The Puget Sound Real Estate Market
Puget Sound Real Estate: 2021 Interest Rate Forecast
The Vaccine is out, and the Election is over. On one hand it feels like we’re on a clear path forward, but the reality is COVID will be with us for at least the first six months of 2021. Tracking COVID and its recovery is going to be the number one leading indicator for where rates might go. The Fed has artificially lowered mortgage interest rates by way of spending TRILLIONS on Treasury Bonds and Mortgage Backed Securities. Furthermore, the Fed has committed to keeping rates at or near historically low levels until the economy shows signs of recovery, but that’s where things get a little hazy. 2020, more than ever, accelerated a divide between two American Halves. While One Half was able to stay employed by shifting to remote working, refinance their homes to lower their monthly expenditures, and ultimately see their 401ks grow; the same cannot be said for the Other Half. The Other Half was laid off or furloughed, then lost their enhanced unemployment at the end of July, and no longer has much, if anything in savings as they scrape together as much as possible to get to another day. You’ve heard of the “K” shaped recovery we’re experiencing – This is it. We ALL went down upfront, but then Half of America rebounded (the top of the “K”), while the Other Half continued downward (the lower part of the “K”).
As I see it, here’s where things get interesting: The bottom part of our “K” recovery is not comprised of as many homeowners as the top half, but generally they have more short term debt than the Half of America on the top part of the “K”. So the Fed bond buying program that’s spending Trillions to lower mortgage interest rates isn’t really applicable to the part of society that needs the most support. The action the Fed took that helps the Half of America that needs it the most was the reduction of the Federal Funds Rate to 0%. That has interest rates on credit cards, personal loans, variable rate school loans, and any other short term debt at a minimum – Which helps those on the bottom part of the “K” by reducing their monthly debt payments. But there’s no money needed to keep the Federal Funds Rate at 0%...and mortgage interest rates don’t trade on the Federal Funds Rate – They trade on the supply/demand curve for mortgage backed securities, which right now have high demand due to the Fed spending so much (which drives interest rates lower). Sooooo is there truly a need for the Fed to continue pumping Trillions into the MBS and Treasury Bond Markets?
Moving forward, interest rates will be HIGHLY, HIGHLY sensitive to whatever the Fed is thinking with regards to their current bond buying program – Nicknamed QE4Ever. But the reality is it won’t be 4Ever…it will end, and when it does, it’s going to be a rough day/week for me and every Loan Officer out there. For context: When Ben Bernanke first MENTIONED the word “Taper” back in May 2013, mortgage interest rates skyrocketed in the ensuing trading days. He didn’t even announce they were doing it, just that they needed to start thinking about it! (Google “Taper Tantrum Investopedia” to learn more about what will likely happen again in the not too distant future here). Anyway, rates are low now but they won’t stay this way forever. Any good economic news that investors believe will pressure the Fed to begin tapering sooner than later will cause interest rates to jump higher…And vice versa, any bad economic news will be viewed as a reason for the Fed to continue bond buying, which will keep rates right where they are.
Alex Black Absorption Rates per NWMLS Real Time Data
Absorption Rate is calculated as: (Pending Sales) / (Active + Pending Sales)
SFR in Seattle
- SFR Pending Sales in Seattle: 589
- SFR Active Listings in Seattle: 615 homes
- Absorption Rate for SFR in Seattle: 48.92%
- And we’re off! The absorption rate ticked higher, which pushed median house prices higher. With the New Year upon us, there’s nothing but hope and optimism for NW Homebuyers. This can-do attitude has buyers buying up the last of the aged-listings, and escalating prices on new high quality listings hitting the market. With so little inventory on the shelves and a hungry buyer pool, look for both absorption rate AND median list prices to increase over the next few months.
Condos in Seattle
- Condo Pending Sales in Seattle: 168
- Condo Active Listings in Seattle: 590
- Absorption Rate for Condos in Seattle: 22.16%
- After falling to a recent low of 17.66%, the absorption rate for condos in Seattle has increased 25.48% to 22.16%! This is fantastic news, and helped provide a floor for condo prices to bounce higher! So long as the absorption rate can hold onto its recent gains (and/or continue increasing), condo prices should move sideways to slightly increase. HAPPY NEW YEAR!!!
