Both the 30- and 15-year mortgage moved up 2 basis points, leaving the 30-year fixed rate mortgage at 3.02% while the 15-year fixed rate mortgage is at 2.58%.
On the heels of month-end trading and at the start of Election Day, markets are in a considerable state of uncertainty. While we don’t expect markets to behave as erratically as they did in 2016, they are likely to have some response to election results, although it is hard to say what that response will be. Mortgage rates, on the other hand, probably won’t move too much unless there’s considerable pressure from the bond market.
GDP Gets Some Help from Housing
While GDP can’t tell us much about how the economy is performing today (as a backward-looking report), its strong comeback bodes well for a slow and steady recovery. Exceeding expectations, it rose 33.1% in Q3 of 2020, making up for the -31.4% reading of Q2. Unsurprisingly, housing was one of the standout industries, alongside retail and manufacturing.
Housing’s share of the GDP can be broken up into two components: 1) residential fixed investment (RFI), which represents construction, remodeling, and brokers’ fees and 2) housing services, which includes money from gross rent, utilities, and owners’ imputed rent or the amount homeowners could have received by renting out the property (this is included in GDP to ensure homeownership doesn’t have a negative effect on GDP). Together, housing accounted for 15.5% of GDP. With the exception of Q2 of 2020’s contribution of 16%, this is the most housing has contributed to GDP since summer of 2008.
With Steep Prices and Competition, Buying is an Upward Climb
Pending home sales dipped for the first time in four months after reaching a record-high in August. Based on data compiled by the National Association of Realtors (NAR) who classify a “pending sale” as a signed contract, pending home sales fell by 2.2% in September. However, this is still 20.5% higher than it was last year.
This is largely the result of inventory shortages, which have subsequently driven home prices higher. The U.S. Census Bureau states that the national supply of active listings in September fell to the lowest levels ever seen, with only 40% of the supply seen in 2008 and 75% of the supply seen in 2000. To match this dearth of inventory, home prices have accelerated at an annual rate of 6.7% according to CoreLogic and at a rate of over 14% according to Black Knight. Consequently, 62% of prospective buyers have spent three or more months on the market without any luck in part due to unaffordable prices and in part due to being outbid.
Residential Construction Takes the Cake
While spending in the non-residential and public sector have slowed, leading to an overall construction spending growth of merely 0.3%, private residential construction has blazed ahead. Continuing its three-month growing streak, private residential construction saw a month-over-month increase of 2.8% in September.
Buoyed by strong builder confidence and low mortgage rates, spending on both single- and multi-family homes increased. Spending on single-family home construction grew by 5.7% while spending on multi-family homes grew by 1.2%. In total, private residential construction spending is up 9.9% from last year.