Rates have been gradually shedding points since last Tuesday as lenders have more time to adjust to the adverse market fee and, in the process, tighten their margins. The 30-year fixed rate mortgage ducked back into 2s territory, dropping 7 basis points to settle at 2.98%. The 15-year mortgage also fell by 7 basis points to hit 2.61%.
Following a turbulent presidential debate and despite neither candidate’s seeming victory, stocks have been on the rise as of last night. Investors received hope of another stimulus bill passing some time in the near future, even in the face of harsh inter-party opposition. In housing-related news, new homes increase their share of U.S. home sales, households grow their assets, and commercial real estate plummets in value.
Out with the Old, In with the New (Houses)
While the majority of sales are of existing homes, new homes are starting to catch up and now represent 34% of all home sales. In August, existing home sales experienced only a 2.4% growth. New home sales, on the other hand, grew double that rate at 4.8%. When we look at last year’s data, this trend becomes even more evident; while existing home sales are down 2.5% from the same time last year, new homes sales actually increased a whopping 14.8%.
This is in part due to availability, but is also due to consumer preference as more builders are constructing homes in suburbs, which is where most of the demand is. In addition to suburbs, properties worth at least $1 million have also been performing particularly well, experiencing a 44% spike in sales from last year.
Hold Onto Your Assets!
The net worth of U.S. households (their assets minus their liabilities) made a record-breaking comeback in Q2, albeit still falling short of the peak from Q4 2019. This rebound was largely the result of increases in corporate wealth, which grew by $3.5 trillion, but also came about as consumers began depositing more money into their checking and savings accounts. Another contributing factor was the increase in real estate equity as homeowners now possess 65.6% of the value of all residential real estate, the highest this figure has been since 1990.
This increase, however, has not been felt equally as the middle class continues to fall behind in income growth. According to the Brookings Institution, the middle 60% of the U.S. population experienced half the rate of growth that the top and bottom 20% did (after tax). While the upper and lower class received boosts in the form of capital investments and government assistance respectively, the middle class typically relies solely on job wages, which have stagnated in the last few decades.
Commercial Real Estate Flops
In contrast to the residential market, commercial real estate has not been performing well. Despite there being fewer mortgage originations for commercial properties, outstanding debt for commercial properties continues to go up, increasing by $11.4 billion for a total of $2.16 trillion. This can partly be attributed to increasing vacancies as local businesses, particularly restaurants, salons, and retail spaces, struggle to keep their doors open. According to Yelp, 163,735 businesses have closed as of August 31st and 60% have stated they are not planning to reopen.
All things considered, commercial real estate prices have dropped about 25% from early this year. Unfortunately, help for small businesses through programs such as the PPP (which still has $130 billion left in unallocated funds) would require the passing of another stimulus bill, which is unlikely to take place before Congress begins leaving Washington, D.C. on October 2.