The sun is shining as I write this today and the forecast is for warmer weather. While others might be thinking of returning to the outdoors or working in the garden, our industry is gearing up for a strong spring real estate market – and the first step in that MBA expects a record year for purchase origination volume.
Demand for housing will be supported by an improving labor market, favorable demographic trends and mortgage rates which, although increasing, are still historically low. The unemployment rate, which was 6.2% in February, is expected to drop to 4.7% by the end of the year, as hiring is accelerated by an increase in consumer spending as pandemic restrictions are lifted.
Another positive sign impacting the MBA’s spring forecast for the housing market: more than 15% of the U.S. population has received at least one dose of the vaccine by this point, and recent announcements from the Biden administration indicate the pace will only increase from here.
Improving economic conditions are putting upward pressure on mortgage rates, which have shifted above 3% in recent weeks for 30-year fixed rate loans. MBA provides that the Freddie mac The survey rate will hit around 3.5% by the end of 2021. I get asked this question a lot and it’s important to remember: Freddie Mac’s weekly rate only includes purchase loans – not refinancing and the associated cost of current adverse market charges.
As long as rates stay in this neighborhood and don’t quickly climb above 4%, potential buyers are unlikely to be deterred by the modest increase. Meanwhile, the demand for refinancing will certainly cool down as the year progresses.
In recent years, the number of existing single family homes for sale has declined. But house prices have gone up. For home ownership to be a possibility for everyone, there must be a greater supply of affordable housing.
Presented by: Fannie Mae
The fact that most millennials are rapidly approaching the growing economy and growing demand from buyers adds fuel peak age for buying a first home. The largest cohort of millennials is now 29, and historically the maximum age for first-time homebuyers is 32 or 33. The MBA predicts that this wave of young buyers will support the buying market for at least the next few years.
Interestingly, the National Association of Home Builders‘ fourth quarter 2020 survey of potential homebuyers showed that 27% of Millennials plan to buy a home in the next 12 months, up from 19% in the previous year’s survey.
Strong housing demand is reflected in strong year-over-year growth buy apps – up double-digit percentage points in most weeks so far this year – and in the sustained pace of home sales, with existing sales at their highest level in 15 years.
However, as industry participants are well aware, the challenge has been the lack of supply in the housing market. According to National Association of Real Estate Agents data, there were only 1.9 months of supply at the current sales rate and just over a million homes on the market across the country at the end of January.
The stock of new homes is on the rise, up to about four months of supply at the current sustained rate. Home builders have stepped up the pace of construction, but continue to grapple with supply chain issues, with input costs rising sharply. Wood price have increased by more than 180% since last spring, and the costs of other inputs have increased even more rapidly. According to NAHB, these increases in input costs have pushed up the cost of building a new home by more than $ 24,000 in the past year.
Unsurprisingly, the lack of inventory in the housing market has led to sharp increases in home prices across the country, with the most recent reading of the FHFAthe house price index showing a Gain of 10.8% year-on-year at the national level, with signs of further acceleration in recent months. Price appreciation has been even faster in some of the warmer western and northwest mountain markets, but overall the robust rate of appreciation in several markets is well above growth. revenues.
Again, unsurprisingly, housing is strongest in markets with the strongest fundamentals, especially demographics. Last year, the five fastest growing states in terms of population were Idaho, Arizona, Nevada, Utah and Texas. Also last year, nearly 795,000 of the 990,000 single-family housing starts nationwide were in the rapidly growing southern and western census regions.
Given the lack of inventory in the housing market, we will be closely monitoring the pace of residential construction this year. Fortunately, in addition to the United States Census Bureau data, we conduct our own new home market survey, with the publication each month of MBA Builder Applications Survey (BAS). MBA is better known Weekly survey of applicants tracks both refinancing and purchase request volumes. However, the purchase component is dominated by mortgages to purchase existing homes, as the level of existing home sales tends to be six to seven times the level of new home sales.
With this in mind, the MBA BAS, launched in July 2013, looks only at the volume of requests for the purchase of new homes. The sample consists of MBA members who are affiliated with home builders, representing over 30% of the new home market. Monthly results are typically released in the middle of the month, before the Census Bureau’s monthly new home sales release.
As shown in Table 4, BAS results are a good predictor of census results, and regular revisions of census data often bring the two series closer together.
In addition to closely monitoring the new housing market, we will also be looking for any signs that the rapid rise in house prices is causing affordability issues in various housing markets. If home prices continue to rise at rates three to four times the rate of income growth, it will slow down the buying market, especially for price-sensitive first-time buyers. Even with rates expected to remain low, a warning sign would be a sustained decline in the volume of purchase requests.
Table 5 shows the state-level trends in purchase requisition volume so far in 2021, with observations from some of the larger states. (Note the decline in activity in Texas due to the severe winter storm in February.) In 2020, we were able to use state-level data to track differential growth in states that first eased restrictions. pandemic.
We’re just starting to see new changes announced to easing restrictions on doing business, and these may well lead to further differential growth in buying activity for the real estate market this spring. year.
Overall, the combination of robust demand in the housing market, limited but growing supply and rapidly rising house prices will result in a strong housing market in the spring and a record high of purchasing volume for the year, according to MBA forecasts.
Just as the first tree buds signal the onset of a bountiful spring, a significant jump in the supply of newly built homes will be a telltale sign of the housing supply conditions and home selling activity that is sinking. ‘will follow. MBA predicted in February that the mortgage industry this year will come from just under $ 3 trillion in total volume, with the majority – $ 1.57 trillion – from home purchases.