The National Association of Realtors’ most recent Pending Home Sales Index, released This Week in Real Estate, reported an all-time high reading in November. All major regions posted double-digit year-over-year increases. Below are a few newsworthy events from the final week of 2020 that influence our business:
Contract Signings Surge to Record High for November. Sales have slowed slightly from the high levels recorded this fall. Pending home sales slid in November by 2.6% compared to those in October, according to the National Association of Realtors’ Pending Home Sales Index, released on Wednesday. Pending home sales are still up 16.4% compared to a year ago. All major regions are posting double-digit year-over-year increases. NAR’s Pending Home Sales Index reached a reading of 125.7 in November – an all-time high. NAR’s chief economist, Lawrence Yun, predicts home sales to continue to perform strongly in 2021. He expects existing-home sales to increase about 10% and new home sales to surge by 20% in the new year. “Economic growth is guaranteed from the stimulus package and from vaccine distribution, but high government borrowing will put modest upward pressure on interest rates,” Yun says.
How Record-Low Mortgage Rates Changed Everything in 2020. While the United States may not have been prepared to combat a deadly virus, a quick and robust response from the Federal Reserve, along with changing consumer preferences, created a perfect storm that resulted in a record year for the housing and mortgage industries. Mortgage rates would fall to record lows 16 times throughout 2020, with origination volume expected to eclipse $4 trillion. In January investors began to show an increased concern about the economic impact from China’s coronavirus outbreak, driving rates to a three-year low of 3.51%. Though rates fluctuated in a 5-basis-point range throughout the month, by the end of February, they settled to another three-year-low at 3.45%.
Prior to the national emergency issued on March 13 and the 1.8 million people place in temporary layoff, the month began with rates hitting Freddie Mac’s 50-year survey low of 3.29%. Another month of zig-zagging and another all-time record low, rates in April finish at 3.23%. Rates fall to 3.15% and help purchase demand rebound from a 35-year-over-year decline in mid-April to an 8% increase by the end of May. Keeping the ball rolling, the Federal Reserve continued to support the mortgage markets by purchasing about $4.5 billion a day of securities containing home loans packaged by Fannie Mae, Freddie Mac and Ginnie Mae. Mortgage rates bottom out once again to 3.13% and hold firm during the last two weeks of June. For the first time in survey history, rates fall below 3% – breaking their own record three times in July to an all-time low of 2.98%. July also reported that thanks to low rates, the second quarter of 2020 experienced a 12-year high in homeownership. After hitting a record low for the eighth time at the beginning of August to 2.91%, rates managed to remain low, still hovering below 3% for the entirety of the month. Rates break their own record 10 days in to September at 2.93%. Record-low rates become the new normal as rates plummet to 2.8% by the end of the October. Weaker consumer spending data, which accounts for the majority of economic growth, drove mortgage rates to their 13th record low at 2.72% in November. Rates break their own record a whopping three times in December to eventually settle at 2.66% as of the 24th.
Real Estate Market’s Momentum Will Continue Into 2021, Expert Says. It’s no secret that 2020 has seen a booming real estate market despite the economic woes the coronavirus pandemic has caused. But can that keep going in 2021? Lawrence Yun, chief economist at the National Association of Realtors, thinks so. First, Yun is expecting the Federal Reserve will continue low interest rates as officials have said they want to do so for several years. Further, he said, COVID-19 vaccines will boost job creation and, in turn, benefit the housing sector. The growth in people working from their homes during the pandemic may also continue to buoy home-buying, he noted, especially in communities traditionally seen as vacation destinations. And even homeowners who stayed put through the pandemic may feel the itch for a change of scenery after seeing how their circumstances have shifted, according to Yun. That could turn into a lasting trend. “These are homeowners who were perfectly content with their home before the pandemic, but now because they witnessed the pandemic, work-from-home flexibility, they’re itching for some larger-sized home or maybe different areas, quiet areas,” Yun said. “People who would not consider buying or selling a home several years ago are now beginning to be tempted to consider that, and that will filter in continuously through 2021.”