have risen dramatically. The only parallel to previous recessions is the fact that lenders did tighten up on their guidelines for certain types of financing. Today we ask — as the economy gets stronger, will lenders continue to loosen these guidelines, providing even more momentum for the markets?

Keep in mind that the change in administrations also has brought new regulators to the housing agencies — Fannie Mae, Freddie Mac and FHA. Their focus upon fair lending may cause a move towards more lenient guidelines and/or programs especially targeted to low-to-moderate income first-time buyers. But as the economy get stronger, it is also expected that interest rates will rise, which also may negatively affect affordability. These are important factors to watch for within the housing market as 2021 progresses.

Weekly Interest Rate Overview

The Markets. Rates continued down in the past week. For the week ending July 8, Freddie Mac announced that 30-year fixed rates decreased to 2.90% from 2.98% the week before. The average for 15-year loans fell to 2.20% and the average for five-year ARMs moved down to 2.52%. A year ago, 30-year fixed rates averaged 3.03%, slightly higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Mortgage rates decreased this week following the dip in U.S. Treasury yields. While mortgage rates tend to follow Treasury yields closely, other factors can be impactful such as the labor markets, which are continuing to improve per last week’s jobs report. We expect economic growth to gradually drive interest rates higher, but homebuyers and refinance borrowers still have an opportunity to take advantage of 30-year rates that are expected to continue to hover around three percent.” 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

According to a recent report from the Urban Institute, Latinos will account for more than 70 percent of the growth in home ownership over the next 20 years. While the nonpartisan think tank says the ownership rates for every other racial demographic will decline over the next two decades, seven in ten of ALL future buyers will be of Hispanic origin. Age and population growth are key factors in that assessment, but Acosta also notes that Latinos are willing to migrate almost anywhere and everywhere jobs and affordable housing exists. “There’s no question the passion is there,” he says. “They didn’t come here to be renters.” According to the latest State of Hispanic Ownership Report from NAHREP, the rate of ownership among Latinos was not quite 49 percent last year. That’s not as high as it was in 2006 and 2007, the “go-go” years running up to the Great Recession when the rate topped out at nearly 50 percent. But the number of Hispanic home owner households reached 8.88 million, the highest it’s been in the 11 years the group’s report has been produced. That’s an increase of 725,000 owner households, the biggest single-year jump since 2000. In comparison, the next largest increase was 414,000 in 2002. Moving forward, the Urban Institute says, age will drive the projected increase in Latino ownership. Hispanic households are much younger than their Black and White counterparts, with a higher proportion in their 20s, 30s and 40s. Those, of course, are the prime years for buying houses, and together represent the single “biggest catalyst” for Latinos, says Noerena Limon, NAHREP’s executive vice president for public policy and industry relations. That the median age of Latinos is 29.8 years – 14 years younger than any other ethnic group – means the desire to own a home “is going to last way into the future,” says Limon. “They are the future of the housing market.” Source: National Mortgage Professional

The National Association of Realtors (NAR) has released its 2021 Vacation Home Counties Report, which found that during the period of the second half of 2020 and through April 2021, there was a surge in the interest of vacation homes, causing a spike in the market. In 2020, the share of vacation home sales to total existing-home sales increased to 5.5% (5% in 2019). Vacation home sales rose by 16.4%, outpacing the overall growth in existing-home sales of 5.6%. From January to April 2021, the share of vacation home sales to total existing-home sales rose to 6.7%. Vacation home sales jumped 57.2% year-over-year compared to the 20% year-over-year growth in total existing-home sales. “Vacation homes are a hot commodity at the moment,” said Lawrence Yun, NAR’s Chief Economist. “With many businesses and employers still extending an option to work remotely to workers, vacation housing and second homes will remain a popular choice among buyers.” According to the 2021 Vacation Home Counties Report report, median existing-home sale prices in vacation counties also grew faster than in the rest of the country, increasing 14.2% compared to 10.1% in non-vacation home counties. Properties in vacation home counties typically remained on the market longer in 2020 than those in other areas (59 days compared to 30 days). Nevertheless, homes largely sold at a faster pace in vacation home counties compared to the prior year by 13 days, versus just eight days in non-vacation home counties. Overall, the median number of net movers into vacation home counties increased from 78,114 in 2019 to 98,279 in 2020. Source: DSNews

Americans are staying put in their homes longer, contributing to the limited number of homes for sale. First American has put a number on the likely size of the loss for the current housing market: The length of the average homeowner’s tenure has resulted in a loss of more than 17,000 potential home sales. The statistic appears in First American’s just-released Potential Home Sales Model, reflecting May data. The average homeowner’s tenure has jumped by nearly 4% compared to a year ago and by 0.4% compared to April. The monthly gain is the largest since August 2020, First American reports. “Since existing homeowners supply the majority of the homes for sale, and increasing tenure length indicates homeowners are not selling, the housing market faces an ongoing supply shortage,” said Mark Fleming, First American’s chief economist. Prior to the housing market downfall in 2007, the average length of time a homeowner lived in their home was about 5 years. During the aftermath of the housing market crisis between 2008 and 2016, the average homeowner tenure length grew to about 8 years. As of May this year, the average homeowner tenure length has reached 10.6 years, a historic high, First American reports. “Two trends are locking homebodies in place and driving the increase in tenure length,” Fleming says. “First, for homeowners with rock-bottom rates, modestly higher rates in a historically low inventory environment may disincentivize some from selling their homes, thus preventing more supply from reaching the market. Second, seniors are choosing to age in place.” Source: First American