The Economy Continues to Recover, House Flippers Add to Housing Supply, and Consumer Confidence Increases

Fannie Predicts Housing Market Recovery

In a slight change to their GDP predictions, Fannie Mae’s Economic and Strategic Research Group predicts 6.6% growth for this year and 3% growth for 2022. Part of the reason for this is due to a survey indicating that Americans had $3.2 trillion in savings for Q4 last year; a $2 trillion increase from pre-pandemic levels. In addition, Americans paid down $118 billion in credit card debt over the past year and stimulus payments are bolstering people’s strong financial standings. Even if rates increase to pre-pandemic levels, the experts at Fannie Mae believe that the strong financial positions of homebuyers will be able to easily absorb the higher cost. However, financial analysts are not worried by the current rise in rates and predict they will slowly taper to a modest increase later in the year. The biggest concerns for home sale projections this year will not come from mortgage rates, but any new COVID-19 variants and the effect they could have on delaying the projected Spring housing boom.

Nasdaq Jumps up 1.8%

Tech stocks led the way for substantial increases in the Nadaq, Dow Jones, and the overall S&P 500 today as bond yields fell. The Nasdaq Composite gained 1.5%, The S&P 500 rose 0.9%, and the Dow Jones gained 110 points, while the 10-year Treasury yield fell from 1.73% to 1.68%. While economists expect an increase in treasury yields to go along with economic growth and recovery, last week’s increases gave further alarm concerning projected increased inflation and possible supply bottlenecks in certain sectors caused by businesses slowly reopening later this year. While yields have been and will continue to be unpredictable as of late, this reduction should cool some fears of inflation for the short-term. Industrials also saw growth following a New York Times report that the current administration will invest $3 trillion in an infrastructure deal instead of the previously reported $2 trillion. Market confidence was also boosted by promising trial data concerning the new AstraZeneca vaccine developed at the University of Oxford.

Mortgage Industry Optimistic Over Low Interest Rates

While fears over inflation have been adding minor increases to mortgage rates, most industry professionals are still optimistic thanks to Fed Chairman Jerome Powell’s commitment to maintaining near-zero interest rates. In addition, the Federal reserve will continue to purchase $80 billion in treasury bonds and $40 billion in mortgage-backed securities each month until price stability goals are reached. This leaves projections for rate hikes in 2023 or 2024, leaving the mortgage industry and homebuyers to enjoy historically low rates for the next couple years. The refinance rate is predicted to dip slightly from 64% to 54% this year and 39% next year, but purchase demand is forecasted to rise from $1.61 to $1.82 trillion this year before tapering off at $1.8 trillion in 2022. However, these numbers could change depending on volatile treasury yields that typically affect interest rates.

House-flipping Lenders on the Rise

According to investment firm AlphaFlow, there has been a 50% increase in banks and other financiers investing in home flippers over the past two months. Last year, gross profits per sale for home flippers hit their highest levels since 2005. Regional banks and shadow lenders are finding the 7.9 average annual rate on short-term flip-and-fix loans are much more profitable than the 3.09% rate on 30-year mortgages and 3.75% on loans to junk-rated borrowers. While experts aren’t concerned that the massive amounts of cash these institutions are giving to contractors and flippers will cause another housing bust, they do worry that it could aggravate already high home prices due to an element of speculation. Despite this worry, flippers are focusing on the low end of the housing market, with the median sale price of a flipped home $9,200 or lower than the median sale price of existing homes. Additionally, flippers are focusing on the smaller end of the housing market, with flipped homes averaging 1,450 square feet.

Consumer Confidence Concerning Mortgage Payments Improves

The latest consumer confidence survey conducted by Freddie Mac shows that 19% of homeowners asked for a postponement in mortgage payments in February of this year, compared to 27% in December of 2020. This news comes with increased confidence in the housing market, as 66% of consumers expressed confidence, while the likelihood of homeowners selling their homes and renters buying a home remained steady at 18% and 34%, respectively, since the first of the year. Even confidence in refinance remained strong, with a third of those surveyed expressing an interest in refinancing over the next three months. The survey also displayed employment confidence, with 72% of employed respondents believing that they will be able to maintain their current income level for the next three months. The survey indicated that many people are still struggling to afford homes in the rapidly recovering housing market, but that despite high home prices the interest in buying remains.

 (1) Mortgage News Daily (2) CNBC (3) HousingWire (4) Bloomberg (5) HousingWire