Per Bankrate.com’s survey of large lenders, the 30 year mortgage interest rate fell slightly this past week to 2.95%, with .30 in discount and origination points.
According to Bankrate, rates have fallen .93% since their 52 week high of 3.88%
(That’s a savings of $258.06 per month on a $500,000 loan!)
Kyle’s Quick Take
Moving forward, interest rates will be HIGHLY sensitive to whatever the Fed is thinking with regards to their current bond buying program – Nicknamed QE4Ever. But the reality is it won’t be 4Ever…it will end, and when it does, it’s going to be a rough day/week for me and every Loan Officer out there. For context: When Ben Bernanke first MENTIONED the word “Taper” back in May 2013, mortgage interest rates skyrocketed in the ensuing trading days. He didn’t even announce they were doing it, just that they needed to start thinking about it! (Google “Taper Tantrum Investopedia” to learn more about what will likely happen again in the not too distant future here). Anyway, rates are low now but they won’t stay this way forever. Any good economic news that investors believe will pressure the Fed to begin tapering sooner than later will cause interest rates to jump higher…And vice versa, any bad economic news will be viewed as a reason for the Fed to continue bond buying, which will keep rates right where they are.
Mortgage rates this week
The benchmark 30-year fixed-rate mortgage fell this week to 2.95 percent from 2.96 percent, according to Bankrate’s weekly survey of large lenders. A year ago, it was 3.81 percent. Four weeks ago, the rate was 2.99 percent. The 30-year fixed-rate average for this week is 0.93 percentage points below the 52-week high of 3.88 percent.
The 30-year fixed mortgages in this week’s survey had an average total of 0.30 discount and origination points.
Over the past 52 weeks, the 30-year fixed has averaged 3.35 percent. This week’s rate is 0.40 percentage points lower than the 52-week average.
- The 15-year fixed-rate mortgage fell to 2.37 percent from 2.38 percent.
- The 5/1 adjustable-rate mortgage fell to 2.87 percent from 2.89 percent.
- The 30-year fixed-rate jumbo mortgage was flat at 3.41 percent.
- At the current 30-year fixed rate, you’ll pay $418.91 each month for every $100,000 you borrow, down from $419.45 last week.
- At the current 15-year fixed rate, you’ll pay $660.69 each month for every $100,000 you borrow, down from $661.16 last week.
- At the current 5/1 ARM rate, you’ll pay $414.63 each month for every $100,000 you borrow, down from $415.69 last week.
Results of Bankrate.com’s weekly national survey of large lenders conducted January 6, 2021 and the effect on monthly payments for a $165,000 loan:
Where mortgage rates are headed
Mortgage experts were mostly of one mind on rate trend predictions in Bankrate’s survey this week (Jan. 7-13). The largest share – 77 percent predicted a rate increase. Meanwhile, 15 percent said rates would fall and just 8 percent said they would remain the same.
“Mortgage rates should rise on the Treasury surpassing 1 percent and improved prospects on another round of stimulus,” said Ralph McLaughlin, chief economist and senior vice president of analytics of Haus.
A refinance makes more sense than ever at these rates for millions of homeowners
Rates are at a record low but they may be going up soon. The rate on 10-year bonds issued by the U.S. government on Wednesday topped 1 percent for the first time since March. The 10-year Treasury is closely tied to 30-year mortgage rates.
Even if you don’t own 10-year Treasury notes, the rate on the benchmark bonds still can affect how much you pay for your mortgage. The 10-year Treasury acts as a reliable indicator of economic sentiment and as a key benchmark for mortgage rates. In 2019, the gap between the 10-year Treasury and the 30-year mortgage averaged 1.79 points, according to a Bankrate analysis of data compiled by the Federal Reserve Bank of St. Louis.
A year ago, the rate on the 10-year Treasury was north of 1.9 percent. Then the coronavirus pandemic hit, and rates on 10-year bonds plummeted. The 10-year rate fell as low as 0.52 percent in August.
The bottom line: It may be time to do that refinance sooner rather than later.
The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates may differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent. “Lenders surveyed each week are a mix of lender types – thrifts, credit unions, commercial banks and mortgage lending companies – is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.