Housing Trends

With mortgage interest rates hitting a 30-year low -- falling to 2.86 percent -- many consumers are looking to secure a lower rate for themselves by refinancing. This has led to a 20 percent spike in refinancing applications in January.

According to the Mortgage Bankers Association (MBA) Builder Application Survey (BAS), low interest rates have also leveraged the number of applications to purchase a home, up 10 percent from a year ago. 

Piqued by hope for more stimulus checks

Many consumers are hoping that the change in administrations on Capitol Hill might bring them some additional funds that could help offset the cost of getting a better mortgage deal. 

"The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and rates higher,” claimed Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. 

Kan went on to note that many consumers are ditching the idea of once-loved adjustable-rate mortgages (ARM) due to the possibility of being able to lock in a good rate. The ARM share of activity has pretty much bottomed out, decreasing to 1.6 percent of total applications. 

Make sure you understand interest rates

While a fat stimulus check sounds like a great way to help buy or refinance a home, one analyst says consumers need to understand how the whole interest game plays out before they get too far ahead of themselves. 

“Covid-relief stimulus may do great things for people in the short term and for the economy in the longer term, but it does bad things for interest rates (assuming you like low rates, that is),” commented Mortgage News Daily’s Matthew Graham. “Reason being: the government issues/creates/sells U.S. Treasuries to finance the additional spending. More Treasuries issued = higher yields/rates, all other things being equal, and Treasuries correlate significantly with mortgage rates.”

Graham went on to say that the recent low rates were likely a normal correction to the short-term oversold momentum. “That said, there are logical reasons for rates to continue higher in the longer term. As such, there's no guarantee about how much additional improvement we might see this week,” he said.

Each year, United Van Lines issues a study of where Americans chose new homes and the places they left behind. Because of the coronavirus (COVID-19) pandemic, the 2020 study may take on added relevance.

To be clear, the 44th annual migration report is not a scientific study but is based on company moving records for the year, with a focus on trends. It’s not the only moving company in America but its scale suggests it could confirm other anecdotal evidence emerging in the past year. And it does.

According to the study, Idaho was the state with the highest percentage of inbound migration -- 70 percent. That coincides with reports of young apartment dwellers, suddenly working from home, looking for new homes with wide-open spaces.

New Jersey topped the list of states that people left, a spot it’s held for three years in a row. New York, Illinois, Connecticut, and California were close behind on the list of states people abandoned.

Jobs were a big factor

The United survey each year asks customers why they are moving. This year, 40 percent said they moved for a new job or for a transfer. Left unsaid was whether the job could be done from anywhere.

Twenty-seven percent said the move was to be closer to family. Again, the ability to work remotely could have granted more people that flexibility as the pandemic closed offices across the nation.

For customers who cited COVID-19 as an influence on their move in 2020, the top reasons they gave were concerns for personal and family health and wellbeing, the desire to be closer to family, and new workplace flexibility. 

But even though COVID-19 may have had an outsized influence on people’s migration patterns in 2020, the data shows some trends remained consistent with previous years.

Consistent trends

"United Van Lines' data makes it clear that migration to western and southern states, a prevalent pattern for the past several years, persisted in 2020," said Michael A. Stoll, economist and professor in the Department of Public Policy at UCLA. "However, we're seeing that the COVID-19 pandemic has without a doubt accelerated broader moving trends, including retirement driving top inbound regions as the baby boomer generation continues to reach that next phase of life."

People moving to begin new lives in retirement were less affected by the pandemic. Delaware, with a very low state income rate, was number one. Florida, with no state income tax and plenty of sunny weather, was number two.

Rents actually went down a bit during the pandemic, but a new report from real estate marketplace Zillow suggests that this break for renters is coming to an end.

In 2021, Zillow says it expects the largest increase in rents since 2005 -- at the height of the housing bubble.

Late this year, rents began to rebound, largely based on rising home values. The typical rent was up 1.1 percent year-over-year in November to $1,734. Among the 100 largest markets, monthly rent growth was highest in Stamford, Conn; Providence, R.I.; and Ogden, Utah -- which grew between 2.1 percent and 3.1 percent. 

For the most part, rents in November were roughly where they were at the beginning of 2020 as more people -- members of Generation Z especially -- began looking for new places to live. Zillow expects that trend to gain momentum in 2021.

Lifting cloud

"With a vaccine on the horizon and Gen Z continuing to graduate from college, we expect the cloud of uncertainty surrounding the pandemic to lift and demand for rental units to surge in 2021," said Zillow senior economist Chris Glynn. 

Glynn says the anticipated rebound in rents may be good news for landlords, but it comes at a bad time for millions of renters who were hit hard by pandemic-related income loss, putting them in an even more tenuous position.

“Further government intervention will likely be needed to avoid a painful wave of evictions," Glynn concludes.

Supply and demand are obviously one factor that is pushing up rents, but the Zillow report says rising home values are also a big contributing factor.  Zillow's typical home value rose 1.1 percent from October to November and 3 percent over the past three months -- both of which are the largest gains on record going back to 1996. 

Home values are up 7.5 percent since last year to $263,351, with the largest annual increases by metro in San Jose, Phoenix, and Seattle -- all posting double-digit increases.

Record low inventory

In a perfectly balanced market, the rapid increase in home values would lead to increases in construction, including apartments. But new construction has been slow to add to housing inventory, which continued to drop to record lows this year.

"We expect the housing market to continue its bull run from this summer and fall well into 2021," said Zillow senior economist Jeff Tucker. "This rapid price growth will be driven by the same factors that took the steering wheel in 2020: strong demographic trends, shifts in buyer preferences sparked by the pandemic, low mortgage rates, and short supply.”

Millennials, now in their mid-30s, can be expected to continue moving out of apartments and purchasing homes. But Tucker says that might bring little relief to the rental market as it continues to drive up property values in 2021.

As home prices rose during the pandemic, homeowners in the United States have collectively gained around $1 trillion in equity, according to a report from CoreLogic. 

Homeowners with mortgages in the U.S. have seen an equity increase of 10.8 percent, or about $17,000 per homeowner. CoreLogic said that’s the largest equity bump seen since the first quarter of 2014.

Since the onset of the pandemic, home prices have been trending upward. Many people decided to move for various reasons related to the work- and school-from-home conditions necessitated by the health crisis. Others opted to move to less densely populated regions in the interest of safety, and some decided to buy homes this year due to record-low mortgage rates. But while housing demand grew stronger, supply remained lean. 

CoreLogic said homeowners will probably see their equity grow even more in the months ahead before the numbers moderate at some point over the next year.

“Equity gains are likely to persist over the next several months as strong home-purchase demand is expected to remain high and continue pushing prices up,” the report said. “However, the CoreLogic HPI Forecast shows home prices slowing over the next 12 months as new home construction and more existing for-sale homes ease supply pressures. This could moderate the pace of both home price growth and equity gains.” 

Varied by market

The amount of equity gained per homeowner varied by location, with homeowners in locations with the hottest home prices seeing the biggest gains. 

Washington had the highest year-over-year average increase at $35,800. Homeowners in California gained $33,800, and those in Massachusetts gained an average of $31,200. The smallest equity gain was seen in North Dakota, where homeowners gained just $5,400 in equity. 

Frank Nothaft, chief economist at CoreLogic, said the equity gains of 2020 can provide “an important buffer to protect families if they experience financial difficulties.” Borrowers who aren’t able to keep their homes due to financial hardships may still be able to sell into the market and make a profit.

The coronavirus (COVID-19) pandemic has spurred mobility in 2020 when it comes to housing. People have been on the move, often relocating to other cities since they now work virtually.

Realtor.com has issued a new report, highlighting what it says will be real estate hotspots in 2021, drawing homebuyers from all over the country. Not surprisingly, cities that are technology centers lead the pack.

Here’s the list of realtor.com’s top 10 hot spots::

1. Sacramento

2. San Jose

3. Charlotte

4. Boise, Idaho

5. Seattle

6. Phoenix

7. Harrisburg, Pa.

8. Oxnard, Calif.

9. Denver

10. Riverside, Calif.

Reliant on technology

"This past year, we've all become more reliant on technology to work, learn, and maintain personal connections,” said Danielle Hale, realtor.com’s chief economist. "Additionally, the relative stability of government jobs in the past year has driven home prices and sales in several state capitals to the top.” 

The list is also dominated by small to mid-sized cities. New York, Chicago, and Los Angeles aren’t where people are headed. Instead, cities like Sacramento, San Jose, Charlotte, Harrisburg, Pa., and Boise, Idaho are expected to emerge next year as housing hot spots.

Even during the pandemic, these cities have been blessed with a stable job market and plenty of jobs paying high salaries. And for that reason, Hale says people considering a move to one of these hotspots should be prepared to act fast.

Expect rising prices

“Home buyers, particularly younger first-time buyers, looking in one of these markets should expect rising prices and heavy competition,” she said. “Meanwhile, sellers will remain in a position of power, but will find themselves on the other side of the bargaining table when buying their next home."

In addition to technology industry centers, the hot spots include many state capitals. In fact, five of the top 10 cities are centers of government. They’ve all attracted more than their share of millennials in 2020.

Data from realtor.com shows millennials make up 14.1 percent of the population of the top 10 cities, slightly higher than the U.S. as a whole. 

The report concludes that a city’s ability to lure millennials is a good indicator of the livability of the area including job opportunities, dining, and entertainment. 

Demand for single-family homes is rising, along with prices, while inventory levels continue to fall. A new report from Zillow suggests that trend will continue “for years to come.”

For buyers, it means it may be harder to find an affordable home. For sellers, it means getting more money for your home as supply keeps falling behind demand.

It’s true that the current coronavirus (COVID-19) pandemic has contributed to the imbalance, but the researchers at Zillow say a significant cause goes back more than a decade, to the housing crash associated with the 2008 financial crisis.

They point to low rates of household formation since the Great Recession -- what they call “missing households.” People graduating from college after 2009 were slow to move out of their parents’ home because it was hard to find a job.

As the economy recovered and they have been better able to afford apartments and houses, there has been a long and sustained increase in demand for housing. At the same time, builders are constructing houses at about half the rate they did before the financial crisis.

High demand for the foreseeable future

According to Zillow, the missing households from the past 15 years and the large millennial generation aging into peak homebuying age should keep housing demand high for the foreseeable future. 

“The last two years showed that when the economy is firing on all cylinders and most Americans have access to decent jobs, more of them will be able to find a home of their own,” said Zillow senior economist Jeff Tucker. “The sooner we can put the pandemic and 2020 recession behind us, the sooner access to housing can resume its expansion."

