Markets had already priced in the possibility of a stimulus bill, so rates were little affected by news of the actual event. The 30-year fixed rate mortgage moved up a single basis point to 2.80% as the 15-year mortgage fell 3 basis points to 2.34%.
.Talks of a new (more contagious) strain of COVID-19 in the UK had investors spooked, counteracting any positive effects from Congress’s latest $900 billion stimulus bill. Similarly, Treasury yields were flat as of yesterday evening.
New Year, New Housing Prices
Sales of existing homes fell 2.5% for the first time in five months. However, they are still on pace with experts’ expectations and represent a 25.8% increase from 2019. This decrease came about as supply continues to tighten and prices skyrocket. The median selling price grew 14.6% from last year, making November the fourth straight month of double-digit increases. Meanwhile, housing inventory fell almost 10% from October to a perilous 2.3 month supply. A six-month supply would suggest a “balanced market.”
What’s the outlook for next year?
- Experts’ predictions for 2021 housing prices vary widely between increases of 2%–10%
- The biggest mover for prices will be inventory (more inventory = less price appreciation)
- Once the pandemic ends, inventory will probably increase as sellers feel more comfortable putting their homes on the market and builders face fewer delays
- The FOMC isn’t likely to raise the federal funds rate, so interest rates aren’t expected to increase too rapidly in 2021
Confidence is Key (for Mortgage Rates)
When the outlook on the economy is grim, it’s usually a good thing for mortgage rates. Consumer confidence is at 88.6 this December, down 4.3 points from last month and 8.4 points lower than experts had predicted. The index was weighed down by consumer pessimism regarding current conditions.* This is in part due to slowed job growth as nonfarm employment only grew 0.2% between October and November. Retail sales have also been stilted, which may be hard on businesses that count on Christmas for more than 25% of their annual sales.
*This survey was taken before news came out that Congress had passed a $900 billion stimulus bill.
Eye of the Beholder
COVID has had diverging effects, benefiting some while hurting others. Among those who have benefited from the pandemic are homeowners who made prepayments and buyers who were able to secure mortgages with low rates. Meanwhile, those who faced negative effects (including landlords and tenants) depended on mortgage forbearance and eviction moratorium for security.
What have been the overall effects of COVID-19?
- Prepayments (which can refer to refinancing or making extra mortgage payments) were at a 16-year high in October and continue to be at elevated levels in November
- The national delinquency rate is up 79.2% from last year, but loans in the foreclosure process are down 30%
- $25 billion has been allotted to the states for rental assistance, but this amount is only sufficient to cover the back rent amassed through January 1st
Nearly a third of tenants have no confidence they can pay next month’s rent and 18% are already behind on their payments.