Rates are staying low despite Treasuries’ lift-off in December. The 30-year fixed rate mortgage fell 2 basis points to 2.80% while the 15-year held at 2.38%.
The unemployment rate dipped lower to 6.7%, showing slowing improvement in the job market. Investors reacted positively, coming to the conclusion that this would push lawmakers to pass a stimulus package soon. Treasuries followed stocks’ cues by paying more attention to possible future stimulus than to a solitary economic indicator—the jobs report (more on this later).
Mortgage Rates V. Treasury Yields
Treasury yields deviated from their normal behavior when they spiked following a poor jobs report last week. Bad economic conditions usually lead to a drop in yields and an increase in bond prices. This would typically be bad news for mortgage rates. However, the margin between Treasury yields and mortgage rates has remained elevated since COVID-19.
This is for a couple of reasons:
- The housing market continues to outperform the U.S. bond market, keeping interest rates relatively low
- Mortgage rates are actually higher than they could be considering yields have surpassed their highs from June
- Lenders have hit the business “sweet spot” and so will keep rates from moving too much to avoid straining their capacity
However, the gap between mortgage rates and Treasury yields is shrinking as of November and is now at 179 basis points, the lowest it’s been since November 2019.
Foreclosure Season is Coming, But It’s Not as Bad as You Think
Mortgage forbearance is set to end for over 3 million mortgage holders in 2021, and as of October 6.44% of active mortgages are delinquent. Fortunately, this is different, and in some ways better than the housing crisis of 2008.
What’s Different from 2008?
- Americans have gained $2 trillion in equity during the pandemic, giving them some wiggle room to sell or refinance
- The national average loan-to-value ratio was 94% in 2010, and is only 70% now
- Foreclosed homes probably won’t be on the market long given the current supply shortage
- Investors and first time buyers will likely take advantage of this wave of foreclosures, resulting in multiple bids for houses
- Fannie Mae actually has a program called First Look, which renovates distressed homes and offers them first to buyers who will occupy the home themselves
Space is Not a Waste of Space
Consumers want their space, and they’re willing to put their money where their mouth is. One Redfin study found that car-dependent neighborhoods (where most errands require a car) are starting to outpace walkable neighborhoods in terms of growth in homes sold and median sales price. In addition, the number of homes for sale is down 39.2% for car-dependent neighborhoods compared to 10.7% for pedestrian-friendly neighborhoods.
We see a similar trend when it comes to single-family homes versus condos. While single-family home prices grew 16% year-over-year, condo prices only grew 7.43%, most likely due to a significant increase in available inventory.