But the pandemic has affected housing in unforeseen ways. It has spurred a wave of home buying as many apartment dwellers in America’s cities sought for more space in the suburbs. Working remotely allowed millions of people to think about moving much farther away from the office because it was no longer necessary to make the commute.

The Zillow report highlights a fundamental problem for the housing market going forward -- the basic economic principle of supply and demand. There are simply more people trying to buy a home right now than there are available homes.

"Solid fundamentals remain for the housing market, including low interest rates and high consumer demand. However, financing to invest in lots, land and inventory has been a significant challenge for private builders," said Todd Pyatt, owner of Pyatt Builders.

Shrinking inventory

According to the National Association of Realtors (NAR), total housing inventory at the end of October totaled 1.42 million units, down 2.7 percent from September and down nearly 20 percent from one year ago. 

"Homebuilders' confidence has soared even though the actual production has not," said Lawrence Yun, NAR’s chief economist. "All measures, such as reduction to lumber tariffs and expansion of vocational training, need to be considered to significantly boost supply and construct new housing."

Builders in recent years have focused on building more expensive luxury homes because lower-priced entry-level homes have a much smaller profit margin. Making inventory levels even tighter, current homeowners are not selling as often as in the past.

Zillow concludes this dynamic is probably not going to change anytime soon. Even with record-low mortgage rates, buyers will find it challenging to find and pay for a home.

The housing market is still soaring. Sales of existing homes jumped 4.3 percent last month, according to the latest data from the National Association of Realtors (NAR).

Homes sold in October at an annual rate of 6.85 million units. While sales were up sharply from September, they were even higher when compared to last year, rising 26.6 percent over October 2019.

The numbers show a trend that began soon after the coronavirus (COVID-19) pandemic began and the economy shut down for six weeks in the spring. Since then, people have been moving out of cities and buying homes in the suburbs and smaller cities.

“Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year," said Lawrence Yun, NAR's chief economist. 

Resilient net worth

The economy is still struggling with the effects of the pandemic. Unemployment remains at more than twice pre-pandemic levels, and new claims for unemployment benefits have begun rising again. Many Americans are facing economic hardships, but homeowners have seen their net worth remain remarkably resilient.

"The surge in sales in recent months has now offset the spring market losses," Yun said. "With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3 percent in 2021, I expect the market's growth to continue into 2021." 

Yun expects the sales trend to continue, recently forecasting that existing-home sales will rise by 10 percent to 6 million in 2021.

Fewer homes to choose from

The demand for housing may spur homebuilders to increase the nation’s supply, but that is happening at a plodding pace so far. That means there are fewer available homes to purchase, and those on the market are carrying higher price tags.

The median existing-home price for all housing types in October -- including condos and co-ops -- was $313,000, up 15.5 percent from October 2019. NAR said prices were up in every region of the country.

The nation’s inventory of homes on the market continued to shrink. At the end of October, total inventory was 1.42 million units, falling 2.7 percent from September.

Taken with the rise in sale prices, that presents a challenge to people trying to purchase a home. According to NAR, unsold inventory sits at an all-time low 2.5-month supply at the current sales pace, down from 2.7 months in September and lower than the 3.9-month figure recorded in October 2019.

The coronavirus (COVID-19) pandemic has led to a home-buying binge that has significantly raised the price of the average single-family home. But it has also reduced what landlords can charge for rent, and Generation Z appears to be taking advantage of it.

New research from Zillow shows that vacancy rates in New York and other large cities rose sharply as families moved to the suburbs during the spring and summer. Young people, many of whom were living with their parents, have begun moving in.

They’re being drawn by concessions like a free month's rent and are either renting a place for the first time or moving up from a smaller apartment. According to Zillow, most of the move-ups say they moved because they got a better deal.

"What we're seeing is that renters who might have been in a small apartment are instead looking at larger units -- maybe a two-bedroom instead of a one-bedroom," said Zillow Premier Agent Kenny Truong, founder of Fast Real Estate in the San Francisco Bay Area. "Some others are moving to a rental with a view or a yard for a similar price." 

Rising vacancy rates creating deals

According to the U.S. Census Bureau, the rental home vacancy rate rose from 5.7 percent in the second quarter to 6.4 percent in the third quarter as apartment dwellers suddenly working from home decided they needed more space. At the same time, the owner-occupant vacancy rate shrank to 0.9 percent.

The Zillow survey found more than a third of Gen Z renters who moved in the past year reported moving from the home of a family member or friend. That's up from 20 percent who reported the same in an April survey. This data is consistent with previous Zillow research that found the number of young adults living with parents or grandparents was beginning to fall in September, after rising dramatically in the spring.

The survey found that Gen Z renters who moved from an existing apartment they were renting to another paid more for their new home, but many said it was a better value that gave them more home for their money.

On a national basis, the typical monthly rent was nearly 1 percent higher in September but lower than last year in seven major metro areas. This suggests that a glut of empty apartments has pulled rents lower in some areas.

The number of mortgage applications to purchase a home fell sharply last week to a six-month low. It’s a signal to people who have been thinking about a home purchase that now may be the time to pull the trigger.

Since the early days of the coronavirus (COVID-19) pandemic, the housing market has been on a tear. Not only has there been increased competition for available homes, but the overheated market has also pushed up home prices.

Now there are fewer buyers competing for homes, as evidenced by the Mortgage Bankers Association report. It showed that mortgage applications last week fell 3 percent from the week before, continuing a downward trend during the fall.

But to give you an idea of how heated 2020’s housing market is compared to last year’s, the report shows demand for mortgages last week was still 16 percent higher than during the same week in 2019.

Plenty of headwinds

There are still plenty of headwinds facing home buyers in the fall of 2020, but at least the competition, which was fierce during the summer, isn’t as intense. There may be fewer bidding wars between competing buyers.

But home prices have risen significantly since this time a year ago, partly because people working from home have decided they need more space and partly because there remains a lack of available homes on the market.

Low rates, higher prices

Housing experts say something else may be encouraging sellers to keep raising their asking prices -- record-low interest rates. If buyers are paying less interest they can afford to pay more for the home, and sellers haven’t been shy about asking for higher prices.

The National Association of Realtors (NAR) reported that the median price for all housing types in September was $311,800, a nearly 15 percent increase from September 2019. It said September's national price increase marked 103 straight months of year-over-year gains.

 “Inadequate housing supply is putting upward pressure on home prices and is impacting affordability — especially for first-time buyers and lower-income buyers,” Joel Kan, an economist at the Mortgage Bankers Association, told CNBC.

The average rate on a 30-year fixed-rate mortgage fell to a low of 2.98 percent last week. That’s a full point lower than buyers could have gotten a year ago.

The coronavirus (COVID-19) pandemic has not only raised home prices; it’s also significantly raised rents, which were pretty high to start with.

As the median purchase price of a single-family home has risen nearly every month during the pandemic, The Wall Street Journal reports that the cost of renting a single-family home has risen just about as fast.

It analyzed data from large corporate landlords, such as Invitation Homes and American Homes 4 Rent, describing their business as “pandemic proof.” These large landlords picked up thousands of homes across the nation during the financial crisis of 2009, when home prices plunged.

Many of these homes are in suburban areas of the country that have seen an influx of former city dwellers seeking more room, inside and out. Housing experts attribute this migration to the fact that so many people have been working from home since late March.

“The demand we see today is totally insatiable, and it’s growing,” David Singelyn, chief executive of American Homes 4 Rent, told The Journal. The company reportedly owns more than 53,000 houses in 22 states. Most recently, its monthly rent has averaged just under $1,700 a month.

Rent costs continue to increase

According to The Journal, which cited data from analytics firm Green Street, listed rents for available homes owned by large corporate landlords rose 7.5 percent in October alone. It was the fifth consecutive month of year-over-year increases and the largest on record.

For a household that hasn’t lost income during the pandemic, rising rents are a financial burden but not a crisis. For families where one or both wage-earners are out of work, rising rents may pose quite a large crisis.

Because of the growing shortage of available homes to buy or rent, housing costs have been rising sharply for the last three years. In January, even before the pandemic hit, the Harvard Joint Center for Housing Studies issued a report showing that rent affordability was beginning to affect even middle-income consumers.

With higher-income households accounting for much of the growth in rental demand since 2010, the report noted that new supply has been concentrated at the upper end of the market. At the same time, demand for rental housing at the low-to-middle income segments of the market took off.

"Rising rents are making it increasingly difficult for households to save for a downpayment and become homeowners,”  said Whitney Airgood-Obrycki, a research associate at the Center and lead author of the report. “Young, college-educated households with high incomes are really driving current rental demand."

That also seems to be the case 11 months later. People with young families have led the wave of new renters, seeking greener pastures in the suburbs amid the COVID-19 pandemic and creating new demand that has put upward pressure on rents.

After an extremely hot sales summer, home sales cooled significantly in September. Pending home sales, which reflect contracts that were signed during the month, dropped 2.2 percent from August to September.

Putting that in context, however, is how September sales compared to 12 months earlier. Year-over-year, sales contract signings were up 20.5 percent from September 2019, showing just how active the market has been since the coronavirus (COVID-19) pandemic began.

"The demand for home buying remains super strong, even with a slight monthly pullback in September, and we're still likely to end the year with more homes sold overall in 2020 than in 2019," said Lawrence Yun, NAR's chief economist. "With persistent low mortgage rates and some degree of a continuing jobs recovery, more contract signings are expected in the near future."

Since May, the pandemic has largely shaped the housing market. Millions of apartment dwellers suddenly working from home began to look for single-family homes. Others sought homes in other cities, convinced they could continue to work remotely. NAR expects that trend to continue.

"Additionally, a second-order demand will steadily arise as homeowners who had not considered moving before the pandemic begin to enter the market," Yun said. "A number of these owners are contemplating moving into larger homes in less densely populated areas in light of new-found work-from-home flexibility."

Seattle, Boston, and Los Angeles lead

Realtor.com's Housing Market Recovery Index, which reveals metro areas where the market has recovered or even exceeded its previous January levels, showed the greatest recoveries as of October 10 were in Seattle-Tacoma-Bellevue, Wash.; Boston-Cambridge-Newton, Mass.-N.H.; Los Angeles-Long Beach-Anaheim, Calif.; Las Vegas-Henderson-Paradise, Nev.; and San Jose-Sunnyvale-Santa Clara, Calif.

