Rates have been on a downward slide since mid last week after news came out that jobless claims increased and GDP had contracted to its worst level on record. While rates are already at historic lows, the 30-year fixed rate mortgage dropped an astonishing 11 basis points while the 15-year mortgage plunged 15 basis points.
The federal unemployment benefits and eviction moratorium have both come and gone without much progress in Congress. However, representatives are optimistic that they will be able to come to an agreement by next week. In other government news, last week, the Federal Reserve reaffirmed their commitment to keeping rates unchanged and boosting our dilapidated economy using “its full range of tools.”
While the rest of the nation appears to be scraping by, the housing industry is experiencing upward mobility and may in fact be responsible for leading us out of the worst economic depression since the 1930s.
Real Estate to the Rescue!
Assertions from industry experts that the housing market will lead the U.S. out of economic turmoil have culminated in this news: Residential-related economic activity represented 16.2% of the total GDP, matching levels last seen in Q3 of 2007. This includes residential fixed investments (RFI), or money spent on construction of multi- and single-family homes and remodeling, and housing services or money spent on rent and utilities. While this was in part due to a drop in GDP overall, which fell 34.2% in Q2 of 2020, housing also received a boost from low interest rates, limited supply, and the increasing importance of home as an all-purpose living, working, and study space.
Affordability, by Any Other Name, Would Smell Just as Sweet
We’ve previously defined an affordable housing market as one in which the majority of people are able to afford at least half the homes for sale. However, purchasing a home is about more than making the initial investment: the down payment, closing costs, etc. Another facet of homeownership is being able to pay for utilities, maintenance and repairs, and most significantly, mortgage payments.
According to Black Knight’s Mortgage Monitor, only 19.8% of America’s median monthly income is required to make a mortgage payment on an average-priced home*. This is way below the traditional benchmark, which stipulates that housing costs should not exceed 30% of your monthly income. It is also the best that home affordability has been in four years, largely due to rates dropping faster than housing prices can increase. Current homeowners can also benefit from this, as 52% of mortgage holders stand to lower their rate by at least 75 basis points, leading to average savings of $289 per month by refinancing.
*Assuming a 30-year fixed rate mortgage and 80% loan-to-value (LTV) ratio
Virtual is the New Reality
According to a Redfin study, 45% of home buyers in June 2020 made an offer on a home before ever seeing it in person, an increase of 17% from last year. The housing industry had already been pivoting towards buying sight unseen, but this trend quickly caught on as the pandemic confined people to their homes and as competition heated up in the real estate market. In another survey conducted in July, about 25% of respondents said they were planning to limit the number of houses they toured, while 18% said they weren’t planning to tour homes at all. Sellers are also becoming more picky about who they show their properties to with many restricting open houses to those who