The Ghost of Housing Market's Past
Updated: Jan 8
Even amongst all of the economic turmoil of 2020, the housing market was and continues to remain a bright spot. As economists focus their sights on 2021, forecasts are more difficult than ever to create with so many looming uncertainties. 2020 saw impressive changes on the technology front as the industry worked to remain open during the shutdown and low interest rates kept home sales at record highs. Fannie Mae, Freddie Mac, and servicers put forbearance plans in place to help with loss mitigation. As those forbearance programs come to an end in 2021, the future remains unclear.
It's important now more than ever to keep everyone in our industry equipped with relevant news and trends in the housing market. We’ve collected some recent informative data to reflect the coming months, and possibly 2021 as we look to the past and present to try determine the future.
Mortgage rates remain at record lows, resisting their typical correlation to Treasury yields, which have recently been moving higher. Mortgage spreads, the difference between mortgage rates and the 10-year Treasury rate, are declining from their elevated levels earlier this year. Although today’s mortgage spread is about 1.8 percentage points and still has some room to move down if the 10-year Treasury continues to rise, it’s encouraging to see that the spread is almost back to normal levels.
And these low rates aren’t likely to go away anytime soon. CoreLogic recently released its three-year housing and mortgage outlook report for the year and they predict that 2021 will maintain its unprecedented home sales and record low rates as the economy continues to recover. However, the Mortgage Bankers Association is predicting slightly higher rates over the next couple years. “I expect that mortgage rates will start to slowly rise, with the 30-year fixed-rate expected to end 2020 at 3%, before increasing to 3.3% by the end of 2021,” said MBA Chief Economist Mike Fratantoni.
Existing and Pending Home Sales
United States home values have gone up 6.6% over the past year and Zillow predicts they will rise 7.9% in the next year. Existing-home sales grew for the fifth consecutive month in October to a seasonally-adjusted annual rate of 6.85 million, up 4.3% from the prior month and 26.6% from one year ago, according to the National Association of Realtors monthly report.
The median existing-home price was $313,000, almost 16% more than in October 2019. Total housing inventory declined from the prior month and one year ago to 1.42 million, enough to last 2.5 months – a record low at the current sales pace. More than 7 in 10 homes sold in October 2020 and 72% were on the market for less than a month.
Pending home sales fell slightly in October, with the only positive month-over-month growth happening in the South. The housing market is still hot, but we may be starting to see rising home prices hurting affordability. The combination of low inventory and rates, plus a strong demand has pushed home prices to levels that are making it difficult for home buyers, particularly first-time buyers to purchase a home.
The purchase market is poised to finish 2020 on a strong note. Applications fell slightly last week but were around 3% higher than the two weeks leading up to Thanksgiving. The refinance share of mortgage activity decreased to 72% of total applications, a possible foreshadowing of the decrease in refinance activity we may face in 2021.
Mortgage Forbearance and Credit Availability
The Mortgage Bankers Association's (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance remained unchanged relative to the prior week at 5.54% as of November 29, 2020. According to MBA's estimate, 2.8 million homeowners are in forbearance plans.
The job market data for November showed an economic recovery that was slowing in response to the latest surge in COVID-19 cases. It is not surprising to see the rate of forbearance exits slow, as households that needed forbearance assistance in October may be in even greater need now.
Mortgage credit availability increased in November according to the Mortgage Credit Availability Index. Mortgage credit availability increased slightly in November to its highest level since July, as the job market improved, and the housing sector continued to show strong borrower demand. Home purchase and refinance activity have remained strong in recent months, and the increased credit supply should help qualified borrowers still looking to capitalize on record-low mortgage rates. However, credit availability is still more than 30% below pre-pandemic levels and close to the restricted standards seen in 2014, again especially impacting first-time buyers.
So, what’s next for the housing market in 2021? If the past month is any indication, we shouldn’t expect the market to slow down anytime soon. Check out the infographic below from Realtor.com and their forecast and housing market predictions on key trends that will shape the year ahead.
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