A report this week from online real estate marketplace Zillow showed how the pandemic has distorted the housing market. Uncertainty, likely caused by COVID-19, is keeping more than a third of would-be sellers out of the market. Financial anxiety is a big part of that, the Zillow survey found.

The result is fewer homes for sale, which could be one reason for September’s drop in new sales. Thirty-one percent of current homeowners point to financial worries as a reason to stay in their current home, with 27 percent saying they recently suffered a loss in household income. While they might find ready buyers for their home, they worry about qualifying for a mortgage to purchase a new one.

When the coronavirus (COVID-19) pandemic hit the U.S. in March, the nation’s housing market was already facing a shortage of homes for sale. Since then, the imbalance between buyers and sellers has gotten a lot bigger.

Online real estate marketplace Zillow has just published new research that explores the reason for the disparity. It has always been clear that fewer people are putting their homes on the market, but Zillow wanted to know why.

The answers all revolve around the pandemic. Uncertainty, likely caused by COVID-19, is keeping more than a third of would-be sellers out of the market. Financial anxiety is a big part of that, the survey found.

Thirty-one percent point to financial worries as a reason to stay in their current home, with 27 percent saying they recently suffered a loss in household income. While they might find ready buyers for their home, they worry about qualifying for a mortgage to purchase a new one.

Future of work-from-home

Others who are still employed are waiting to see what employers decide about the remote workplace. They like working from home and, if allowed to do it permanently, say they would consider selling their current home and moving to another area.

Because there are fewer homes on the market, and more people are trying to buy a home, home prices have risen quickly since the pandemic began. The median home price in September surged by a record 15 percent, to $320,625, according to a report from real estate broker Redfin. It also found that prices have been rising more quickly since early July.

In August, pending home sales were up 26 percent year-over-year, and homes sold almost as fast as they could be listed. More than 45 percent of homes that went under contract had an accepted offer within the first two weeks on the market. Because of that, some would-be sellers are in no hurry.

No ‘right time’ to sell

"Potential sellers are likely correct that home prices have yet to reach their peak, but in the long run, prices tend to rise, so there's no clear 'right time' to sell," said Zillow senior economist Jeff Tucker. "Homeowners who feel life is uncertain right now may think they can still get a strong price if they delay selling until they have more clarity.”

But there is some risk in that strategy. They may get more for their home when they decide to sell but the cost of their new home is also likely to be higher.

“This fall's record-low mortgage rates, which make a trade-up more affordable on a monthly basis, are not guaranteed to last," Tucker said.

Homeowners saw their net worth rise over the summer as home values increased at a pace not seen since the market recovered from the Great Recession.

Zillow, an online real estate marketplace, reports that the typical home value increased in September to $259,906. The 0.8 percent increase over August was the largest since November 2005, at the peak of the housing bubble.

For the third quarter, the typical home value increased by 2.2 percent, the biggest jump since 2013. On a year-over-year basis, values were up 5.8 percent, the largest increase in two years, according to Zillow researchers.

Because of that rapid rise, Zillow reports that listing prices and sales prices both registered double-digit year-over-year growth last month, suggesting buyers could face both higher prices and fewer choices going into the end of 2020.

"Home values are accelerating more quickly than any time since 2014, marking a sharp turnaround from a market briefly put on hold during the outbreak of the pandemic this spring," said Zillow’s senior economist Jeff Tucker. "The historic shortage of homes available for sale has boosted home price appreciation, now that buyers are waging bidding wars for the few options left.”

New home construction can’t keep up

There are several reasons for the current shortage of homes. Fewer people who currently own homes are selling. There are more people in the market right now who are deciding they need more indoor and outdoor space after being largely homebound during the pandemic.

But one of the biggest contributing factors is the decade-long slowdown in new home construction. Builders have built fewer homes since the financial crisis, a trend that is only beginning to turn around in the face of rising demand.

“Builders are racing to fill the gap, and we may see more listings next year if nervous sellers become reassured, but this shortage of homes is so deep that any reversal would take at least several months," Tucker said.

Potential slowdown

The forecast suggests that home sales reached a recent high point in September and will experience a temporary slowdown in the coming months. Seasonally adjusted final home sales are expected to retreat to pre-pandemic levels by January before resuming growth in the spring. After that, they’re projected to stay firmly above pre-pandemic volume through most of 2021.

A new report from Fannie Mae shows the housing market is one of the few bright spots in the 2020 economy, hit hard by the coronavirus (COVID-19) pandemic. Doug Duncan, Fannie Mae’s chief economist, says housing may help the economy recover to break-even status, with 2021’s economic growth balancing out 2020’s decline.

"Meanwhile, housing continues its multi-year theme of historic supply constraints,” Duncan said. “Strong demand-side drivers, including low mortgage rates and a surge of millennials looking to purchase homes, are contributing to significant home price appreciation, particularly as many older homeowners continue to age in place and other would-be home-sellers adopt a more conservative posture due to COVID-19 concerns, further limiting supply."

The housing market remains red hot as the coronavirus (COVID-19) pandemic has done nothing to slow sales.

Pending home sales, which measure sales contracts that were signed, rose a record 8.8 percent over July’s sales, according to the National Association of Realtors (NAR). Sales were up more than 24 percent from August 2019, accelerating a trend that began in June.

Lawrence Yun, NAR’s chief economist, says several factors are encouraging buyers -- in particular mortgage rates hovering around 3 percent.

"Additionally, the Fed intends to hold short-term fed funds rates near 0 percent for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtedly aid homebuyers continuing to enter the marketplace,” Yun said.

‘Pleasantly surprised’

Yun also said he expected the housing market to remain stable during the pandemic but has been “pleasantly surprised” to see housing bounce back the way it has.

All four regions of the country saw a strong increase in sales contracts. The West saw the biggest increase in sales from July, with contracts rising 13.1 percent. Sales were up 8.6 percent in both the South and Midwest.

On an annual basis, sales contracts were up 26 percent over August 2019 in the Northeast and were up double digits in the other three regions. Contracts signed in August can be expected to close in September in October, though some deals are likely to fall through.

Yun says these robust sales figures are probably not sustainable without an increase in the number of available homes for sale. He points out that pending home sales are outperforming many pre-pandemic averages, but he says that without matching supply, the recovery can’t last.

Mortgage applications fell last week

We may have seen the first signs of that this week, when the Mortgage Bankers Association (MBA) reported that mortgage applications declined last week by 4.8 percent from the previous week. 

A significant part of the decline was for refinanced mortgages, but MBA said mortgage applications to purchase homes were also lower. Still, compared to the same week in 2019, applications were up more than 20 percent.

Joel Kan, MBA's associate vice president of Economic and Industry Forecasting, isn’t ready to draw conclusions about the housing market, suggesting factors other than demand could be responsible for the fall off.

"Many lenders are still operating at full capacity and working through operational challenges, ultimately limiting the number of applications they are able to accept," he said.

Interest rates, meanwhile, are only getting lower. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell to 3.05 percent last week from 3.10 the previous week.

Housing markets where buyers get more value for their money than in a major metro have seen some of the fastest price appreciation over the last year, a trend accelerated by the coronavirus (COVID-19) pandemic.

A new report from real estate brokerage firm Redfin suggests that a migration from large cities to smaller ones has increased the price of homes in relatively affordable places like El Dorado County, Calif., and Camden County, N.J. This has attracted a new category of buyer as house hunters take advantage of remote work and record-low interest rates.

The report shows that seven of the 10 markets that have cooled the most in the last year are located in New York, including four of the five New York City boroughs. Not surprisingly, seven of those markets have median sale prices above $500,000.

‘Influx of buyers’

Meanwhile, home prices are rising fastest in California’s El Dorado County, where buyers are moving from other parts of the state because they can work remotely. The region has seen home sales skyrocket by nearly 60 percent over the last year as buyers have flocked from the San Francisco Bay Area.

"We're seeing a huge influx of buyers coming to El Dorado County from the Bay Area," said local Redfin agent Ellie Hitchcock. "With so many large tech companies allowing employees to work from home for the foreseeable future, homeowners in San Francisco are selling their two-bedroom, two-bathroom condo and buying a 5,000-square-foot home with five bedrooms and five bathrooms on an acre of land here for the same price. It's simply a no-brainer."

Activity in smaller housing markets may be driving overall home sales higher. The National Association of Realtors (NAR) reports that sales of existing homes rose in August for a third straight month despite declining inventories.

While many smaller cities had plenty of homes for sale at the start of the summer, buyers have snapped up many of them. NAR’s chief economist Lawrence Yun says home builders need to produce more houses, especially in areas that have suddenly gotten popular.

Remote work a continuing factor

NAR's recent study, the 2020 Work From Home Counties report, predicted that remote work opportunities will likely become a growing part of the nation's workforce culture. Yun believes this reality will endure, even after a coronavirus vaccine is available.

"Housing demand is robust but supply is not, and this imbalance will inevitably harm affordability and hinder ownership opportunities," he said. "To assure broad gains in homeownership, more new homes need to be constructed."

But homebuilders have produced only about half the number of new homes per year they built before the 2008 housing crash. They blame rising land, labor, and materials costs, as well as the cost of meeting local regulations.

Six months into the coronavirus (COVID-19) pandemic, structural changes are occurring that continue to drive up the price of a home.

Real estate brokerage firm Redfin reports that the median price of homes selling in August rose 13 percent year-over-year to a record $319,178 -- the largest increase since 2013. In the last six months, a growing imbalance between buyers and sellers has ignited housing inflation. 

The necessity to work from home has suddenly made many apartment dwellers -- especially those with families -- decide they need more space. And because many people expect to continue working remotely for the foreseeable future, there has been a migration from cities -- especially New York -- to the suburbs and beyond.

The Redfin report shows that home prices accelerated in conjunction with a big increase in sales. There was a 28 percent rise in the number of homes going under contract last month, the largest increase in five years.

Tough on first-time buyers

While sales are booming, inventory levels have continued to shrink. The number of homes on the market fell 28 percent from August 2019, which Redfin reports has been typical over the summer. Amazingly, more than 46 percent of homes sat on the market no more than two weeks before getting an offer.

The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to 99.3 percent -- an all-time high and a full percentage point higher than a year earlier.

All of this is great news if you are trying to sell your house, which fewer people are doing during the pandemic. It’s not so good if you are trying to buy a home.

"Home price growth this high is making the housing market especially difficult for first-time homebuyers right now," said Redfin’s chief economist Daryl Fairweather. "Rising prices are just one more reason for people to leave expensive urban neighborhoods behind.”

