Housing Market Defies Expectations
Didier Malagies • July 24, 2020
Housing Market Defies Expectations Amid Economic Turmoil
Avery McGowan posted in
Housing in Housing New
Source: Politico
Written by: Katy O'Donnell
The U.S. housing market, the epicenter of the nation’s last economic meltdown, is thriving — and that’s helping to keep the country afloat during the latest crisis, even as other industries struggle to survive.
While the $34 trillion market faltered at the start of the pandemic, its rebound has far outperformed expectations, with existing home sales surging over 20 percent in June, according to data released Wednesday. Some areas of housing are actually doing better than they were before the coronavirus began sweeping the U.S.
The reason: The market’s already enormously pent-up demand has been stoked by the crisis, despite soaring unemployment. White-collar employees — many of whom are able to work from home and keep getting paychecks — are buying. And analysts believe the pandemic has prompted some millennials, now reaching the prime age for buying first homes, to pull up stakes in crowded cities and head for the suburbs. Securing a home loan, meanwhile, is cheaper than ever, with mortgage rates hitting historic lows thanks to the Federal Reserve’s easy-money policy.
“The market’s performance has been admittedly shocking, amazing, considering that typically when you have surging unemployment, housing activity tends to fall,” said Ivy Zelman, CEO of the housing research firm Zelman Associates. “That tends to be the case going all the way back to World War II.”
Housing-related expenditures make up about 15 percent of GDP, so the industry’s current strength is alleviating some of the stress on the broader economy less than four months before President Donald Trump — whose own family made their fortune in housing — faces reelection.
To be sure, that could change quickly as more states are forced to go back into lockdown amid a resurgence of the virus. Already, the regions where housing has been strongest — a staggering 47 percent of existing home sales in June were in the South, according to the National Association of Realtors — are now facing significant new outbreaks.
“If [states] lock down again, the expectation, certainly on the purchase side, is that activity would fall very, very quickly,” said Mortgage Bankers Association chief economist Michael Fratantoni.
But the data so far indicate housing is resisting the economic carnage.
“Housing is clearly showing a V-shaped recovery even though the rest of the economy is not,” said NAR chief economist Lawrence Yun.
Despite widespread uncertainty in the wake of the most severe economic shock in generations, Americans still want to buy homes, one of the biggest financial decisions they will make in their lifetimes.
Consider: Home construction jumped 17 percent in June, according to Census Bureau data, while permit applications to build single-family homes rose almost 12 percent. And mortgage applications were up 19 percent in the week ending July 17 over a year ago.
Part of housing’s strength comes down to demographics, as millennials, who make up the largest share of the population, enter the market to buy homes. And while double-digit unemployment would normally dampen demand, the current downturn is heavily lopsided toward certain lower-wage sectors, like the hospitality and food-service industries, whose employees are more likely to rent.
“It looks like a lot of the purchase activity is from first-time homebuyers,” the MBA’s Fratantoni said. “It seems to be either, you’re in a sector of the economy that is able to work just fine remotely, or you’re not.” Indeed, first-time buyers accounted for 35 percent of the purchases of existing homes in June.
Mortgage application data indicate that recent homebuyers, who already traditionally have a higher median income than the larger population, are financially secure: The average loan size for purchase applications in the first week of July was $357,000.
Historically low mortgage interest rates — the average rate fell below 3 percent last week for the first time since Freddie Mac began tracking it in 1971 — have also nudged would-be homeowners off the fence. And the increased time people are spending at home amid widespread lockdowns has led plenty of people to reevaluate their living spaces.
“It’s not 2008. People then prioritized their auto payments, because you can drive your car to work,” said Isaac Boltansky, director of policy research at Compass Point. Now, “you’re forced to stay in your house. To me, I think the importance of home, both as a concept and as a practical matter, because of the stay-at home orders, has grown. Home is more important now than it was four months ago.”
That has led to a boost in demand for new homes with more space for remote working and remote learning. While the resale market is still lagging, new-home sales in May were up 16.6 percent from the previous month and 12.7 percent over May 2019.
If anything, the pandemic appears to be accelerating white-collar 30-somethings’ transition from cramped apartments in crowded urban centers to more isolated single-family homes in the suburbs.
“The shift from the urban core to the suburbs was already under way, but now appears to be on steroids,” Zelman said. “We underappreciated how consumers would react to the pandemic,” she added, as social distancing and remote work have spurred people to want more space.
Almost a quarter of the respondents to a National Association of Realtors survey of its members in late June said they had buyers who had shifted the location of where they wanted to buy a home because of the pandemic. Of those, 47 percent said their buyers want to purchase a house in the suburbs and 39 percent said buyers wanted to move to a rural area. Others indicated buyers shifted to wanting a home in a small town.
Home prices, meanwhile, continue to rise, as demand continues to outstrip the nation’s already strained housing supply.
