COVID 18 Months Later. In March of 2020 when the economy shut down due to the pandemic, few thought we would be dealing with the after-effects one and a half years later. In truth, we could not see the pandemic coming and we did not clearly see the future of the pandemic. As vaccinations have progressed, the economy has moved closer to normal, and we have had strong growth in the first half of the year.
Just as we were rejoicing our new normal, another wave hit us in the form of the Delta variant. Thus far the economy has not shut down due to this wave – but it looks like we will need more vaccination work in order to fully recover. In other words, here come the booster shots. We have certainly had plenty of booster shots for the economy during the pandemic. These came in the form of stimulus.
Now our financial leaders are torn between easing the financial stimulus and whether we might need another boost as the year comes to a close. In reality, we may need both. Congress is debating infrastructure spending, which in essence will provide quite a boost for the economy. And the Federal Reserve is debating when they will let rates rise and when they will ease their purchases of Treasuries and mortgages. The more Congress spends to shore up the economy, the more comfortable the Fed will be easing their stimulus efforts.
Weekly Interest Rate Overview
The Markets. Mortgage rates continued to be stable this past week. For the week ending September 9, Freddie Mac announced that 30-year fixed rates rose one tick to 2.88%. The average for 15-year loans also rose one tick to 2.19% and the average for five-year ARMs decreased slightly to 2.42%. A year ago, 30-year fixed rates averaged 2.86%, slightly lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – ” While the economy continues to grow, it has lost momentum over the last two months due to the current wave of new COVID cases that has led to weaker employment, lower spending and declining consumer confidence. Consequently, mortgage rates dropped early this summer and have stayed steady despite increases in inflation caused by supply and demand imbalances. The net result for housing is that these low and stable rates allow consumers more time to find the homes they are looking to purchase.” 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 age-old question in real estate: owning versus renting. According to First American Financial Corp., Santa Ana, Calif., for the time being, owning is winning. In her analysis, First American Deputy Chief Economist Odeta Kushi said after accounting for the total monthly homeownership cost and comparing it with the median rent by market, renting was a better financial choice in 35 out of the top 50 markets in the second quarter. However, when accounting for the appreciation benefit in our rent versus the First American analysis, it was cheaper to own in every one of the top 50 markets. The analysis noted when potential first-time home buyers consider making the transition to homeownership, they ask themselves whether it makes more financial sense to keep renting, or to buy. The pandemic has undoubtedly impacted that calculation. Annual house price appreciation skyrocketed during the pandemic, reaching an average of 17.5 percent annual growth in the second quarter of 2021, as demand for homes continued to outpace supply. Meanwhile, growth in rent prices, which had slowed down in 2020 as rental demand fell, came roaring back in the second quarter. The median rent in the U.S. jumped 4 percent between the first and second quarters, the highest quarter-over-quarter pace since 2014, according to Zillow. “The cost to rent is relatively straightforward – it is the amount of rent paid by the tenant every month,” Kushi said. “The cost of owning, on the other hand, is made up of multiple pieces – it includes taxes, repairs, homeowner’s insurance and the monthly mortgage principal and interest payment.” Kushi said though mortgage rates have pulled back in recent weeks, they are expected to rise in the future and that will mean higher monthly payments for the same loan amount. “House price appreciation will likely remain elevated in the coming months, but eventually it will moderate from the pace we saw in the second quarter,” she said. “Nonetheless, this analysis demonstrates that the wealth-building effect of home equity is a powerful factor in the homeownership decision. When your home pays you, it makes more sense to buy than to rent.” Source: First American
When Covid-19 lockdowns began last year, single-family rental prices slowed to stagnant. But as the price of real estate appreciated at staggering rates over the past year, rent price growth recovered and now has “sped past what their levels are projected to have been based on pre-pandemic trend,” according to Zillow’s latest market report. Researchers there call it “a milestone in the strong rental market recovery.” The average monthly rent price nationally hit $1,843 in July, surpassing June’s record appreciation and rising 9.2%, or $156, above July 2020. “With the economy continuing to reopen, employees receiving more long-term guidance on remote work, and as students find their way back to college campuses, the rental market is picking back up,” said Nicole Bachaud, Zillow Economic Data Analyst. “As high demand puts pressure on rents and incomes are unable to keep up, affordability will become more of a challenge in the coming months.” Zillow estimates rents are now $52 higher than they would have been if the past 18 months had been more normal. Rents first surpassed their pre-pandemic trajectory last month, Bachaud added. Source: MReport
The housing market is showing signs of cooling off. Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — were up 2% in July from the month before, marking two consecutive months of increases, according to a report from the National Association of Realtors. The number of available homes for sale also rose a bit in July, relieving some of the pressure on buyers. And while home prices still climbed year-over-year, they did not top recent record levels, the report found. “There has been a turn in the market from super-heated to still very strong,” said Lawrence Yun, NAR’s chief economist. A consistently tight supply of inventory has pushed home prices higher over the past year, but that picture is improving slightly, said Yun. The inventory of unsold homes increased 7.3% from June to July, but it was still down 12% from a year ago, NAR reported. Unsold inventory is at a 2.6-month supply at the current sales pace. A balanced market is about a 6-month supply of homes. “We see inventory beginning to tick up, which will lessen the intensity of multiple offers,” said Yun. “Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren’t seeing as much growth because there are still too few starter homes available.” The median price for an existing home in July was $359,900, up 17.8% from a year ago and marked 113 straight months of year-over-year gains. But the price jump for July is down from increases of 20% or more that were occurring in the market over the past year. “Although we shouldn’t expect to see home prices drop in the coming months, there is a chance that they will level off as inventory continues to gradually improve,” said Yun. Source: CNN/Money