Affordability still a concern

Fairweather notes that the trend of remote work may be opening opportunities for people in urban markets, where they may have good-paying jobs but still can’t afford a home. By moving to a smaller market, they may find their money goes farther and they can continue working remotely.

At the same time, he says the increase in demand for housing in smaller, secondary markets is fueling price increases in those cities.  

“Price growth may slow in 2021, but even if it does, high prices are going to continue to make affordability a concern for buyers," Fairweather said.

Consumers trying to save enough for a down payment are getting squeezed from two directions. Not only do rising prices keep moving the goalposts for a home purchase, but a recent report from Freddie Mac found that rents keep going up as well.

Just like the dwindling supply of homes for sale, the Freddie Mac report found more competition for rental units, causing the rental costs to rise faster than incomes.

The housing market is showing no signs of a slowdown heading into the fall. Mortgage applications for home purchases rose 3 percent last week from the week before and were 40 percent higher than a year ago.

The Mortgage Bankers Association (MBA) says year-over-year changes to its seasonally adjusted index rarely approach 10 percent, suggesting this year’s housing market, affected by the coronavirus (COVID-19) pandemic, is breaking the mold.

Industry analysts say the market has drawn in more buyers over the summer because of a number of factors. There has been a traceable migration from cities to the suburbs since the pandemic hit, and there has been anecdotal evidence that many people, confined to apartments for two months, have sought more room afforded by single-family homes.

At the same time, interest rates have made home purchases more attractive and more affordable. MBA reports that the average 30-year fixed-rate conventional loan rate on balances up to $510,400 is 3.07 percent. The rate on a 15-year mortgage is at a record low 2.62 percent.

More affordable

Lower interest rates are making home purchases more affordable, with real estate broker Redfin documenting how much added buying power they provide. In its latest report, Redfin found that a buyer with a $2,500 monthly housing budget can afford a home priced $33,250 higher than a year ago, just because of lower rates.

At a 3 percent mortgage interest rate—roughly the average 30-year fixed rate for July and August—a homebuyer can afford a $516,500 home on $2,500 per month, up from the $483,250 they could afford on the same budget when the average was 3.77 percent  in July 2019.

But Redfin says that extra buying power may not last. The reason? Home prices are rising almost as fast as sales.

“Low mortgage rates are motivating many people to purchase a home, particularly those who want more space to work from home," said Redfin’s chief economist Daryl Fairweather. "But because there hasn't been an increase in the number of homes for sale since rates started dropping with the onset of the pandemic, many buyers end up competing for the same homes, driving up prices.”

Because of those competing forces, buyers in highly competitive markets are in roughly the same situation as last year. Fairweather says buyers seeking a condo can usually find a better deal, both on overall price and mortgage payments, because most condos are less competitive than single-family homes as people move out of densely populated urban areas.

A lot of attention has focused lately on the fast-rising cost of homes, but a new report from Freddie Mac suggests that the real affordability crisis is affecting people who rent.

Freddie Mac’s research shows that fewer than 10 percent of rental units are affordable for households earning 50 percent of median renter income. The report focuses on income as compared to the cost of rent, screening out the growing number of high-income consumers who rent their homes.

Taking these changes in renter household composition into account, the study concludes that average renter households are not better off financially because they have had to compete for ever-more-scarce rental units. This competition has served to drive up rents as the number of available properties has declined.

“Rental affordability continues to be a major issue as demand remains high and supply of affordable housing is both insufficient and more likely to decline than it is to grow,” said Steve Guggenmos, vice president of Multifamily Research and Modeling at Freddie Mac. “Our research demonstrates the need to focus on and understand the complexities of rental affordability as we continue to address the affordable housing crisis in this country.”

Renters often earn less

The Freddie Mac researchers found that using median income numbers to determine rental affordability can be highly misleading since renters tend to earn less than homeowners. They determined that median renter income is up to four times less than the median family income.

The study also found that the number of wage earners in each renter household increased by 2.4 percent between 2010-2018. That served to increase household income without boosting the income of individual renters.

The bottom line, the researchers say, is that affordability levels have not improved but instead remain essentially flat. 

The role of COVID-19

A recent report from real estate marketplace Zillow found that the coronavirus (COVID-19) pandemic has made a bad rent affordability situation even worse. As the economy shut down in March, Zillow looked at rent affordability for households working in retail, arts, entertainment, recreation, hospitality, and food service.

The study found that these households would spend 40 percent or more of their annual income on rent after two months, far above what personal finance experts advise. 

Home sales have significantly recovered from early COVID-19 declines, but inventory levels remain historically low. The same low inventory is affecting the rental market, creating what Freddie Mac calls a shortage of affordable housing.

The situation is even worse for people at or below the poverty level. The National Low Income Housing Coalition reports that the U.S. has a shortage of seven million rental homes that are affordable and available to extremely low-income renters, whose household incomes are at or below the poverty guideline of 30 percent of their area median income. 

Only 36 affordable and available rental homes exist for every 100 extremely low-income renter households, the group found.

The coronavirus (COVID-19) pandemic has thrown millions of Americans out of work, making it difficult to pay the rent or mortgage. Forbearance programs enacted by Congress have so far kept many homeowners from facing immediate foreclosure.

Black Knight, a data analytics company, reports that mortgage delinquencies actually went down in July, falling nearly 9 percent from June. The numbers show there were about 340,000 fewer past-due mortgages than in the month before.

Even more encouraging, early-stage delinquencies -- those loans with a single missed payment -- are now below pre-pandemic levels, suggesting that the initial inflow of new COVID-19-related delinquencies has subsided.

The news is not all good, however. Serious delinquencies -- those 90 or more days past due -- increased by 376,000 and are now up more than 1.8 million from their pre-pandemic levels.

An improvement over the second quarter

All in all, it’s an improvement from the second quarter of the year, which encompasses the first three months of the pandemic when businesses closed and millions of Americans were laid off from their jobs.

The Mortgage Bankers Association (MBA) recently reported that mortgage delinquencies surged in the second quarter by more than 8 percent.

“The COVID-19 pandemic’s effects on some homeowner’s ability to make their mortgage payments could not be more apparent,” said MBA vice president of Industry Analysis Marina Walsh. “The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of the MBA’s survey. The second-quarter results also mark the highest overall delinquency rate in nine years and a survey-high rate for FHA loans.”

Delinquencies are double 2019’s rate

The Black Knight report shows that, while the mortgage delinquency rate in July fell 8.22 percent from June, it was nearly 100 percent higher than in July 2019. Foreclosure activity remained low, largely due to mortgage forbearance programs.

The concern among policymakers is what happens this month. Many forbearance programs expired at the end of July, as did the extra $600 a week in additional unemployment benefits, which likely helped some unemployed Americans keep up with their mortgage payments.

Congress was unable to reach an agreement on a new aid package and left Washington for a month-long recess without taking action.

The coronavirus pandemic has had a severely negative impact on homeowners in recent months. While mortgage rates have been very low in recent weeks, delinquencies have been spiking since the spring.

Unfortunately, that trend appears to be showing no sign of slowing down. In a recent survey, the Mortgage Bankers Association (MBA) reported that the delinquency rate for one-to-four-unit residential properties spiked to 8.22 percent. That represents an increase of 386 basis points since the first quarter of the year.

“The COVID-19 pandemic’s effects on some homeowner’s ability to make their mortgage payments could not be more apparent,” said MBA vice president of Industry Analysis Marina Walsh. “The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of the MBA’s survey. The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high rate for FHA loans.”

Delinquencies may remain at high levels

Walsh notes that the states that have experienced the highest rate increases for mortgage delinquencies -- New York, New Jersey, Nevada, Florida, and Hawaii -- are also areas that rely heavily on the hospitality and leisure industries. This makes sense since many workers would have lost their jobs and income as travel came to a standstill and quarantine restrictions were put in place.

While there has been some recovery in the job market over the summer, Walsh says too many financial and health uncertainties are keeping homeowners on the backfoot. They may also be forced into a corner due to uncertainty about the prospect of more financial relief coming from the government.

“There is no way to sugarcoat a 32.9 percent drop in GDP during the second quarter,” she said. “Certain homeowners, particularly those with FHA loans, will continue to be impacted by this crisis, and delinquencies are likely to stay at elevated levels for the foreseeable future.”

While things may seem particularly dire for homeowners, Walsh says it’s important to note that there are factors working in their favor. 

“Fortunately, there are several mitigating factors that make this current spike in mortgage delinquencies different from the Great Recession. These factors include home-price gains, several years of home equity accumulation, and the loan deferral and modification options that present alternatives to foreclosure for distressed homeowners,” Walsh said. 

Consumers can find more information about the MBA’s survey findings by visiting its website here.

Increases in home prices are accelerating because there still aren’t enough homes on the market, industry sources report.

Real estate broker Redfin tracked July sales and reports that the median home price rose 8.2 percent to $323,800. It’s the third record high in four months and has been driven in part by record-low mortgage rates. But the lack of inventory is also a major factor.

"The housing market is intense right now," said Jimmy Martinez, a Redfin agent in Albuquerque. "We've got about half as many homes for sale as there were at this time last year, met by a big surge in people moving here from across the country in addition to lots of local homebuyers, all of which has pushed prices up dramatically from last year."

By Redfin’s count, home prices are increasing at the fastest rate in more than two years. Prices are rising in all but one of the largest 85 housing markets that Redfin tracks. Honolulu, already one of the nation’s priciest markets, is the only metro where prices didn’t go up.

Meanwhile, the median sale price surged 16.8 percent in Birmingham, Ala., The price increased 16.5 percent in Bridgeport, Conn., and 14.3 percent in Fort Lauderdale.

Zillow confirms the price acceleration

In a separate report, real estate marketplace Zillow confirmed the price acceleration and reported that newly pending sales are up nearly 17 percent, suggesting demand could push prices even higher.

While new listings increased in July, Zillow’s housing experts say it wasn’t enough to keep up with demand. Inventory levels have fallen below where they were at this time in 2019.

Zillow reports that demand for homes is at a record pace. Newly pending sales are rising more than 1 percent from week to week. Homes that sold during the first week of August typically went under contract after 13 days, which is 11 days faster than during the same period last year and a new record low in Zillow data that dates back to the start of 2019.

Zillow found the fastest-selling large markets to be Cincinnati, Columbus, Kansas City, and Raleigh. In those markets, the average seller got a contract offer after the property was on the market for only four days.