Still, the dramatic surge in demand as states began to reopen in May and June that is just now showing up in housing data may be short-lived.
“The big question is, is this bounce back just temporary, pent-up demand,” Fratantoni said. “We don’t know to what extent that pent-up demand is going to fall off here.”
In fact, the market may have peaked already, given the recrudescence of the virus around the country.
At the same time, analysts fear that the housing sector’s isolation from other parts of the economy during this downturn makes it less likely that it will be able to kick-start the recovery as it has in the past, since the housing market’s performance is currently untethered from the plight of the unemployed
“It’s not going to be enough to lead us out of this recession by itself; I think the recession is going to be too severe in certain industries,” Zelman said. “Unless we get a vaccination, housing will start to feel the backlash the longer this goes on.”
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Mortgage purchase applications are on a 22-week growth streak primarily due to a combination of improving market conditions, seasonal trends, and changing consumer behavior. Here's a breakdown of the key reasons behind the sustained growth: 🔑 1. Falling Mortgage Rates Mortgage rates have been gradually declining from the highs seen in 2023. Even small drops in interest rates significantly improve affordability, prompting more buyers to apply for loans. Borrowers are locking in rates with the hope that they’ve hit a local low. 🏡 2. Pent-Up Demand from 2023 Many potential buyers delayed purchases during 2023 due to high rates and limited inventory. As conditions improve, backlogged demand is being released into the market. 🌞 3. Spring & Summer Buying Season The U.S. housing market typically sees a seasonal increase in purchase activity starting in spring and continuing through summer. Families prefer to move during school breaks, contributing to more applications in this window. 💼 4. Improved Inventory Levels While still tight, housing inventory has started to improve slightly in some regions. Builders are offering incentives and new constructions are increasing, drawing more buyers into the market. 📈 5. Confidence in the Economy A strong labor market and steady wage growth are boosting consumer confidence , encouraging people to buy homes. Some buyers are moving before potential rate hikes or home price increases . 💡 6. Shift Toward Homeownership Rising rents and lifestyle changes post-pandemic are pushing many toward owning rather than renting . First-time homebuyers are a large portion of this demand. Summary: The 22-week growth streak in mortgage purchase applications is being driven by lower mortgage rates, seasonal buying trends, improved inventory, and returning buyer confidence . While challenges like affordability and supply remain, these positive signals suggest a slow but steady rebound in the housing market .
During the mortgage process, several disclosure documents are provided to help you understand the terms of the loan, your rights, and the costs involved. These disclosures are required by law and are designed to promote transparency and protect you as a borrower. Here’s a breakdown of the key disclosures you'll receive: 1. Loan Estimate (LE) When: Within 3 business days of submitting a loan application. Purpose: Provides a summary of the loan terms, estimated interest rate, monthly payment, closing costs, and other fees. Key sections: Loan terms (rate, type, prepayment penalty, balloon payment) Projected payments (principal, interest, taxes, insurance) Costs at closing (origination charges, services you can/cannot shop for) Why it matters: Lets you compare offers from multiple lenders. 2. Closing Disclosure (CD) When: At least 3 business days before closing. Purpose: Provides final details of the mortgage loan, including actual costs. Key sections: Final loan terms (rate, payments, closing costs) Cash to close (how much you need to bring to closing) A detailed breakdown of costs and payments over time Why it matters: Helps you confirm everything is accurate before you close. 3. Mortgage Servicing Disclosure Statement When: Within 3 business days of application. Purpose: Explains whether your loan might be sold or transferred to another company for servicing. Why it matters: Tells you who will manage your payments and account. 4. Affiliated Business Arrangement (AfBA) Disclosure When: At the time of referral to an affiliated business (e.g., title company). Purpose: Discloses any relationships between the lender and other service providers and explains you’re not required to use them. Why it matters: Ensures you know if there’s a potential conflict of interest. 5. Home Loan Toolkit (for purchase loans) When: Within 3 business days of application. Purpose: A consumer-friendly booklet from the CFPB that explains the mortgage process, costs, and how to shop for a loan. Why it matters: Helps first-time buyers understand the steps and choices. 6. Right to Receive a Copy of Appraisal When: Within 3 business days of application. Purpose: Notifies you that you can get a copy of the appraisal at no additional cost. Why it matters: Gives you insight into the value of the home you’re buying or refinancing. 7. Initial Escrow Disclosure When: At or within 45 days of closing. Purpose: Details amounts to be collected in escrow for taxes and insurance. Why it matters: Shows how your monthly mortgage payment is allocated. 8. Notice of Right to Rescind (for refinances only) When: At closing (for primary residence refinances). Purpose: Gives you 3 business days to cancel the refinance loan. Why it matters: Protects you from making a rushed decision. tune in and learn at https://www.ddamortgage.com/blog Didier Malagies nmls#212566 dda mortgage nmls#324329
