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COVID Market Year in Review | WMU 3.19.21

A house with papers coming out of it with medical items
Mar 19, 2021 04:35 PM

By: Kyle Bergquist

The Puget Sound Real Estate Market

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Puget Sound Real Estate:  COVID Market Year in Review

On March 11, 2020, the World Health Organization officially declared a worldwide pandemic due to COVID.  From then forward, society took it one step at a time not knowing what was around the corner, or how things would shake out.  We’re not totally out of the woods yet, but a lot has happened over the last 373 days that I thought would be kind of fun to analyze.  Here’s your COVID Market Year in Review:

Ok, time to slam it home…  Pun intended 

Summary

On March 23rd, 2020, there were about 105,000,000 Americans investing in a 401k.  The average balance of that 401k was about $79,000 (after accounting for the 35% decline in the markets at the onset of the pandemic).  That means the US Stimulus measures (which went into effect after March 23rd, and are credited for boosting the markets) earned 105,000,000 Americans about $63,180 since March 23rd, 2020…and that now those ~105,000,000 Americans are looking at an average 401k balance somewhere in the neighborhood of $150,000 (assuming they continued to make contributions throughout 2020).  With the end of the Pandemic in sight, a year of increased savings for homebuyers, and a healthy 401k balance; there’s simply a lot of homebuyers eager to jump into the market and leverage some of that savings into a new home. 

  1. The Great Recession was the worst prolonged market correction since the Great Depression 80 years prior.  Unemployment peaked during the Great Recession at 10.6% in January of 2010.  Did you know that unemployment peaked during COVID at 14.8% in April of 2020; and that after you account for all the people who have simply stopped looking for work (Ie spouses who dropped out of the workforce to take care of children doing homeschool), or are now working part time jobs in-lieu of their previous full time job, that our current unemployment rate is still around 11.1%
  2. 30 Major US retailers filed for bankruptcy during COVID 2020  

Ok, Ok…bring it home.  Tell me about what happened in 2020 that relates to our current housing market…

  1. Without bars, restaurants, concerts, or travel, lots of American’s saved lots of money.  Pre-COVID the savings rate was 8.2%.  During COVID, the national savings rate was 33%.  Hello newfound down payment funds!!! 
  2. The S&P Stock Market Index hit its COVID low on March 23rd, 2020.  As of this writing, the S&P has gained 80.98% since that time.  HELLO AGAIN!... Newfound down payment funds!
  3. There have been 3 rounds of direct stimulus payments to individuals totaling $867B.  But in total, after accounting for funds given to industry; state, local, and tribal governments; tax incentives; enhanced unemployment benefits; education; health specific; and other misc. programs; we’re at a total COVID stimulus package of $5.335 Trillion.  Assuming 330,000,000 Americans, the United States government provided $16,167 in overall stimulus per person during 2020.

Ok, time to slam it home…  Pun intended 

Summary

On March 23rd, 2020, there were about 105,000,000 Americans investing in a 401k.  The average balance of that 401k was about $79,000 (after accounting for the 35% decline in the markets at the onset of the pandemic).  That means the US Stimulus measures (which went into effect after March 23rd, and are credited for boosting the markets) earned 105,000,000 Americans about $63,180 since March 23rd, 2020…and that now those ~105,000,000 Americans are looking at an average 401k balance somewhere in the neighborhood of $150,000 (assuming they continued to make contributions throughout 2020).  With the end of the Pandemic in sight, a year of increased savings for homebuyers, and a healthy 401k balance; there’s simply a lot of homebuyers eager to jump into the market and leverage some of that savings into a new home. 

Extra Credit

The total US Stimulus amounted to about $16,167 per American.  At $63,180 per 401k account * 105,000,000 Americans; the Stimulus that cost us $16,167 actually boosted overall wealth by $20,102 per American; producing a net gain in 2020 on the Stimulus packages of $3,935 per American (but only if you believe the stimulus had anything to do with bolstering our markets and overall economy).  