Home prices are rising to the point that housing experts at the University of Arizona recently warned that today’s buyers may not be able to sell their property in the future. Millennials, many of whom are still paying off student loans, may not be able to afford a home if prices continue to rise.

Though the housing market has been picking up over the last few months, a new study conducted by researchers from the University of Arizona predicts that things may not be favorable for some homeowners over the long-term. 

According to researchers, older consumers who are looking to sell their homes in the years ahead could have trouble finding buyers. Their work revealed that costs associated with homeownership could prevent millennials and members of Generation Z from pulling the trigger and becoming homeowners themselves. 

“There’s this mismatch -- if those over 65 unload their homes, and those under 65 aren’t buying them, what happens to those homes,” said researcher Arthur C. Nelson. “...The vast supply is so large and the demand...is going to be so small, in comparison, that there’s going to be a real problem starting later this decade.” 

Homeowner trends are changing

To understand where the housing market is expected to turn in the next two decades, the researchers analyzed data from both the Harvard Joint Center for Housing Studies and the U.S. Census Bureau. They looked at the average age of homeowners from 2018 and then used available data to predict what the housing market will look like by 2038. 

The researchers expect that housing trends are likely to change drastically over the next 20 years, but consumers shouldn’t expect a switch to flip overnight. Based on their findings, the changes will happen slowly and will depend on the geographic region. 

In bigger, metropolitan areas, older consumers looking to sell shouldn’t have as much of an issue. However, it could become rather difficult for those in smaller, lesser known areas. The researchers explained that this trend will likely affect millions of consumers nationwide. 

“The people who own homes now in thousands of declining communities may simply have to walk away from them,” Nelson said. 

As 2040 draws closer, the researchers predict that the number of homeowners under the age of 65 is likely to be lower than it was in 2018. This is particularly concerning for older consumers, many of whom use the sale of their homes to help finance retirement plans. 

Helping older consumers

Nelson and his team have come up with several ideas that could help offset the housing burden that older consumers will face in the coming years. One plan would be to divide bigger homes into several units. This would make selling less necessary, and the full cost of living in a large home wouldn’t fall on one person. 

The researchers also believe that more government intervention could benefit both older and younger consumers -- and the housing market at large. 

“We’re going to wake up in 2025 -- give or take a few years -- to realize that millions of seniors can’t get out of their homes and that it’s going to get worse in the 2030s,” Nelson said. “We must start doing things now to reduce the coming shock of too many seniors trying to sell their homes to too few younger buyers.” 

The Fannie Mae Home Purchase Sentiment Index (HPSI) fell last month, suggesting June’s heated housing market may be cooling for the rest of the summer. If so, that could be good news for buyers who have been dismayed by rising prices and declining inventory.

The Index dropped by 2.3 points in July to 74.2 after two consecutive months of advances. Home sales were sharply higher in May and June as the coronavirus (COVID-19) shutdown appeared to shape new housing trends.

Home shopping rose sharply in small towns and suburban areas and declined in cities. But in July, there appeared to be a pause.

‘Slight step back’

Three of the six HPSI components went down month-over-month, with consumers reporting a significantly more pessimistic view of homebuying conditions but a more optimistic view of home selling conditions. Year-over-year, the HPSI is down 19.5 points.

"Following a partial recovery of the HPSI in the previous two months, consumer sentiment toward housing took a slight step back in July amid a rise in coronavirus infections across many parts of the country, including the south and southwest," said Doug Duncan, senior vice president and chief economist. 

A big part of that, Duncan says, is the fact that there are not as many homes for sale as in previous years. Consumers intuitively recognize that this will lead to home prices going up.

Because of that, fewer consumers in July said it was a good time to buy a home, even though there was broad agreement that it’s probably a good time to be a seller.

The virus is a factor

Drilling deeper into the numbers, the index shows renters, 18-to-34-year olds, and households earning less than $100,000 are the most likely to think it's a bad time to buy a home. And it’s not all because prices are going up and choices are becoming more limited.

“In months ahead, we continue to expect consumer sentiment to be closely linked to the country's progress in containing the spread of the virus," Duncan said.

While sentiment appears to have turned against a home purchase, at least for now, consumers who really want to buy a home may have a better opportunity than they think. Last week, housing and data analytics firm Black Knight reported that home affordability is at its best point since 2016.

Despite high home prices, the company says record-low mortgage rates are keeping monthly payments within the affordability range for more people. 

The price of homes has moved sharply higher over the last three months. But a new report makes the case that home affordability is the best it’s been in four years.

How could those two facts both be true? Because the cost of mortgage money has never been lower, according to Black Knight, a housing data analytics firm.

Since June 30, year interest rates have fallen to record lows. Black Knight Data & Analytics President Ben Graboske has examined the impact cheap money has had on housing and says it’s leveling the playing field for buyers.

"Despite eight consecutive years of rising home prices, July's record-low mortgage rates, which fell below 3 percent for the first time on July 16, have made purchasing the average-priced home for a median wage earner the most affordable since late 2016,” Graboske said. 

Attracting new buyers

In fact, Graboske says improved home affordability has pulled buyers into the market. He says that, in turn, prevented home prices from going into a freefall, as many predicted they would when the economy shut down in April.

In some markets, home prices are soaring. In a report this week, real estate brokerage firm Redfin said the median home sale price at the end of July was a record $315,000, an 11 percent year-over-year increase.

The price increase is being powered by strong homebuyer demand, which is 27 percent higher than just before the pandemic hit. The home shortage means those buyers are having to compete for the declining number of available homes, allowing sellers to get higher prices.

Mortgage rates offset prices

But apparently, rock bottom interest rates more than compensate for that, allowing some buyers to qualify for homes that might have been out of their price range just a couple of months ago.

"As of mid-July, it required 19.8 percent of the median monthly income to make the mortgage payment on the average-priced home purchase, assuming a 20 percent down payment and a 30-year mortgage,” Graboske said. “This means it currently requires a $1,071 monthly payment to purchase the average-priced home, which is down 6 percent from the same time last year, despite the average home increasing in value by more than $12,000 during that same time period.”

In fact, the Black Knight report shows consumer home-buying power is now up 10 percent year-over-year, meaning the average home buyer can afford nearly $32,000 more home than they could at the same time last year while keeping their monthly payment the same.

It turns out that a pandemic is a pretty good time to sell a home, but it’s not such a good time to try to buy one.

The pent-up demand from a postponed spring homebuying season has vastly increased competition for homes and driven up prices. Real estate brokerage firm Redfin reports that the median home price of its transactions in June surged 2.8 percent to a record $311,300.

With the pace of home building still slow and fewer single-family homes coming on the market, the company says prices could continue to rise over the second half of the year.

"The coronavirus hasn't dragged home prices down; in fact we've seen just the opposite—prices are rising in spite of the pandemic," said Brian Walsh, a Redfin agent in Tampa, where the median home price was up 8 percent year over year in June. 

"Every house that is the slightest bit cute, fixed-up and priced right gets multiple offers--some up to 10 or 15. The winning offers are almost always all cash with zero contingencies."

Buyers face competition

This is an abrupt change from April when the coronavirus (COVID-19) shutdown immediately halted open house events and most home showings. At the time, the market was fairly balanced, with an absence of both buyers and sellers.

Now, buyers have returned to the housing market but sellers have not. Redfin reports that new listings dropped 11.6 percent last month, the fourth straight month of double-digit declines.

As a result, Redfin says the balance of supply and demand remains strongly tilted in sellers' favor.

Buyers were active in June, making offers on the properties that were on the market. Pending home sales -- contracts for homes that were signed but not yet closed -- were up 5.4 percent year-over-year. For Redfin properties, it was the first increase since February, though the National Association of Realtors (NAR), which collects more data, reported a 44.3 percent increase in pending sales in May.

Sales drop

The number of homes selling in June fell sharply, but only because there were fewer homes for sale. For people wanting to sell a home, the job is relatively easy. Buyers have their work cut out for them.

Real estate professionals say there are steps buyers can take, short of paying cash, to make their offer stand out. The first is to make it a “clean” offer with no contingencies. If you’re confident in knowing what the property is worth, you can even waive the appraisal contingency.

It goes without saying that you should be pre-approved for the loan amount by your lender and have a letter proving it. If you’re going to be competing with other buyers who want the home, offer above the asking price. Also, offer to put down more than the usual amount of earnest money.

You can also consider writing an escalation clause into your contract that automatically raises your bid to meet or exceed others, up to a set amount.

Finally, try to connect emotionally with the sellers. Some agents believe it is a good idea to write a personal letter to the sellers, telling them how much you appreciate their home and would love to live there. In this market, buyers apparently need any edge they can get.

After the spring homebuying season was derailed by the pandemic, home shoppers appear to be making up for lost time. Demand for mortgages is soaring, and so is confidence among buyers.

The perfect storm of pent-up demand and record-low interest rates resulted in a 5 percent increase in mortgage applications last week, according to the Mortgage Bankers Association (MBA). But compared to the same week a year ago, applications were up a shocking 33 percent.

Real estate brokers say home sales began to accelerate in mid-May after worries about the coronavirus (COVID-19) resulted in both a dramatic decline in listings and fewer people looking for homes. As stay-at-home restrictions were lifted, the shoppers came out in droves.

Homebuying sentiment

That trend is borne out by the latest Fannie Mae Home Purchase Sentiment Index (HPSI), which jumped 9 points in June. Four of the index’s six components increased over May, with consumers reporting a significantly more positive view of homebuying and home-selling conditions, as well as greater optimism regarding home price appreciation.

"A second month of improvement in June allowed the HPSI to regain some of the sharp losses in optimism observed in March and April," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "The share of renters who say it's a good time to buy a home is now at its highest level in five years, suggesting favorable conditions for first-time homebuying.”

A number of factors could be responsible for that increase. Two months of quarantine in a small apartment could be prompting some people to seek more space that a single-family home provides. It’s also possible that buyers now realize they don’t have to live close to where they work since they can work from home, and they may be seeking homes in more affordable markets.

Low inventory levels

While the number of potential buyers has increased, sellers remain scarce. Inventory levels, especially in the more affordable entry-level segment of the market, remain near historic lows, but Duncan says that may be about to change.

“Homeowners seem to have taken note of the resulting lack of housing supply, with an increased share saying it's a good time to sell a home,” he said. 

The idea of selling may be more attractive now because the shortage of homes for sale is continuing to push home prices higher. The National Association of Realtors (NAR) reported that the median home price in May was $284,600, up 2.3 percent from May 2019. The inventory of available homes is down more than 18 percent from 2019.

