Millennial and Generation X buyers drive up home prices

Rates maintained their record-breaking levels from last week, remaining nearly 1% below last year’s levels. This week, the 30-year fixed rate mortgage held steady at 2.78% while the 15-year increased a single basis point to 2.32%.

current outlook:

.The market flattened as investors waited to hear about the Georgia Senate election results. Many have already priced in a Republican victory in Georgia and thus a divided government in 2021. However, should the senate election go the other way, experts have predicted as much as a 10% sell-off in the S&P 500. Other market-moving events include Congress’ certification of the Electoral College results and Friday’s jobs report.

Millennial and Generation X buyers drive up home prices

What’s on Mortgage’s Mind?

Treasuries are also keeping their head down until Georgia Senate runoff results are announced, which at the earliest won’t be until later this evening. Whenever one party takes control of the government, it raises the possibility of increased spending and or tax cuts since approval is easier to attain. Treasuries must be issued to cover the cost, leading to an increase in Treasury yields and perhaps an increase in mortgage rates. For now, the biggest determinant of mortgage rates remains the Georgia senatorial race and the handling of COVID vaccinations.

Full Steam Ahead for Residential Construction

Construction spending grew 0.9% in November where experts had predicted a 1.0% rise. Despite falling short of expectations, this year’s spending continues to blaze ahead of last year’s, most of which can be credited to residential construction. Meanwhile both non-residential and public construction experienced more weakness in November.

A Summary of November Construction Spending:

  • Construction spending on private residential construction grew 2.7% month-over-month and 16.1% year-over-year
  • Public and non-residential spending fell 0.2% and 0.8% from last month, respectively
  • Over the past 11 months, construction spending amounted to $1,189.6 billion, or 4.3% above the amount spent from the same time last year

Housing Prices Prove a Point

Housing prices are appreciating at a rate unseen since March 2014. In November, they grew at a monthly rate of 1.1% and a yearly rate of 8.2%. This raises the issue of affordability as low-income households continue to be priced out of the market. Unaffordable homes plus limited inventory are in part why CoreLogic have forecasted 7.5% price growth in Q1 of 2021, but only 2.5% growth by November 2021.

Which homes experienced the most growth?

  • Lower priced homes grew one and a half times faster than higher priced ones
      • First time home buyers, mostly millennials and Gen Xers, drove up demand
  • While all states saw annual increases in housing prices, some saw more growth than others
      • Densely populated areas like the New York-Jersey City-White Plains metro saw less growth
      • Places with severe home shortages like Phoenix and San Diego had higher than average growth

“[It] was a fitting conclusion to a year that has seen mortgage rates plunge to levels that seemed unfathomable a few years ago. But as a new year is set to begin, some notable upward risks to mortgage rates loom.”

MATTHEW SPEAKMAN, Economist at Zillow
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