July 20, 2021 – The Oil Markets. Last week we focused on the housing market. We would be remiss if we did not bring up the energy markets as well.

Economic Commentary

The Oil Markets. Last week we focused on the housing market. We would be remiss if we did not bring up the energy markets as well, as the price of oil has been in the headlines this year. It is always interesting when looking at history and how modern times have changed. For example, last week we spoke about how — just over a decade ago — real estate led us into a devastating recession. Today, it has led us out of our recession.

Almost 50 years ago, the oil embargo caused oil prices to skyrocket, and it led to a major recession. This was followed by two other recessions which were preceded by spikes in oil prices. This year, the price of oil has again risen sharply. Should we be worried—or is this spike seen as transient as we have labeled inflation?

The truth is that today we have a lot of excess capacity with regard to world oil production. The problem is similar to other industries, production contracted sharply because the economy shut down so quickly last year. Now OPEC can’t decide how fast to open the spigots and even American shale oil producers are holding back and making sure the price increases will hold. Even though the spikes are real, this is not a capacity issue — which means the problem will hopefully be temporary. Again, emphasis on the word HOPE.

Weekly Interest Rate Overview

The Markets. Rates edged down again in the past week.  For the week ending July 15, Freddie Mac announced that 30-year fixed rates decreased to 2.88% from 2.90% the week before. The average for 15-year loans rose to 2.22% and the average for five-year ARMs fell to 2.47%. A year ago, 30-year fixed rates averaged 2.98%, slightly higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “The summer swoon in mortgage rates continues as the 30-year fixed-rate mortgage fell for the third consecutive week. Since their peak at 3.18% in April, mortgage rates have declined by thirty basis points. While this decline is not large, it provides modest relief to borrowers who are purchasing in a market with strong home appreciation and scant inventory.”  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

New listings showed signs of a comeback in June as home prices broke a new record for the fifth month in a row at $385,000, according to the Realtor.com® Monthly Housing Report released today. While the number of homes for sale remained drastically lower than normal with a 43.1% decline over last year, June marks a significant improvement over last month’s 50.9% decline. “Although there’s still a significant shortage of homes for sale and home prices just hit a new high, our June data report shows good news on the horizon for buyers,” said Realtor.com® Senior Economist George Ratiu. “Inventory declines improved over the steep drops seen earlier in the pandemic as sellers stepped back into the market in a variety of price ranges across the country. The improvement we saw in new listings growth from May to June shows sellers are entering the market historically later in the season, which could mean we’ll see home buying continue into the fall as buyers jump at new opportunities,” he continued. According to the Realtor.com® data, June new listings increased 5.5% year-over-year and 10.9% over last month. Among the largest U.S. metros, the 10 markets with the highest new listings increases posted gains of 20% or more year-over-year. Although there were fewer homes actively for sale on a typical day in June compared to last year and to the average June from 2017-2019, the uptick in newly-listed homes may be giving buyers more homes to choose from and potentially more time to make decisions. If these trends persist, inventory declines and price growth may continue to moderate as the housing market returns to a more normal pace of activity heading into the second half of 2021. Source: NAR

Close to 50% of Gen Zers are on the hunt to purchase a home within the next five years, according to Realtor.com. However, as many Gen Zers are either in their college years or just starting their careers in the face of the pandemic’s economic uncertainties, job stability is their No. 1 barrier to buying, according to the survey. Folks between the ages of 18 and 25 are the oldest members of Gen Z. They are in the phase of life where they are beginning to plan for the future and homeownership is a top priority, according to a Realtor.com’s survey of more than 700 members of Generation Z who have never purchased a home, via HarrisX. Many Gen Zers are optimistic despite having gone through the COVID-19 pandemic, with nearly two-thirds (64%) saying their COVID experience has not impacted their homeownership plans. More than one-quarter of those surveyed feel even more strongly about buying a home as a result of the pandemic, according to the report. “Gen Z values homeownership. However, the oldest members of this generation are just entering the professional stage of life and not yet in a financial position to make a big play as first-time buyers – especially in the current housing market, which is challenging even older generations who have had many more years to save for a down payment,” said George Ratiu, senior economist, Realtor.com. “With nearly three-quarters of those surveyed preferring to buy versus renting long-term, the housing industry should be prepared for millions of Gen Z buyers to bring a new wave of demand along a similar stage-of-life timeline as the millennial generation before them.” Source: Realtor.com

In its new report, ServiceLink examines how the pandemic impacted the American homebuying process over the past year. The 2021 ServiceLink State of Homebuying Report features insights from 1,000 homeowners, and provides a better understanding of: how high home prices and low inventory impacted their decision to move or not; if they took advantage of historic low interest rates or why they didn’t; and how the pandemic has influenced their experience with technology. The study found that additional space was a motivating factor for many who bought homes in 2020, with 36% wanting to upsize from their current home; 32% purchasing an investment property; and 23% needing more space in order to work remotely. Of those polled, 33% of buyers considered making a purchase in 2020, but ultimately decided against buying a home in the past year, with 34% deciding to upgrade instead; 31% finding that their buying options were too expensive; and 24% claiming that a change in their financial situation prevented them from purchasing a home. Nearly one-third of respondents (32%) believe they are likely to purchase a new home in 2021. Source: MReport