Not surprisingly, the Fannie Mae survey found that the percentage of homeowners who believe now is a good time to sell rose from 32 percent to 41 percent, suggesting more homes could soon be coming on the market.

Meanwhile, growing competition for the limited number of homes for sale means buyers need to secure the lowest mortgage rate possible. ConsumerAffairs has collected reviews on some of the best mortgage companies here.

The cost of financing a home has never been lower. Freddie Mac reports that the average 30-year fixed-rate mortgage hit a record low last week.

The rate fell to 3.07 percent, a decline of six basis points from the previous week but more than a half-point lower than the first week of July in 2019.

In reporting on the rate decline, Freddie Mac said mortgage rates could drift even lower over the next few weeks. Before the end of the year, it says the average rate could fall below 3 percent for the first time.

“On the economic front, incoming data suggest the rebound in economic activity has paused in the last couple of weeks with modest declines in consumer spending and a pullback in purchase activity,” Freddie Mac said in a statement explaining the trend.

Rates are linked to bond yields

Mortgage rates are keyed to the yield on the 10-year U.S. Treasury bond. Bond yields have remained near historic lows during the coronavirus (COVID-19) pandemic as investors have sought a safe haven from economic uncertainty.

Lower mortgage rates tend to make homes more affordable since they lower the monthly payment. Lowering your rate by 1 percent on a $160,000 mortgage can trim the monthly payment by nearly $100.

Lower rates, plus pent-up demand from the coronavirus shutdown earlier this year, has sparked a sharp increase in home sales. The National Association of Realtors (NAR) reported last week that pending home sales rose more than 44 percent in May. 

“This has been a spectacular recovery for contract signings, and goes to show the resiliency of American consumers and their evergreen desire for homeownership,” said Lawrence Yun, NAR’s chief economist. “This bounce back also speaks to how the housing sector could lead the way for a broader economic recovery.”

‘Spectacular recovery’

Despite the increase in sales, Joel Kan, associate vice president of Economic and Industry Forecasting at the Mortgage Bankers Association (MBA), says mortgage applications paused in late June, falling nearly 2 percent from the previous week.

“The weakening in activity is potentially a signal that pent-up demand is starting to wane and that low housing supply is limiting prospective buyers' options,” Kan said. “The average purchase application loan size increased to a record high in our survey - more proof that tight inventory conditions are leading to faster price growth." 

Shopping around for the mortgage with the best terms and the most attractive rate will pay off over the life of the loan. To make that process easier, ConsumerAffairs has collected reviews on the top mortgage lenders here.

Mortgage delinquencies are rapidly rising amid widespread and sudden unemployment caused by the coronavirus (COVID-19).

It’s hard to separate missed payments that are allowed under forbearance programs for government-backed mortgages from those outside those programs, but what is clear is the number of homeowners who feel they can’t keep up is surging.

An analysis by Black Knight, a real estate data firm, shows that the total mortgage delinquency rate in May rose 20.43 percent from April 2020 and 130.78 percent from May 2019. Another 723,000 homeowners fell at least 30 days behind on their mortgages last month, pushing the national delinquency rate to its highest level in more than eight years.

At the end of May, 4.3 million homeowners were past due or in active foreclosure -- including those in forbearance who have missed scheduled payments as part of their plans -- up from 2 million at the end of March.

Geography plays a role

Geography also seems to play a role. The five states with the largest percentage of overdue mortgages were in the South and Northeast. 

The states with the smallest percentage of troubled mortgages are in the Midwest and Pacific Northwest.

The number of homeowners more than 30 days past due, in what are classified as serious delinquencies, is also sharply higher. The Black Knight analysis shows these troubled homeowners have increased by more than 50 percent since the pandemic shutdown began.

Not as serious as 2009

Despite that worrisome trend, the housing market is nowhere as precarious as it was in the wake of the financial crisis, which was caused by a crashing housing market that was overwhelmed by a tsunami of foreclosures.

At the end of May, there were only 5,100 foreclosure starts, down 31 percent from April and nearly 87 percent lower than May 2019. Forbearance programs may be responsible for that.

The number of homes being prepared for foreclosure sales was also lower last month, making up a fractional portion of housing inventory. The number was down nearly 23 percent year-over-year.

In fact, The share of homeowners in active foreclosure has fallen to its lowest level on record since Black Knight began reporting the figure in January 2000.

Like nearly every industry, real estate got hammered by the coronavirus (COVID-19). Showings, listings, and sales slammed to a halt in March and April.

But with the lifting of stay-at-home restrictions, the real estate market appears to be on a strong rebound. In fact, a number of recent signs point to the market making up for lost sales, and then some.

Confidence is surging among home builders. The National Association of Home Builders’ (NAHB) index that tracks builder confidence jumped 21 points this month to 58. Any reading above 50 indicates a positive market.

“As the nation reopens, housing is well-positioned to lead the economy forward,” said NAHB Chairman Dean Mon, a home builder and developer from Shrewsbury, N.J. “Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising. Buyer traffic more than doubled in one month even as builders report growing online and phone inquiries stemming from the outbreak.”

Fewer homes for sale

Inventory dried up during the shutdown, but so did the demand for houses. Now, it appears home buyers are out in full force at the tail-end of a mostly wiped out spring home-buying season.

That’s caused some regions of the country to experience a sharp rebound in sales. West Penn Multi-List, a real estate services firm serving Western Pennsylvania, reported that sales in four counties amassed a combined $135.5 million in May -- even with real estate offices open in only the second half of the month.

“It’s the hottest market I have ever seen,” Tom Hosack, president of West Penn Multi-List, told Trib Live.

Bidding wars

Redfin, a real estate brokerage service, is seeing the same signs of a rebound on a national level. It reports that nearly half of its agents’ sales in May had multiple offers, a sign that there are more buyers than sellers presently.

"We're seeing a frenzy," Boston Redfin agent Delince Louis said. "Any home below $500,000 is receiving multiple offers; we just don't have the supply to meet the demand."

"Bidding wars also jumped in May because homebuyers felt they were starting to get more clarity around where the economy was headed, with cities around the nation lifting stay-at-home orders. This gave house hunters more confidence to compete," said Redfin lead economist Taylor Marr. 

But Marr isn’t convinced the resurgence is sustainable, saying it all depends on whether the coronavirus stays under control or spikes up in states that have lifted restrictions. It’s also possible that we’re seeing sales that were simply delayed by the pandemic. Future sales could face some hefty headwinds.

The Mortgage Bankers Association (MBA) reported last week that there was a significant drop in the amount of available credit for mortgages as lenders tried to limit risk. Even though mortgage rates are at record lows, it’s increasingly challenging to qualify for a mortgage, with lenders demanding larger down payments and higher credit scores.

If you’re in the market for a home, ConsumerAffairs has collected thousands of reviews of mortgage companies here. To determine what your monthly payments would be, check out our mortgage calculator here.

The average 30-year fixed-rate mortgage fell to a record low -- below 3 percent -- last week, but unfortunately, it is also getting harder to be approved for a mortgage.

A report by the Mortgage Bankers Association (MBA) shows mortgage credit availability -- a measure of the amount of money mortgage companies are willing to lend -- fell even more during May.

Credit availability began shrinking in late March when the economy shut down and millions of people lost their jobs. Mortgage companies immediately tightened their lending standards, fearing the surge in unemployment increased the risk of mortgage defaults.

‘Increased risk and uncertainty’

Each month MBA analyzes data from Ellie Mae's AllRegs Market Clarity business information tool to arrive at a number that indicates which way standards are moving. That number fell by 3.1 percent to 129.3 in May, indicating that standards for getting a mortgage are getting tougher.

"Mortgage lenders in May responded accordingly to the increased risk and uncertainty in the economy,” said Joel Kan, MBA's associate vice president of Economic and Industry Forecasting. “Credit availability continued to decline, with MBA's overall index now at its lowest level since June 2014."  

Kan says there was a reduction in supply across all loan types, driven by a further pullback in investors' appetites for loan programs for consumers with low credit scores. But credit also got tighter for more affluent borrowers, who take out larger loans to finance more expensive homes.

Lenders began demanding higher credit scores and larger down payments, requirements that affected first-time buyers as well as those moving up to expensive homes.

Implications for buyers and sellers

This trend carries broad implications for both buyers and sellers. Buyers may not be able to secure financing to buy the home they want. With fewer buyers, sellers may see their homes sit on the market for far longer than usual. Fewer buyers also mean less competition that would normally make homes sell for more.

While some 30-year fixed-rate mortgages are still below 3 percent to start the week, Bankrate reports that the average is 3.39 percent, down 13 basis points from a week ago. In mid-May, the average rate on a 30-year fixed mortgage was higher, at 3.52 percent.

Consumers who fail to qualify for a mortgage because of tighter standards have time to improve their position. The Federal Reserve predicts rock bottom mortgage rates are likely to last for at least a couple of years.

In the meantime, prospective buyers can raise their credit score by making sure they pay every bill on time and reducing the amount of their credit card debt.

Mortgage rates have plunged since the start of 2020, and they fell again to another record low last week, according to the Mortgage Bankers Association (MBA).

At the same time, demand for mortgages to purchase a home spiked, rising 5 percent from the previous week and 18 percent over the same week in 2019.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $510,400 or less fell to 3.37 percent from 3.42 percent, with points decreasing to 0.30 from 0.33 for loans with a 20 percent down payment. The effective rate decreased from last week. 

At the same time, the average 30-year fixed-rate FHA mortgage went up slightly, to 3.46 percent from 3.41 percent the previous week.

Mortgage rates have fallen from 4.68 percent in January 2019. They’ve gone down in part because the yield on Treasury bonds fell consistently during that period, settling at 0.72 percent.

Surprising number

The report’s biggest surprise was the number of new applications for mortgages to buy homes. Overall, applications were down slightly because fewer homeowners were refinancing mortgages.

But applications for loans to purchase homes soared in the last week of May. It coincided with the lifting of some coronavirus (COVID-19) restrictions in several states.

"The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring," said Joel Kan, MBA's associate vice president of Economic and Industry Forecasting. "However, there are still many households affected by the widespread job losses and the current economic downturn. High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications in the coming months."

Predicted bounce back

The National Association of Realtor (NAR) had predicted a bounce back in home sales after activity virtually disappeared in April and most of May. 

“The economic lockdowns – occurring from mid-March through April in most states – have temporarily disrupted home sales,” said Lawrence Yun, NAR’s chief economist. “But the listings that are on the market are still attracting buyers and boosting home prices.”

