Here’s what current housing market conditions mean for the rest of 2021
By Movement Mortgage
According to an August 2020 survey by Redfin of 1,000 people who were planning to buy a home within the next 12 months, 25% of respondents stated the pandemic caused them to want to move or speed up their moving timeline, and 17% indicated they were interested in looking for a less expensive home.
This increase in demand for homes caused listing prices to climb, and that trend has continued through the first four months of 2021, due to the pandemic-fueled desires of people wanting a new home coupled with continued low-interest rates.
“2021 will be defined by low-interest rates and low inventory, a perfect storm that will continue to push home prices higher,” said Tyler Forte, founder and CEO of Felix Homes. “For buyers, this means homes going under contract in days if not hours. It means multiple offer scenarios where you are up against five, 10, 15 or more competing offers.
“For sellers,” he continued, “low inventory will mean their home should sell pretty quickly and for a great price. The trouble is, once it sells where do you go? Home prices are high across the country so it’s not like you will be able to find a great deal by moving out of state.”
Here’s more on what the housing market looks like so far this year, and what will happen next:
- Interest rates will remain relatively low
- Home inventory will increase
- It will remain a seller’s market
- Home prices will continue to climb
- Lumber prices will remain high
To learn more, read the full article on Yahoo Finance.
How borrower education can make housing more attainable
As reported by HousingWire, today’s U.S. housing market is leaving many prospective homebuyers priced out. Homes, on average, have become less affordable, and the ones that are affordable are in short supply. As a result, 55% of future homebuyers believe that homeownership is out of reach for them financially, according to recent Fannie Mae research.
However, while affordability and supply constraints have weighed on many prospective homebuyers, homeownership education has the power to help people prepare for the homebuying process and successful homeownership. As an industry, we have an opportunity to dispel mortgage qualification misconceptions that prospective homebuyers have and, at the same time, educate housing professionals about ways to better meet their needs.
Future homebuyers were asked to demonstrate their knowledge of the mortgage process and the affordable options available. Among respondents, 73% were unaware of lower down payment options that range from 3% to 5% of a home’s purchase price.
This is an important realization, considering that 31% cited not being able to come up with a down payment as one of the key challenges holding them back from homeownership. These findings align with a 2018 Fannie Mae survey in which many of the 3,000 respondents overestimated the minimum credit score and down payment necessary to qualify for a mortgage, and remained unfamiliar with low down payment programs.
This lack of mortgage knowledge and understanding might seem bleak, but it is actually a great opportunity for our industry to provide educational resources. Fannie Mae research found that 64% of future homebuyers said that they expect mortgage lenders to educate them on the process, and 63% said they want mortgage lenders to show them the right mortgage options for their needs. This demonstrates that many of the barriers preventing more homeownership can be overcome with more outreach and deeper engagement.
The obstacles to homeownership are very real for many people. However, education is a powerful tool in helping prospective homebuyers better understand their buying power, know what options are available to them, and prepare for sustainable homeownership. Fannie Mae, along with lenders, real estate professionals, housing counselors, and others can all play a role in helping prospective homebuyers become successful homeowners.
Stats at a glance:
- 55% of future homebuyers believe that homeownership is out of reach for them financially.
- 73% of study respondents were unaware of lower down payment options that range from 3% to 5% of a home’s purchase price.
- 31% of respondents cited not being able to come up with a down payment as one of the key challenges holding them back from homeownership.
- 3,000 respondents in a Fannie Mae survey in 2018 overestimated the minimum credit score and down payment necessary to qualify for a mortgage
- 64% of future homebuyers said that they expect mortgage lenders to educate them on the process.
- 63% said they want mortgage lenders to show them the right mortgage options for their needs.
5 ways this housing boom is nothing like the last one
A decade after the housing market emerged from a deep downturn, housing is hot again, according to BankRate. Indeed, home values are soaring to new highs. With its double-digit appreciation and rampant bidding wars, the latest real estate party has some eerie similarities to the last one.
“It’s clearly the strongest housing market that we’ve seen since the global financial crisis,” Federal Reserve Chairman Jerome Powell said recently. However, Powell doesn’t see evidence of a bubble, a view shared by many economists. The consensus: Home values might stop soaring, but they won’t plummet.
Housing economists and mortgage mavens point to compelling reasons to believe this housing boom will end with a soft landing rather than a crash. Five ways this real estate boom is unlike the last one:
Liar loans are long gone
During the lending frenzy of 2005 to 2007, anyone could borrow nearly any amount of money, regardless of the size of their down payment or the health of their credit scores. Lenders offered “no-documentation” mortgages — commonly known as “liar loans.” And borrowers did indeed lie, sometimes to outlandish levels.
Now, liar loans are gone, says Chuck Mathewson, branch manager at LowRates.com in Charlotte. “You actually have to prove your ability to pay back the loan, whereas with subprime, you didn’t have to prove anything,” he says.
No more shady lending practices
Subprime mortgages generated fat commissions for mortgage brokers, and mortgage brokers obliged by putting borrowers into loans they couldn’t afford. Lenders eagerly churned out toxic loans, knowing they’d offload them to investors.
“The mortgage industry was really unregulated,” recalls Steve Nakash, managing partner at Cherry Creek Mortgage. “The lenders were regulating themselves. The mortgage-backed securities were regulating themselves. The buyers on Wall Street were regulating themselves. It got to a point where if there’s no regulation, you’re going to have fraud.”
After the global financial crisis of 2008 and 2009, Congress stepped in to curb the predatory practices that led to the crash. Now, Nakash says, “It’s almost impossible to do anything that even resembles taking advantage of the consumer.”
Construction sites are few and far between
During the last housing bubble, developers engaged in a frenzy of homebuilding. Construction cranes dotted skylines throughout the Sun Belt.
“Starts are still 23 percent below January 2006 levels, leaving the U.S. housing market 3.8 million single-family homes short of what’s needed to meet demand,” says Todd Abraham, senior portfolio manager at investment bank Federated Hermes.
Price gains are happening everywhere
During the 2005 to 2007 spike, gains in home prices were concentrated in coastal areas and a few inland cities, such as Las Vegas, Denver and Phoenix. The boom essentially skipped Texas and the Rust Belt — home prices in large swaths of the country barely budged.
This time around, home price gains are spread widely throughout the country. From February 2020 to February 2021, home prices jumped a robust 13 percent in Cleveland, 12 percent in Detroit and 11 percent in Dallas, according to the S&P CoreLogic Case-Shiller home price index.
Demographic trends are a tailwind, not a headwind
In 2005, members of Generation X were hitting their prime homebuying years. There was just one problem — Gen X wasn’t very big, certainly not compared with the baby boomers who preceded them.
Much of the demand during the last bubble was driven by boomers buying multiple homes, and by enterprising Gen Xers becoming property barons.
Today, the millennial generation is in prime time for household formation. Unlike Gen X, this is a large age cohort. According to the Pew Research Center, there are 62 million millennials, compared with just 55 million Gen Xers.
Weekly Mortgage Rate Update
Mortgage rates have remained under three percent for three consecutive weeks. Consumer income and spending are picking up, which is leading to an acceleration in economic growth.
The combination of low and stable rates, coupled with an improving economy, is good for homebuyers. It’s also good for homeowners who may have missed prior opportunities to refinance and increase their monthly cash flow.
The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 2.96%, which is 0.02 points lower than last week, and down 0.30 points from this time last year.
ABOUT THE AUTHOR:
The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement’s staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.