Mortgage Market Insider
While rates went up this week, they remain near all-time lows, with both the 30-year and 15-year mortgage at least 100 basis points away from their 52-week high of 4.15% and 3.90% respectively. The 30-year fixed rate mortgage went up a modest 2 basis points to hit 3.05% while the 15-year increased by 18 basis points to settle at 2.68%.
The tech sector and big banks took a hit this week, causing the S&P 500 to experience its longest losing streak since February. This, however, is not cause for alarm, as a 5 to 10% correction is expected when markets are volatile (as they have been since March). In terms of housing, as each previous week has shown us, the real estate industry remains as strong as ever as homeowners receive a boost in equity, home builder confidence reaches new heights, and house flippers steadily increase their ROI.
Free Equity All Around!
Homeowners are flush with equity, with mortgage-holders (or 63% of homeowners) experiencing a 6.6% annual increase in equity. That amounts to around $620 billion dollars cumulatively and $9,800 per homeowner. Due to spikes in demand, home prices have been appreciating at a rate of 0.7% month-over-month and 5.1% year-over-year, allowing homeowners (whether on the market or not) to reap the rewards.
Those who may have trouble keeping up with mortgage payments can also benefit from this extra equity. In case of a necessary sale, this price growth may provide them with just enough cushion to avoid foreclosure or a distressed sale. However, this has yet to be a problem for the majority of homeowners as negative equity share is down 5.4% from last quarter and 15% from 2019. As it stands, only 3.2% of all mortgaged properties are underwater, but this may change as home prices stagnate and mortgage delinquencies increase.
Home Builders Put the Pedal to the Metal, But Construction Hits Roadblocks
With existing home sales increasing for the third straight month, and active listings on a steady decline, the pressure falls to new homes to fill the gap. This has led homebuilder confidence to hit an all-time high (again), increasing an additional five points in September and breaking the former record of 78 in August. However, any builders hoping to take advantage of positive sentiment may need to overcome longer build times and higher costs of supply.
According to the Census Bureau’s Survey of Construction (SOC), construction time to build a single-family home has been on an upward trend since 2014, with the average single-family home taking 8.1 months to complete where in 2014 it would have taken only 7. Additionally, builders must now deal with rising lumber prices, which have gone up 170% since April.
It’s a Flipper’s (not Investor’s) Market
While the number of houses flipped has decreased, they continue to represent a significant percentage of sales, with one out of every 15 homes sold in the Q2 qualifying as a “flip.” More importantly, the return on investment (ROI) on flipped homes is now an amazing 41.3%, up 2.4% from last quarter and 0.9% from last year. This means the average flipper made a gross profit of $67,902 per property sold.
Meanwhile, demand for rentals has softened as many either move back home or are relying on the CDC’s eviction moratorium to keep a roof over their heads. This has caused rent price appreciation to drop every month since the pandemic began, going from a 3.8% annual growth in February to just 0.3% growth in August. Many individual investors who rely on rent for income have had to cover housing costs with their savings as nearly a third of their tenants were unable to pay rent in August.
recent MMI news
Rates experienced a slight reversal coming back from the long weekend, with the 30-year fixed rate mortgage increasing by two basis points to settle at
Rates came careening down after FHFA delayed the implementation of its new refinance fee to December 1st and after consistent positive performance in the bond
After lenders had some time to digest the new FHFA fee on refinances, rates eked lower. The 30-year fixed rate mortgage fell by 3 basis
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