NAR reported that April’s decline in existing-home sales -- down 22 percent -- was the largest month-over-month drop since July 2010.

Yun said he expects record-low mortgage rates to remain in place for the rest of the year. He also predicts that potential home sellers waiting out the pandemic will list their homes for sale by late summer, helping to alleviate low inventory levels.

Homeowners hammered by the economic fallout from the coronavirus (COVID-19) are already having trouble making their mortgage payments.

Mortgage delinquencies increased in April by 1.6 million, the largest one-month increase ever. Black Knight, the data analytics firm that compiled the report, says it’s more evidence that the millions of people thrown out of work by the virus-related economic shutdown are struggling to pay bills.

The April numbers pushed the mortgage delinquency rate from 3.06 percent in March to 6.45 percent last month. According to Black Knight, no other single month on record comes close to that increase, not even in the aftermath of the 2008 financial crisis.

The number of homes that were 30 or more days past due in April, but not in foreclosure, totaled 3,400,000. That’s 1,588,000 more than in April 2019.

Where delinquencies are highest

According to Black Knight, the five states with the largest percentage of delinquent mortgages in April were:

• Mississippi -- 11.90 percent

• Louisiana -- 10.91 percent

• New York -- 9.79 percent

• New Jersey -- 9.36 percent

• Connecticut -- 8.94 percent

April delinquencies include homeowners who have enrolled in mortgage forbearance plans, established under the CARES Act. Borrowers with loans backed by Freddie Mac or Fannie Mae can defer mortgage payments for up to a year, with the missed payments added to the end of the loan.

Last month, the Mortgage Bankers Association (MBA) reported that the percentage of mortgage loans that were placed in forbearance rose from 2.73 percent during the last week of March to 3.74 during the first week of April.

Struggling homeowners interested in enrolling in a forbearance program should contact their loan servicer to see if they qualify.

Worst on record

In an interview with USA Today, Black Knight Director of Market Research Andy Walden said it took a year and a half before the financial crisis produced a 1.6 million increase in mortgage delinquencies.

“The impact of COVID-19 on the housing and mortgage markets has already been substantial," Walden says. "It will be some months before we can gauge the full extent of that impact. Whatever the ultimate scope, it is almost certain the effects will resonate for many months to come.”

The damage may not be over, as the Labor Department reports that an additional 2,438,000 people filed initial claims for unemployment benefits in the previous week. The report shows more than 25 million people continue to draw jobless benefits.

We’re still a few days away from the National Association of Realtors’ (NAR) existing-home sales report for April, but RE/MAX, a national brokerage firm, has provided an early glimpse of what the coronavirus (COVID-19) did to the housing market last month.

In its monthly report, RE/MAX found home sales were down an average of 20.2 percent year-over-year in April, the first full month of coronavirus stay-at-home orders. The report covers 53 U.S. markets in which RE/MAX operates.

But while buyers disappeared last month, so did sellers. The report found inventory levels plunged 20 percent as sellers decided to wait before listing their homes for sale. Because of that, home prices didn’t fall -- in fact the median sale price was up nearly 10 percent from April 2019.

‘Better than expected’

The stay-at-home restrictions turned one of the busiest home sale periods of the year into one of the slowest. Four major markets -- New York, Detroit, Miami, and San Francisco -- posted sales declines of more than 40 percent. Only two markets -- Minneapolis and Billings, Mont. -- reported sales increases.

"April results were better than many expected, as consumers continued to buy and sell real estate in one of the most challenging months for housing in memory," said Adam Contos, RE/MAX CEO. "This was a headwind like no other – yet we still saw activity across the country. Even in the markets that dropped 40 percent in sales, people wanted or needed to move, which says something about resiliency and the power of homeownership."

The numbers appear to confirm earlier projections that sales will continue to fall through mid-summer but will snap back in the late summer and early fall due to pent-up demand. Even with the expected rebound, experts believe home sales will be down 15 percent for the year. 

Other expected trends include a migration out of large urban markets and into smaller cities, where density is lower and housing is more affordable.

New listings needed

For the housing market to remain balanced, however, there needs to be an increase in available homes to meet that anticipated demand. Research from NAR suggests that the supply will be there.

In its survey, NAR found about 77 percent of potential sellers plan to put their homes on the market once stay-at-home orders are lifted. Half of this group used the stay-at-home period to perform do-it-yourself projects to make their homes more attractive to buyers.

“After a pause, home sellers are gearing up to list their properties with the reopening of the economy,” said NAR Chief Economist Lawrence Yun. “Plenty of buyers also appear ready to take advantage of record-low mortgage rates and the stability that comes with these locked-in monthly payments into future years.”

Without an increase in inventory, home prices could soar. The RE/MAX report shows April’s median sale price of $276,000 was a record for the month. Should supply and demand get too far out of balance, home prices could go even higher.

Reverse mortgage closings, which often entail in-person meetings, are being affected by the coronavirus pandemic. However, several new working conditions have unfolded in the wake of the health crisis which have allowed reverse mortgage lenders to continue conducting business. 

Ami Kellogg, president of Premier Reverse Closings (PRC) based in Roseville, Calif., said social distance guidelines have led her company to ramp up efforts to make work-from-home plans a reality. 

“Our American Land Title Association (ALTA) best practices we had already put in place years prior to COVID-19 allowed us the ability to work remote efficiently,” Kellogg told Reverse Mortgage Daily. “The use of the ResWare platform has been a huge benefit to our remote work. The staff that work from home chose the decision to work remote mainly due to childcare issues and/or their school age children sent home to distance-learn due to school closures.”

Kellogg said PRC has taken steps to ensure the safety of employees that must come into the office in order to receive loan packages, scan, and disburse files, such as making hand sanitizer available and making hand washing a required hourly task. 

Changes that have been made

While virus mitigation efforts remain active, PRC is making sure that all loan packages are individually sanitized when they arrive in the office. All packages are handled with gloves and aren’t picked up again until they’re fully dry. 

Online meetings have taken the place of in-person meetings, which enables employees to keep working during this unprecedented time. For notaries, curbside signings are being used.  

Another change PRC has seen is an uptick in attempted wire fraud. Kellogg told RMD that fraud attempts to divert loan payoff funds are on the rise as the nation continues to battle the coronavirus pandemic. 

“Phishing emails are also higher than ever, so people should be cautious and careful,” she said. 

Kellogg said she’s optimistic about the rest of the year because Home Equity Conversion Mortgages orders have increased. PRC predicts “a better-than-projected order count for 2020,” which will allow the firm to bring on more employees.   

“I have seen many new opportunities these past six weeks, created by strong communication, staying positive and caring for each other,” Kellogg said. “We are essential. Together, we can do this.”

For more information about reverse mortgage lenders, visit ConsumerAffairs guide here.

Normally, early April is the kickoff to the housing market’s biggest season. But the coronavirus (COVID-19) pandemic has created a perfect storm that has made it more difficult to either buy or rent a home.

A recent Zillow analysis shows the pandemic has done more than stopped buyers from looking at homes. It’s stopped sellers from putting their homes on the market.

At the beginning of March, the market looked like it was going to be one of the most competitive in memory, with sales actually rising in January and February. Then the stay-at-home orders began to spread across the country along with the virus.

The number of new listings on the market in early March was 17 percent higher than a year earlier, reversing a persistent decline in inventory. By early April, Zillow reports new listings had fallen 27 percent.

Less bargaining power for buyers

That return to shrinking inventory means buyers have fewer homes to choose from and will have less bargaining power, assuming they find a home they’d like to purchase.

"It is clear that many would-be home sellers are adopting a wait-and-see approach as uncertainty continues to rule,” said Skylar Olsen, senior principal economist at Zillow. “Our understanding of U.S. economic conditions is changing weekly, if not daily, and early unemployment figures are striking, so it's understandable that some are hesitant to put their home on the market."  

Making matters worse, the coronavirus has sidelined homebuilders. Housing starts plunged 22 percent in March, meaning builders’ contributions to housing inventory will be even smaller than before.

Even if a buyer is able to find a home to purchase, getting a mortgage has suddenly gotten more difficult, even as mortgage rates plunge to record lows. Because of the economic dislocation caused by the pandemic, lenders have become a lot more choosy.

Last week, JPMorgan Chase tightened its underwriting requirements for most residential mortgages, demanding a minimum FICO score of 700 and a 20 percent down payment. Wells Fargo raised the minimum score to 720.

“The large banks, including JPMorgan Chase, are moving significantly to looking at credit risk and looking at loan portfolios where they need to assess potential delinquencies and possible charge-offs,” Ken Leon, director of equity research at CFRA Research, told NBC News.

Lockdown logistics

Even if you can qualify for a mortgage, the logistics of a lockdown situation may work against you. A Brookings Institute report highlights a number of steps in the mortgage process that are nearly impossible to complete because they require in-person visits to perform title searches and appraisals.

Even people trying to rent a home are being affected. Online rental platform TurboTenant reports that there was a sharp drop in residential rental listings in the last month. Atlanta saw the biggest impact of any metro, with listings falling 27.45 percent during the first week of April.

New York, Denver, and Houston all experienced large net losses for new listings, with New York holding the biggest decrease by falling 65.17 percent.

Besides sending cash payments to Americans, the CARES Act allows homeowners suffering from the economic impact of the coronavirus (COVID-19) to put off making mortgage payments for up to a year. A new industry report shows many people are doing just that.

The Mortgage Bankers Association (MBA) reports that the percentage of mortgage loans that were placed in forbearance -- meaning they don’t have to be paid right away -- rose from 2.73 percent during the last week of March to 3.74 during the first week of April.

That might not sound like a big move, but it is. It’s a 37 percent increase in just seven days, and it shows just how many people have been thrown out of work by the mitigation efforts to slow the spread of the virus. 

"The nationwide shutdown of the economy to slow the spread of COVID-19 continues to create hardships for millions of households, and more are contacting their servicers for relief in accordance with the forbearance provisions under the CARES Act," said Mike Fratantoni, MBA's senior vice president and chief economist.

Call center volume rose

Fratanoni says there was also a surge in call center volume to go along with the rising number of loans in forbearance, with homeowners asking to place their loans on hold.

"The share of loans in forbearance grew the first week of April, and forbearance requests and call center volume further increased. With mitigation efforts seemingly in place for at least several more weeks, job losses will continue and the number of borrowers asking for forbearance will likely continue to rise at a rapid pace."

Under the law, homeowners are able to seek forbearance on their federally-backed mortgage, allowing them to skip principal and interest payments for 180 days. At the end of that time, they are able to seek relief for another 180 days.

