As housing market frenzy fades, inventory slowly returns - Movement Mortgage Blog

According to HousingWire, after four consecutive months of declines, existing home sales increased in June, jumping 1.4% from May to a seasonally adjusted annual rate of 5.86 million, according to the National Association of Realtors. You can thank a rise in housing inventory for the gains.

“That’s due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales,” said Lawrence Yun, NAR’s chief economist. “Home sales continue to run at a pace above the rate seen before the pandemic.” Unsold housing inventory sits at a 2.6-month supply at the current sales pace, Yun said — also up from May’s 2.5-month supply.

“At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year,” Yun said. “Ideally, the costs for a home would rise roughly in line with income growth, which is likely to happen in 2022 as more listings and new construction become available.”

Properties typically remained on the market for 17 days in June, unchanged from May and down from 24 days in June 2020. Eighty-nine percent of homes sold in June 2021 were on the market for less than a month. First-time buyers accounted for 31% of sales in June, also even with May but down from 35% in June 2020.

“Huge wealth gains from both housing equity and the stock market have nudged up all-cash transactions, but first-time buyers who need mortgage financing are being uniquely challenged with record-high home prices and low inventory,” Yun explained. “Although rates are favorably low, these hurdles have been overwhelming to some potential buyers.”

Single-family home sales decreased to a seasonally adjusted annual rate of 5.14 million in June, up 1.4% from 5.07 million in May and up 19.3% from one year ago. The median existing single-family home price was $370,600 in June, up 24.4% from June 2020.

“Plenty of buyers remain in the market, hoping to find a home that is a good fit for their needs and budget,” said Danielle Hale, Realtor.com chief economist. “Despite public opinion that it’s not a great time to buy, many home shoppers are looking to take advantage of still-low mortgage rates and lock in their monthly housing payment, the largest budget item for many households.”

Refinancing fees dropped, lowering cost for borrowers

Fannie Mae and Freddie Mac are dropping a fee on mortgage refinances that was instituted during the pandemic, lowering costs for borrowers, the Federal Housing Finance Agency said Friday. Fannie and Freddie were charging lenders a 50 basis-point fee for all loans that were delivered to the two mortgage giants. The fee, designed to cover losses projected as a result of the pandemic, was being passed on to borrowers.

“The COVID-19 pandemic financially exacerbated America’s affordable housing crisis. Eliminating the Adverse Market Refinance Fee will help families take advantage of the low-rate environment to save more money,” acting Federal Housing Finance Agency Director Sandra Thompson said in a statement. 

“Today’s action furthers FHFA’s priority of supporting affordable housing while simultaneously protecting the safety and soundness of the Enterprises.”

According to CNBC, the mortgage industry applauded the move.

“Santa Claus has come early for homeowners looking to refinance their mortgages,” said Greg McBride, chief financial analyst for Bankrate.com. “The fee had often resulted in an increase of one-eighth percentage point in rate, which was enough to siphon $20 per month in potential savings out of the pockets of borrowers with a $300,000 loan.”

Mortgage rates recently dropped and are now sitting near a five-month low. Applications to refinance jumped in the last two weeks, according to the Mortgage Bankers Association, and will likely move even higher with this additional savings.

Despite uncertainty, first time homebuyers remain motivated in 2021

First-time buyers remain strongly motivated to face the housing market despite the impact of the COVID-19 pandemic, according to the results of Chase Home Lending’s new First-Time Homebuyer Study. Out of 1,100 respondents surveyed between March 10 and 24, who had all indicated that they were actively preparing to buy their first home, 60% said they are likely to purchase a home in the next 12 months.

The top three reasons respondents cited for purchasing a home are larger living spaces, space for family, and financial independence. About half of respondents said COVID-19 had some kind of influence on their home buying location, according to Builder.

The majority of buyers indicated that COVID-19 changed their plans for 2020, with 70% stating they had waited to see how the market would play out last year before they bought a home. Many indicated that their decision to buy was affected by a change in income (61%) or reconsideration of home purchase financing (58%).

Only one in four buyers surveyed said that they had “strong” confidence in their financial ability to purchase a home in the first half of 2021. A much larger share are preparing their savings for homeownership: 70% have made lifestyle changes geared toward saving for a home, 66% have created monthly budgets and worked to improve their credit score, 33% have conducted research on down payment assistance programs, and 77% are actively saving for a down payment.

Among Black and Latinx respondents, nearly 75% agreed that homeownership is a crucial step toward building wealth — slightly higher than the 69% average across all groups. Almost half of Black and Latinx respondents felt knowledgeable and comfortable with the home buying process, above the 40% overall average, and 65% expected the process to be enjoyable, above the 51% overall average. Black and Latinx respondents are more likely than other respondents to purchase homes in urban locations (30%) and to prioritize the safety of the neighborhood (67%).

“The events of the last year upended various aspects of our lives, including prospective home buyers and their plans to purchase,” says Sean Grzebin, head of consumer origins for Chase Home Lending. “Despite possible income changes and prolonged timelines, buying a home as a means to build wealth and stability still resonates with first-time home buyers. The research shows that they are also open to making lifestyle changes in order to reach their homeownership goals.”

Weekly Mortgage Rate Update

Concerns about the Delta variant, and the overall trajectory of the pandemic, are undoubtedly affecting economic growth. While the economy continues to mend, Treasury yields have decreased, and mortgage rates have followed suit. Unfortunately, many homebuyers are unable to take advantage of low rates due to low inventory and high prices.

The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 2.78%, which is 0.10 points lower than last week, and down 0.23 points from this time last year.

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Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.