An overview of 2020 (and sneak peek of 2021)

Despite some turbulence from year-end trading, rates continued their downward march. Interest rates on both mortgage products fell, with the 30-year fixed rate mortgage dropping 2 basis points while the 15-year fell another 3 basis points.

current outlook:

With a short trading week ahead of us and little market data left before the new year, there’s not really much for us to analyze here at Mortgage Market Insider. So, instead, we’re taking this time to reflect on the good, the bad, and the strange in 2020.

An overview of 2020 (and sneak peek of 2021)

the good

Mortgage rates hit record lows 16 times in 2020, including just last week. According to Freddie Mac’s Primary Mortgage Market Survey, the 30-year fixed rate mortgage sank to 2.66% for purchases on December 24th. This made homeownership more affordable even when home prices were skyrocketing. It also gave many the opportunity to refinance in order to reduce their monthly payment, take cash out, or shorten their term.

Case in point: December’s data notwithstanding, the best time to buy in 2020 was in November. While median housing prices were at an all-time high of $336,000, the average mortgage rate was only 2.77%. This put the median monthly mortgage payment at just $1,094. Thankfully, with the Federal Reserve most likely continuing its bond-buying program, we expect this trend of low rates to continue through to 2021.

the bad

The pandemic has weakened the entertainment, travel, and commercial real estate (CRE) industries, possibly forever. Movie theaters are reporting 95% less attendance, airlines are seeing their flight rosters halved, and hotel occupancy rates are at new lows. While economists foresee a gradual recovery in Q3 and Q4 of 2021, certain sectors may never fully heal.

How has commercial real estate been negatively affected?

  • Apartment owners are reporting a 0.5% drop in timely payments from last month and a 3.4% drop from last year
  • While the single-family delinquency rate has been declining, multi-unit delinquency rates have been rising
  • Architectural Billings Index—often a good predictor of where CRE investment will be in 9 to 12 months—has registered below 50 for the last nine months, indicating a contraction in design requests

the strange

In many ways, 2020 has earned the title of the Great Disruption, because it was unlike any recession we have ever been through and perhaps will ever go through again in our lifetimes. Unlike in recessions past, housing served as a lifeline when other industries were flailing. Among other things, it provided millions of jobs in construction and will likely provide a million more in 2021, creating approximately 2.9 jobs per home built and 0.75 jobs per $100,000 spent on remodeling.

Here are some other remarkable things that happened this year:

  • New homes typically fetch higher prices than existing homes (with a peak price gap of  $95,000 in 2017), but now the median price of existing homes is $315,000 higher than that of new homes
  • There was a 69% increase in “pre-orders” for houses (purchase of homes for which construction has not even started) compared to last year
  • Home sales have outstripped construction starts by a wide margin
    • This suggests that sales will slow and construction will pick up in 2021

“Record low mortgage rates … has helped millions of households refinance mortgages to generate meaningful monthly savings. Trimming the mortgage payment by $150, $200, or $250 per month could be the pay raise that otherwise didn’t materialize in 2020.”

GREG MCBRIDE, Chief Financial Analyst at Bankrate
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