Back in April, when the first waves of COVID-19 data and unemployment numbers hit, some industry experts feared the worst for the real estate and mortgage industries. Were we destined for a repeat of housing crisis of 2008?
Six months later, all signs point to a strong…no.
Instead, the U.S. housing market has been one of the best-performing economic sectors in the world during the pandemic.
According to the Fannie Mae forecast:
Mortgage lending this year, likely will total $3.4 trillion, about $1 trillion higher than 2019, as low rates boost refinancing.
The average U.S. rate for a 30-year fixed mortgage will probably fall to 2.7% next year from 3.1% this year.
Existing-home sales jumped 25% to a seasonally adjusted annual pace of 5.86 million in July. It was the highest sales level since 2006 and the biggest monthly increase on record.
Americans will purchase about 5.8 million new and existing homes in 2021.
The U.S. forbearance rate in the last week of August fell to the lowest level since mid-April, according to the Mortgage Bankers Association.
“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. It’s also an office, a school, or both. Add in record low mortgage rates and the housing market soared.
Mortgage rates began tumbling in mid-March in large part because the Federal Reserve announced it would buy mortgage bonds and Treasuries to keep credit flowing amid the pandemic. The average U.S. rate for a 30-year fixed mortgage has been historically low under 3% since late July, as measured weekly by Freddie Mac.
This is not to say that it wasn’t a close call at the height of the pandemic. If unemployment rates had stayed between 20%-30%, the economic damage down to homeowners would have led to a rapid increase in inventory on the market, which would have crashed home prices as demand collapsed.
In April of 2020, the unemployment rate reached 14.7%. Currently, the total unemployment rate stands at 8.4%. The unemployment crisis has been significantly worse for those with lower incomes, and consequently worse for renters compared to homeowners. Even with the high unemployment rate, there will be over 140 million Americans working and the existing home sales market needs 4 million new mortgage buyers a year to be stable. Since the peak, roughly 10.6 million jobs have been recovered.
We knew it was a good second quarter for mortgage origination, we just didn’t know how good. Black Knight’s second quarter report showed that lenders originated $1.1 trillion in mortgages in the middle of a pandemic. That’s the highest number in about two decades, with refinance activity right behind with the highest numbers in 17 years. According to Black Knight, locks on refinances that are expected to close in the third quarter are up 20% from the second quarter – the same one that just broke a 17-year record.
The housing and mortgage industries remain a bright spot amidst the shadow cast by the pandemic. Only time will tell if they will continue to thrive into Q3. Even as winter approaches, the overall forecasts look sunny indeed.
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