Rates had a lot of momentum the first week of January, even more so than in June when the refinance fee was first introduced. The 30-year fixed rate mortgage increased 15 basis points to 2.93% while the 15-year mortgage increased 9 basis points to 2.41%.
After a record-setting rally last week, the markets have started to calm down again. While many tech stocks including Twitter, Apple, and Facebook fell Monday, by Tuesday most have pared their losses. Upon news of a Democrat-controlled Congress, experts have also amended their earlier estimates for 2021 and are now predicting higher GDP, interest rates, inflation, fiscal spending, and S&P 500 earnings per share growth.
Are Rates about to Take Off?
While rates have been climbing since last Tuesday, they’re still on the low end. In the future, what rates will pay attention to is 1) increased stimulus and 2) the Fed’s actions. In less than a week, the Senate will convene for legislative business and should the controlling party, the Democrats, vote for more stimulus, this will result in more Treasury issuance, lower Treasury prices, and thus pressure on rates to go up. In regards to the Federal Reserve, rates will probably move up at the first sign of the Fed altering its bond buying strategy. It happened in the “taper tantrum” of 2013 and again in 2018. However, with unemployment still down from pre-COVID levels and inflation nowhere near 2%, this isn’t likely to happen any time soon.
Real Estate Industry Says: We’re Hiring!
The BLS job report posted its first drop after seven consecutive months of increases. Nonfarm employment fell by 140,000 jobs in December, falling well below economists’ expectations of a 50,000 increase. In addition, the JOLTS report showed a decrease in job vacancies in November.
This slowdown, however, does not extend to the real estate industry. While 15.8 million people reported not being able to work in the last four weeks due to COVID-related issues, the unemployment rate for construction workers has declined from a high of 14.8% in April to 8.6%. In fact, the residential construction sector added enough jobs over the past eight months to make up for all the jobs lost in March and April for a net increase of 57,200 jobs. Similarly, LinkedIn noted a 59% rise in demand for loan and mortgage experts since 2019*.
*If you or someone you know is looking for a job, Shop Your Own Mortgage is currently hiring in the Orange County and Las Vegas area. See our Career Opportunities page for more information.
To Rent or to Own?
While housing prices continue to outpace both rent and income growth, homeownership is still more affordable than renting in the majority of U.S. counties. It’s all because of interest rates, which had dipped below 3% most recently in November and have stayed there ever since. According to CoreLogic’s survey, which looked at median prices of three-bedroom houses in 915 counties, it’s more cost-efficient to own a home than rent in 63% of U.S. counties. This is especially true if you live in a U.S. county with fewer than 1 million people. The South and Midwest continue to boast the most affordable housing markets while the West and Northeast remain the least.