Lot sizes shrink to lowest level yet

The 30-year fixed rate mortgage moved up 5 basis points to settle at 3.03% while the 15-year dropped a more significant 18 basis points to land at 2.43%.

current outlook:

Stocks fell upon news that President Trump opposed Democrats’ latest stimulus proposal, instead setting his hopes on passing a swift bill upon his supposed reelection. Meanwhile, experts see positive signs for a rebounding GDP, though unemployment continues to be a concern. On the housing front, condo sales start to overtake single-family home sales, median lot sizes shrunk in 2019, and mortgage rates fail to drop to Treasury levels.

Lot sizes shrink to lowest level yet

Condos are the New Single-Family Homes

Condos are not often the first choice at a time when people value space and privacy. However, their siren call of availability and affordability are becoming increasingly hard to ignore. For one thing, condos have the advantage of inspiring fewer bidding wars than single-family homes. Only 41.3% received multiple bids (compared to 56.5% of single-family homes), allowing buyers to take greater advantage of low rates. Additionally, as more landlords decided to sell rather than rent, new condo listings grew an astounding 18.4% to single-family homes’ paltry 1.8%. 

Though they have experienced sluggish price growth so far, increasing a mere 5.4% to single-family homes’ record-breaking 11.9%, this may soon change as buyers start to reexamine their options. We’re already starting to see this from August’s data as condo sales increased 11.8% while single-family home sales grew a more subdued 10.8% due to supply shortages.

Love Thy Neighbor 

While coronavirus and America’s new preference for privacy may reverse this to some degree, lot sizes for single-family detached homes have shrunk to their lowest levels yet, putting Americans that much closer to their neighbors. Median lot sizes for homes sold in 2019 fell 390 square feet to 8,177 square feet. To put this into perspective, 390 square feet is about the size of a typical master suite. 

Fortunately, different regions have felt this to differing degrees. While lots in the Pacific area (at a median of 0.15 acres) are limited by high density populations and a dearth of developed land, New England has zoning regulations preventing higher concentration of homes. Therefore, its median lot size is three times that of the national median at 0.6 acres. 

Why Won’t Rates Stoop to Treasuries’s Levels?

If 10-Year Treasury yields are so low, why haven’t rates continued to fall? This wedge between Treasuries and mortgage rates goes by many names, including MBS prices, the new refinance fee, and lenders’ own discretions. MBS prices (which usually match Treasury yields’ movements) have not fallen to the same extent that Treasuries have. In fact, in Q2, the market produced $734.5 billion worth of new single-family MBS, up 57% from last quarter. 

On the lenders’ side, the new adverse market fee has kept rates from dipping too quickly. In addition, lenders are hesitant to lower rates for fear of exciting an already frenzied market. If rates are lowered too quickly, that could put upward pressure on home prices and incite more bidding wars. It could also lead to longer turnaround times as lenders strain their operations to keep up with demand. Thankfully, rates are still low enough (with the 30-year fixed mortgage down 77 basis points from last year) to increase buyers’ purchasing power and whet homeowners’ appetite to refinance. 

“Many Americans are putting their condos up for sale because they’re realizing that owning a single-family home is now possible for the first time, thanks to record-low mortgage rates and remote work. Landlords have also been selling condos that they previously rented out because the rental market has been showing signs of weakness due to the coronavirus.”

TAYLOR MARR, Redfin Lead Economist
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