September 21, 2021 Starwest Economic, Mortgage Rates, and Real Estate Report – Supply and Demand

September 21, 2021 @ 12:25 am Posted by starwest 0 [hupso]

Economic Commentary

Supply and Demand. The law of supply and demand is a bastion of capitalism. During the pandemic, we have never before seen this law so vividly in action. Take the price of oil. Before the pandemic, the price of oil was over $60 per barrel. When the economy halted, demand plummeted and the price fell to just over $10 per barrel. Now demand has recovered, but production has not and prices are higher than their peak before the pandemic.

On the other hand, the price of real estate never dropped during the aftermath of the pandemic, bolstered by record low interest rates and more demand from remote workers fleeing their cities seeking open spaces. Unlike oil, you can’t increase the supply of real estate to meet a sudden increase in demand. Even builders were hampered by the law of supply and demand as they faced rising lumber prices and labor shortages.

We have never had an economy turn off abruptly and then ramp up. Therefore, we are in unchartered territory with regard to the behaviors of supply and demand. We know that price of real estate cannot rise at the current pace forever. Yet, the demand is still present and the supply is expanding just moderately. Will labor shortages ease during the recovery, easing the threat of inflation? This is one of many questions we will be pondering as the recovery progresses.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to be stable this past week. For the week ending September 16, 30-year rates ticked down slightly to 2.86% from 2.88%.  In addition, 15-year loans fell to 2.12% and the average for five-year ARMs increased to 2.51%. A year ago, 30-year fixed rates averaged 2.87%, virtually the same as today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “It’s Groundhog Day for mortgage rates, as they have remained virtually flat for over two months. The holding pattern in rates reflects the markets’ view that the prospects for the economy have dimmed somewhat due to the rebound in new COVID cases. While our collective attention is on the pandemic, fundamental changes in the economy are occurring, such as increased migration, the extended continuation of remote work, increased use of automation, and the focus on a more energy efficient and resilient economy. These factors will likely lead to significant investment and new post-pandemic economic models that will spur economic 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

Less than 1 in 5, or about 19 percent, of homeowners with pre-pandemic mortgages, have refinanced, according to a recent study from Bankrate. Close to half, about 47%, with pre-pandemic mortgages have yet to consider refinancing, while more than a quarter, about 27%, have considered, but have yet to actually refinance. In addition to this, 7% don’t know if they had refinanced their mortgage or not. “The overwhelming majority of mortgage borrowers have not yet refinanced, despite record low rates over the past year,” said chief financial analyst Greg McBride, CFA. The major reasons homeowners cited for why they haven’t refinanced included 32% believing it wouldn’t save them enough money, 27% saying there’s too many high closing fees and costs, and 23% saying there’s too much paperwork and hassle. Despite this, “cutting the monthly mortgage payment by $150 or $250, possibly more, can create valuable breathing room in the household budget at a time when so many other costs are on the rise,” McBride said. Other reasons also mentioned were plans to move or pay off the loan soon, credit score issues, not qualifying due to unemployment or reduced income, owing more than their home is worth, and lastly, not knowing the reason why they haven’t refinanced. “The most cited reasons for not refinancing might not hold up in this environment of ultra-low rates,” McBride continued. “Reducing your payments with no out-of-pocket cash by rolling the costs into the loan are one way to trim the biggest household expense without compromising your savings account.” Source: Rise and Shred

The median monthly price to rent a home is $1,607—that’s a 9.8% annual growth, making renting some 15.5% more expensive than the monthly mortgage payments on a starter home in about half of the 50 largest cities in America, according to the Monthly Rental Report from Nationwide, compared to 2019, rent prices for two-bedroom units shot up by double digits and studio rents reached a two-year high. Experts say the unknown direction of the remote-work trend could be contributing to the rent elevation in particular areas. “Rents hit new highs in 40 of the 50 largest U.S. metros this July and grew at the fastest yearly rate we’ve seen in the last 18 months,” said Chief Economist Danielle Hale. “Sky-high rents and historically low interest rates have made the monthly cost to buy a starter home lower than renting one in nearly half the markets across the U.S. While this is good news for first-time buyers in these metros, there are plenty of other factors to consider when deciding whether to become a homeowner, including making sure it’s the right time for you and your family. But if the monthly costs have been holding you back, data suggests it’s worth exploring in many markets, and although it’s still hard to find entry-level homes, we are seeing more smaller homes coming on the market.” Many of these highest rent gains were seen in secondary markets where rental demand has exploded during COVID, driven in part by remote work enabling employees to escape crowded, expensive big cities—at least temporarily, Hale explains, adding that, with the future of remote work uncertain for many, first-time homebuyers saw less of a frenzy than renters in a number of July’s highest-priced rental markets. Source: DSNews

The rush is on to see a house as soon as it’s listed. But after the first five days of listing a home, showings drop considerably, according to a new analysis of June home showing data from ShowingTime, a showing management and tech firm for residential real estate. ShowingTime’s June analysis of more than 6 million properties nationwide revealed a significant slowdown in home showing traffic compared with more recent months. That may be due to more listings coming on to the market: New listings in June rose 5.5% year over year and are up 10.9% over the prior month, according to a new report from®. Still, the first five days of listings are “hyperactive with double-digit showings and offers submitted quickly,” according to ShowingTime. The ShowingTime Showing Index reveals that 64 markets still averaged double-digit showings per listing during June. Seattle and Denver had the most. However, showings dropped by nearly half in June compared to May, when 113 markets averaged double-digit showings per listing. “Buyer demand remains healthy,” says Michael Lane, ShowingTime’s president. “Showing traffic is still above last year’s levels—other than in the Northeast, where it is down 3 percent from last year—though we saw a quick month-to-month drop in the number of showings per listing in June, showing an uncharacteristically rapid slowdown in real estate demand coming into summer.” Nevertheless, the first five days after a listing goes live are critical for buyers and will have the most activity, Lane says. Source: ShowingTime

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