The skipped principal and interest payments are added to the end of the loan, so they will eventually be paid back.

Liquidity issue for lenders

An analysis by Black Knight, a data analytics firm, suggests this sharp rise in mortgage forbearances could present liquidity issues for some lenders. It shows that the forbearance requests are inundating servicers' operations and will require payment of billions of dollars per month in principal and interest advances to government-backed securities holders.

If just 5 percent of homeowners seek forbearance, servicers would need to pay more than $2.1 billion in principal and interest per month to security holders. So far, there’s no indication of how many people will try to stop paying their mortgages, but the MBA’s numbers show it could be staggering, calling into question its long-term sustainability.

Black Knight CEO Ben Graboske notes there was no mandate for mortgage forbearance during the 2008 financial crisis, and previous programs have been offered on a smaller scale in local disaster areas. He says the current situation represents uncharted waters.

"Trying to gauge the impact of COVID-19 on mortgage performance is as much an art right now as a science," said Graboske. "The fact is that there is no true point of comparison in the nation's recent history for analysts to model against.

If you can qualify for a loan and find a house you’d like to live in, then there may have never been a better time to buy a home. Mortgage rates have sunk to an all-time low, according to Freddie Mac.

“The average 30-year fixed-rate mortgage hit a record 3.29 percent this week, the lowest level in its nearly 50-year history,” said Sam Khater, Freddie Mac’s chief economist.

These low rates have caused a surge in mortgage applications -- particularly applications to refinance existing mortgages at a lower rate.

“Given these strong indicators in rates and sales, as well as recent increases in new construction, it’s clear the housing market continues to be a positive force for the broader economy,” Khater said.

Freddie Mac reports that the 15-year fixed-rate mortgage averaged 2.79 percent. A year ago, it was 3.83 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.18 percent, down from last week when it averaged 3.20 percent. A year ago at this time, the 5-year ARM averaged 3.87 percent.

The record might not last

It’s entirely possible those record low rates could go even lower.

Mortgage rates are falling because they are directly tied to the yield on the 10-year Treasury bond, which has cratered in the last week. Early Friday, the yield fell to 0.77 percent -- a record low -- because investors who fear the economic impact of the coronavirus are selling stocks and buying bonds. 

Rising demand for bonds means the U.S. Treasury Department doesn’t have to pay as much interest, so yields fall when demand rises.

Mortgage rates this low might lead to a surge in home sales under normal circumstances, but the U.S. housing market continues to suffer from extremely low inventory. There aren’t enough homes on the market.

But a big drop in interest rates might make some homes more affordable. For potential buyers on the edge of entry-level homes or slightly more expensive homes, the lower monthly payments that a lower interest rate provides could make a difference and provide more options.

Employment

Meanwhile, concerns about the economic fallout from the coronavirus could also give potential buyers pause. The Labor Department today reported that U.S. employment surged by 273,000 jobs in February, well ahead of consensus estimates.

But the February report reflects almost no effects from coronavirus fears and therefore provides little insight for the future. In fact, one of the biggest increases in employment last month came at bars and restaurants -- businesses expected to suffer as wary consumers shun public spaces.

In interviews with USA Today, a number of hiring managers have said they have already postponed hiring plans until they can determine the economic impact of the coronavirus.

The Mortgage Bankers Association (MBA) reports that the number of homeowners seeking to refinance their mortgages last week surged by 26 percent, one of the largest one-week gains ever.

The reason? Mortgage rates are plunging, and it all has to do with the fear generated by the coronavirus.

Home loan rates are keyed to the yield on the 10-year Treasury bond. As fear swept Wall Street that the virus would derail the economy, billions of dollars flowed out of the stock market and into Treasury bonds.

Because there was so much demand for these notes, the government could pay less interest. On Tuesday, the yield on the 10-year note fell below 1 percent for the first time ever. That makes today’s low mortgage rates even lower.

More than a point lower than last year

According to MBA, the average mortgage rate is now around 3.57 percent, compared to about 4.67 percent a year ago. That caused a 26 percent spike in mortgage applications compared to the previous week -- a startling increase of 224 percent more than the same week in 2019.

"The 30-year fixed-rate mortgage dropped to its lowest level in more than seven years last week, amidst increasing concerns regarding the economic impact from the spread of the coronavirus, as well as the tremendous financial market volatility. Refinance demand jumped as a result, with conventional refinance applications increasing more than 30 percent," said Mike Fratantoni, MBA's Senior Vice President and Chief Economist. 

"Given the further drop in Treasury rates this week, we expect refinance activity will increase even more until fears subside and rates stabilize."

Should you refinance your mortgage?

But whether you should rush to refinance your mortgage depends on a couple of factors -- your current interest rate and how long you expect to live in your home before moving. That’s because there are always costs involved when you replace one loan with another. They can be high or low depending on the mortgage company.

According to our housing experts at ConsumerAffairs, you might encounter these costs when you refinance:

• Closing costs: Closing costs amount to 2 percent to 5 percent of the home loan and include application fees, lender fees, attorney fees, escrow deposits and fees, courier fees, homeowners’ association transfer fees, inspection fees, and title insurance.

• Mortgage points: Sometimes called discount points, mortgage points are optional fees paid to your lender in exchange for a lower interest rate. Each point is equal to 1 percent of the mortgage loan.

• Prepayment penalties: A prepayment penalty is a fee that some lenders charge when a borrower pays their mortgage loan off early, either through refinancing or overpaying each month. The average prepayment fee is 80 percent of six months of interest.

A typical rule of thumb is that you should refinance your mortgage if you can reduce your interest rate by at least 1 percent. However, smaller savings can be justified in some cases if there are very low closing costs.

Secondly, experts say you probably need to stay in the home for at least five years for the savings in interest to offset the cost of refinancing the mortgage.

ConsumerAffairs has collected thousands of consumer reviews of the best mortgage companies here.

Anecdotal evidence suggests buyers were getting an early start on home shopping last month, but the sales numbers haven’t borne that out. More people may have been looking, but they weren’t buying.

Sales of existing homes fell 1.3 percent from December, pulled down by a significant drop in home sales in the western states, according to data from the National Association of Realtors (NAR). However, home sales were up 9.6 percent from January 2019.

Lawrence Yun, NAR's chief economist, isn’t all that discouraged by the lackluster start to the 2020 home-buying season. 

"Existing-home sales are off to a strong start at 5.46 million," Yun said. "The trend line for housing starts is increasing and showing steady improvement, which should ultimately lead to more home sales."

Good economic conditions

Economic conditions are ripe for a surge in home sales. Unemployment is low, and wages have been steadily rising. Mortgage rates have hovered just below 4 percent.

What may be depressing sales is the lack of available homes to purchase. Zillow recently reported that housing inventory hit a seven-year low in December.

The report showed inventory was down year-over-year in 31 of the 35 largest U.S. housing markets, with Seattle, San Diego, and Sacramento seeing the largest drawdowns. The exceptions to shrinking inventory are San Antonio, Detroit, Atlanta, and Chicago -- the only markets where inventory actually increased over the last 12 months.

Even if shoppers can afford a home, there is no guarantee they will find one to their liking in their price range with the inventory at these levels. That means potential January sales could have been put off a couple of months, or longer.

Real estate brokerage firm Redfin reports that a majority of its agents faced competing offers when they tried to help clients buy homes in January. The company said competition is “spiking early and hard in 2020.”

Fewer homes, higher prices

Yun says inventory levels are down more than 10 percent from 12 months ago, and that lack of supply, coupled with increasing demand, is causing prices to rise at a faster rate. The median home price last month was $266,300, 6.8 percent higher than January 2019. Home prices have now risen year-over-year for 95 straight months.

"Mortgage rates have helped with affordability, but it is supply conditions that are driving price growth," Yun said.

Declining inventory isn’t helping. In January, total housing inventory was 1.42 million homes, nearly 11 percent lower than a year ago. That’s the lowest level since January 1999.

As the 2020 home buying season gets underway, prospective buyers are finding the most attractive mortgage rates in years. Current homeowners can also take advantage of the low rates if they refinance.

Freddie Mac reports the average 30-year fixed-rate mortgage rate has fallen to a three-year low, reaching 3.51 percent last week. It was 4.46 percent a year ago. The average 15-year fixed-rate mortgage fell to 3 percent, while the average 5-year Treasury-indexed hybrid adjustable-rate mortgage is 3.28 percent.

Sam Khater, Freddie Mac’s chief economist, says the drop in rates has led to a flurry of home shopping activity as well as a sharp increase in refinancing. 

“Borrowers who take advantage of these low rates can improve their cash flow by lowering their monthly mortgage payments, giving them more money to spend or save,” Khater said.

Why rates are falling

Mortgage rates are falling because they are tied to the yield on the 10-year Treasury bond, and that rate fell even further last week to below 1.6 percent. Lower rates attracted more applicants for loans, with the Mortgage Bankers Association (MBA) reporting a 7.2 percent increase in consumers seeking mortgages to buy or refinance homes.

Joel Kan, MBA's associate vice president of Economic and Industry Forecasting, says borrowers are benefitting from concern about the economic impact from China's coronavirus outbreak, in addition to existing concerns over trade and other geopolitical risks. Those worries are driving bond rates lower and mortgage rates are falling as a result.

"With the 30-year fixed rate at its lowest level since November 2016, refinances jumped 7.5 percent,” Kan said. “Purchase applications grew 2 percent and were 17 percent higher than the same week last year. Thanks to low rates and the healthy job market, purchase activity continues to run stronger than in 2019."

Lower monthly payments

Lower mortgage rates can make buying a home more affordable since monthly payments will be lower. But as we’ve previously reported, finding a home to buy this year could be a bigger challenge. A recent analysis by Zillow shows the inventory of available homes hit a seven-year low in December.

The lower rates might be a bigger benefit to current homeowners who refinance their mortgages. An analysis from Black Knight, a company that crunches financial numbers, shows the average homeowner could save $272 per month by refinancing their mortgage at present rates.

Since loans normally carry closing costs, whether you should consider refinancing depends on a number of factors, including your present rate and how long you plan to live in the home.

Greg McBride, Bankrate’s chief financial analyst, says refinancing could pay off if you can reduce your present rate by one-half to three-quarters of a percent. But he cautions that you probably need to stay in the home for at least a couple of years to justify the cost of refinancing.

If you’re considering refinancing, ConsumerAffairs has collected thousands of reviews of mortgage companies here.