August 31st, 2020 2:30 PM by Richard Sardella MLO.100007700/NMLS 233568
Record high home prices dominate the real estate landscape
Despite the country being mired in a recession as well as a pandemic, U.S. home prices seem oblivious. According to Realtor's Clare Trapasso, prices are defying logic, expectations, and even belief, as they shoot up to record highs amid an unprecedented health and economic crisis. She asks, "It has all led some to wonder: Are some markets getting too hot? Could a significant correction be around the corner?"
In high-priced California and even less expensive Rust Belt, Midwestern, and Southern metro areas, prices have shot up by more than 20% in the past year alone, according to Trapasso.
"Nationally, the median home list price rose 10.1% year over year in the week ending Aug. 15, according to the most recent realtor.com® figures. No one predicted such a dramatic increase compared with 2019—when the economy was strong, no one had heard of COVID-19, and social unrest hadn't exploded, "she says. "In fact, many experts predicted prices would flatten, if not fall."
"This year's sky-high prices are driven by a rush of buyers competing for a very limited supply of properties. More demand than supply equals higher prices," she says.
Trapasso predicts that instead of another real estate fire sale, certain parts of the country could see price hikes slow down or flatten, or prices even come down—by just a little. "That could happen if prices rise so high that homeownership becomes too expensive for the majority of would-be buyers. So instead of a bubble popping, it's more that home prices could come back to reality."
Historically low-interest rates are a factor, driving more buyers into the market and allowing them to stretch higher on what they're willing to pay. Of course, lower rates mean lower monthly mortgage payments. "Those who weren't able to buy in the spring because of the pandemic—along with buyers desperate for larger, single-family homes with big backyards after sheltering in place for months—are adding to the rising demand," says Trapasso.
Some areas are benefitting from a mass exodus from urban centers, where a large number of office buildings remain vacant and homeowners who bought homes nearby to take advantage of the short commute no longer need to occupy their city cubicles. Remote work is booming.
Source: Realtor, CoreLogic, TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market worsened by -19bps. This was enough to move rates or fees slightly higher for the week. We saw elevated rate volatility throughout the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact your backend pricing this week. 1) The Fed, 2)Jobs and 3) Geopolitical.
1) The Fed: Last week, Fed Chair Powell unleashed the Fed's new stance on how they will meet their inflation target mandate. This week, the bond market will be looking for more clarification and to see if the Fed will be stepping up their assets purchases to keep pace with the big increase in Treasury issuance. Here is this week's schedule:
2) Jobs: We get an avalanche of jobs and wage-related data all week long with ADP Private Payrolls, Challenger Job Cuts, Initial Weekly Jobless Claims, and internal readings in ISM Manufacturing and Unit Labor Costs. Of course, Big Jobs Friday will get the most attention from traders as the markets are looking to see if the unemployment rate can dip below 10%.
3) Geopolitical: There are a lot of stories for bond markets to focus on, including our Presidential Election. No movement on another stimulus bill, China Trade Talks, Turkey vs. Greece, China vs. India, and many more.
This Week's Potential Volatility: High
As noted above, there's a lot going on this week that could move rates. Friday, we could see a lot of rate volatility if the jobs numbers don't fall in line with expectations.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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