With the economy in recovery-mode, rates are staying at historic lows. This week, the 30-year fixed rate mortgage held steady at 2.92%, while the 15-year fixed rate mortgage dropped a single basis point to hit 2.61%.
As the number of COVID-19 cases increase and many states consider rolling back their reopening plans, stocks have started to fluctuate as investors try to make up their mind on the state of the economy. GDP fell in all states (including Washington D.C.) in Q1 of 2020, but the housing market has already shown signs of a comeback with sellers, buyers, builders, and realtors reaping the rewards.
The Consumers Have Spoken – Now is the Time to Buy
After falling a total of 29.5 points in March and April, the Fannie Mae Home Purchase Sentiment Index (HSPI) is steadily increasing, moving up 4.5 points in May, and then another 9 points in June. This in spite of the fact that the biggest positive corollary of home purchase sentiment is usually job security, which has taken a hit since the start of quarantine. While the majority of those surveyed did not feel worried for their jobs, the number of people who are concerned about being laid off or let go rose to 26%, doubling over the course of a few months.
What helps future housing outcomes is a general belief in the resiliency of the housing market. The percentage of people who said that now is a good time to buy hit its highest levels in five years at 61%. The percent of people who said the same about selling also increased by nine points to 41%. In addition, contrary to the CoreLogic data we looked at last week, 18% more people believe housing prices will go up over the next 12 months than down.
Realtors Are Getting “Real” Busy
According to the National Association of Realtors (NAR), 92% of their residential and commercial agents have reported that at least a portion of their buyers have come back, particularly those serving rural and small towns. With a pandemic on the loose and more companies working from home, many have been experiencing a surge in clients who prefer suburbs and exurbs, with an emphasis on newly-built homes. Among their clients’ biggest demands are homes with extra rooms and high-tech features.
While the U.S. Census results have yet to be released, a monthly survey by John Burns Real Estate Consulting indicates that June 2020 could be the biggest month for new home sales since the 2005 housing boom. According to their findings, new home sales grew by 55% from last year. One building company, Taylor Morrison, experienced a 94% annual increase in sales. This has led to a national price increase of 4.5% for newly constructed homes. However, this does not extend to all states as 14% of SoCal builders actually reduced their prices in June.
Even Your Bacon Will Cost You More Bacon
A measure of inflation, the consumer price index (CPI), increased by 0.6% in June as opposed to falling 0.1% in May. The most notable change was to gasoline which accounted for half of this month’s increase to the index. Other increases include food prices (bacon rose 8.1%) and motor vehicle insurance as Americans opted to eat at home and drive in privacy rather than risk using public spaces or transportation. Over the past 12 months, the CPI has only gone up 0.6%, which is the smallest increase since September of 2015. Despite fears of inflation from the Federal Reserve and government’s intervention, effects so far have been minimal. With 33 million Americans unemployed, economists reason that inflation should not be a concern.
How does this translate to mortgages? Lenders tend to watch inflation rates to ensure the declining real value of debt (including house debt) doesn’t cut into their profits too much. Because the CPI had only moderate gains, this means that lenders won’t be tempted to increase rates as a result of inflation.