Interest Rates

Per Bankrate’s survey of large lenders, the 30 year mortgage interest rate on purchases rose slightly this past week to 3.34%, with .31 in discount and origination points.

According to Bankrate, rates have fallen .54% since their 52 week high of 3.88%

(That’s a savings of $151.81 per month on a $500,000 loan!)

Mortgage Interest Rates breakdown graph

Kyle’s Quick Take – Mortgage Market Week in Review

The biggest news this past week was the Fed meeting on Wednesday.  Jerome Powell didn’t say anything surprising, but the markets were a bit sad since they were HOPING for a little increase in Fed purchases of Treasury Bills and MBSs.  The Fed expects the Federal Funds Rate to remain at 0% through 2023; they will continue their current pace of bond buying; they increased their expectation of GDP to 6.5%; and believe the headline unemployment rate will drop to 4.5% (NOTE:  This number does not take into account everyone who dropped out of the workforce altogether during COVID.  The number that accounts for everyone who dropped out of the workforce or is working a part time job now in-lieu of their previous full time job is the U6 number…which is closer to 10%). 

None of this was surprising, but the problem we’re facing (as noted in weeks previous and restated below), is that because 12 months ago everything was so bad, Year over Year numbers are going to look incredible…  Which is going to have investors selling out of Treasuries and Mortgage Bonds alike, thus driving mortgage interest rates higher. 

Baseline Context for What Drives Mortgage Markets

Large institutions, endowments, organizations, WHOEVER will park money in Treasury Bills and Mortgage Backed Securities as a way to stay ahead of inflation at relatively low risk.  The problem with this is that when inflation fears grow, all those institutions, endowments, organizations, WHOEVER will bid yields higher as a way to maintain their margin over inflation.  For example, if they’re expecting 1% inflation and they want a 2% margin over that, they’ll bid yields (or mortgage interest rates) to be around 3% in the mortgage markets.  However, if inflation expectations rise to 2%, then all those institutions, endowments, etc will bid yields to be 4% to maintain their 2% margin…thus increasing mortgage interest rates to homebuyers. 

Interest rates have been rising on inflation fears since Presidents Day, 2021.  According to Bankrate.com, rates are .4% higher than their 52 week low from a month or so ago.  Unfortunately, moving forward, inflation news is going to get worse, which means mortgage interest rates are likely going to continue rising in the short and medium runs here.  The reason inflation news is going to get worse…  Well, let me defer to my favorite Bow-Tie Economist Elliot Eisenberg.  Elliot states:  A year ago today, the WHO declared Sars-CoV-2 a global pandemic. Lockdowns commenced and prices of many goods and services collapsed, airline tickets, clothes, oil, as examples, and M-o-M inflation readings went negative in March, April, and May [of 2020]. Comparing those pandemic-induced prices to what they are now will soon show year-over-year inflation rates exceeding 3%/year. IGNORE IT! These Base Effects are one-off and indicate nothing about current inflationary pressures.

The problem is:  The market don’t care.  Thus, inflation data is about to get worse here in the next few months = expect mortgage interest rates to rise. 

Puget Sound Real Estate:  Charts and Data

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:  940 homes
  • SFR Active Listings in Seattle:  536 homes  
  • Absorption Rate for SFR in Seattle:  63.69%
    • Competition is driving prices higher…already about $60,000 higher since our winter low.  So long as the absorption rate can stay high, escalation clauses will likely keep pushing prices even higher than where we’re at today in the weeks to come.  

Absorption Rate for SFR graph

Condos in Seattle

  • Condo Pending Sales in Seattle:  315 condos
  • Condo Active Listings in Seattle:  601 condos
  • Absorption Rate for Condos in Seattle:  34.39%  
    • A relatively high absorption rate gave us a strong floor for median condo prices to jump higher.  So long as the absorption rate can stay strong, escalation clauses will likely keep pushing prices even higher than where we’re at today in the weeks to come.  

Absorption Rate for Condos graph

Seattle SFR Stats breakdown Seattle Condo Stats breakdown

 

Median List Price graph

Price Per Square foot graph

Inventory graph

Average Days on Market graph

 

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