Holiday slowdown…not in 2020. According to the Mortgage Bankers Association This Week in Real Estate purchase applications Thanksgiving week were 28% higher than the same week last year. The average purchase loan amount was the largest in the thirty year history of the MBA survey. Below are a few newsworthy events from the first week of December that influence our business:
Three-Year Housing and Mortgage Outlook. 2020 was a truly unprecedented year. With it behind us, let’s look ahead at three housing market trends that are likely during the next three years. First, exceptionally low mortgage rates are likely to be around for an extended period. We expect 30-year fixed-rate loans to remain below 3% during early 2021 and average about 3.2% during the next three years. This would be nearly a percentage point lower than the average over the 2010-2019 decade. Second, Millennials will add substantial demand for housing over the next few years. In fact, we expect home sales relative to the housing stock, a measure of home “turnover,” in 2021 to 2023 to be above the average annual turnover rate of the prior two decades. Third, we expect home prices to rise in most neighborhoods, albeit at a more modest pace than in recent years. Price appreciation is expected to average 2.5% per year during the next three years, compared with 4.8% per year during the prior decade. One reason for slower value growth is because we expect for-sale inventory will increase. Low mortgage rates, growing numbers of first-time buyers, and gradually rising home values are three housing market trends we expect during the next three years.
Mortgage Demand From Homebuyers Spikes 28%, and the Average Loan Amount Sets a Record High. Thanksgiving week isn’t usually a popular time for homebuying, but most economic numbers this year are incomparable, especially in the pandemic-spiked housing market. Mortgage applications to purchase a home jumped 9% last week from the previous week, according to the Mortgage Bankers Association’s seasonally and holiday adjusted index. Purchase applications were a stunning 28% higher from a year ago. “Purchase activity continued to show impressive year-over-year gains, with both the conventional and government segments of the market posting another week of growth,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Housing demand remains strong, and despite extremely tight inventory and rising prices, home sales are running at their strongest pace in over a decade.” Fast-rising prices caused the average purchase loan amount to hit $375,000 last week, the largest since the inception of MBA’s survey in 1990.
Suburbs See Greatest Gain in Single-Family Construction in Q3. The National Association of Home Builders‘ Home Building Geography Index found that during the third quarter, the exodus from big cities to the suburbs and less expensive areas increased as people continue to work remotely. According to the HBGI, suburbs of medium-sized cities posted the greatest single-family gains in Q3, as there was a 15% growth rate over the last four quarters. The worst-performing regions were large metro urban cores, with a 5.7% gain. “The HBGI clearly shows that the geographic changes noted in the second quarter data continued into the fall, providing a boost to building in more affordable markets,” said NAHB Chief Economist Robert Dietz. “The ability of individuals and families to live further from urban cores is empowering consumers to acquire housing with more space at a lower cost. A key question is how long this effect will last. Our forecast assumes at least a persistent, partial effect beyond the deployment of a vaccine.” “The growing demand in lower density markets stems from the fact that housing is less expensive compared to urban areas and buyers can afford larger homes to accommodate home offices, exercise rooms and other specialty rooms which are in higher demand since the pandemic,” said NAHB Chairman Chuck Fowke. “However, builders continue to deal with affordability headwinds on the supply-side front, including the cost and availability of building materials.”