Low mortgage rates coupled with a shift to working at home are driving demand, Yun says
The deadliest pandemic in more than a century has failed to derail the housing market because of the lowest mortgage rates ever recorded coupled with a shift in how people use their homes.
“The buyers are coming in because of the low interest rates – that’s the No. 1 reason,” said Lawrence Yun, chief economist of the National Association of Realtors said in an interview with HousingWire. “The secondary demand is coming from the work-at-home phenomenon that has people looking for bigger homes and caring less about commuting time.”
People now see their home not only as a place to live, but as a shelter during a national health crisis, Yun said. It’s also an office and, for families with children, often a part-time school.
Low rates, market boom might be fueling renovations
“This time period has enabled people who ordinarily wouldn’t start a home improvement project to suddenly dive right in,” Ehrlichman said.
Whether it’s because they suddenly had the time available, the funding, a strong desire to start nesting — or perhaps a combination of all of these factors — the surge isn’t surprising, he added.
Although in certain respects we are in a true economic recession, Ehrlichman said, homeowners tend to skew wealthier and many who have investments are suddenly flush with cash and have access to once-in-a-lifetime opportunities for cheap borrowing.
“For this reason, we may look to historically low borrowing rates and a booming stock market as drivers for an increase in home improvements,” he pointed out.
Mortgage rates improved nicely today with the average lender more convincingly back under the 3.0% threshold for conventional 30yr fixed scenarios. In general, that refers to 740+ credit and 20% equity/down-payment on an owner-occupied single family home with a loan amount at or under the conforming loan limit.
Looks like new homes are creeping back into the market with a boost in home seller confidence, translating into a near recovery edging back up to levels seen last year, according to Zillow’s Weekly Market Report.
That said, however, the new supply is being outpaced by buyer demand as newly pending sales, fueled partly by mortgage rates that tumbled this week even more substantially, have spiked; big, in year-over-year numbers.
From the same week last year, newly pending sales ticked up 16.5%. The catalyst? Strong buyer demand rolling in the late summer—the largest year-over-year hike since mid-February, prior to COVID-19.
However, this recession we find ourselves within (four months in and running), is bucking the usual trends regarding how it affects the housing market. Typically, home prices fall. But we are seeing home prices grow—a trend which, according to data gleaned from the CoreLogic HPI forecast, experts believe will continue well through the first quarter of 2021.
A growing trend finds home buyers fleeing the expensive coastal cities like San Francisco and New York in search of more affordable areas. According to Redfin, over one quarter (27.8%) of redfin.com users reported wanting to relocate to another metro area during the month of July.
Experts are pointing directly to the increased number of people now working remotely (most from their own homes) as being a huge catalyst for this desire to move away from cities with sky-high costs of living and cramped density, thus downsizing their expenses and (hopefully) increasing their space and house size due to greater affordability in greener pastures.
“Both conventional and government refinancing activity decreased last week, despite 30-year fixed and 15-year fixed mortgage rates declining to near historical lows. Mortgage rates have remained below 3.5 percent for five months now, and it’s possible that refinance demand may be slowing and will not significantly increase again without another notable drop in rates,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase applications were essentially unchanged over the week and were 28 percent higher than a year ago – the 15th straight week of year-over-year increases. Lenders are reporting that the strong demand for homebuying is coming from delayed activity from the spring, as well as households seeking more space in less densely populated areas.”
Mortgage rates have improved noticeably in the past few business days, largely due to the delay of a new fee announced earlier this month. Ironically, that same fee is the reason rates are about to move higher, just as many lenders are back within striking distance of all-time lows.
Thanks for reading.