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If you’re thinking about buying or selling a home, you’ll want to keep a pulse on what’s happening with mortgage rates. Rates have been climbing in recent months, especially since January of this year. And just a few weeks ago, the 30-year fixed mortgage rate from Freddie Mac approached 4% for the first time since May of 2019. But that climb has dropped slightly over the past few weeks (see graph below):

How Global Uncertainty Is Impacting Mortgage Rates | MyKCM

The recent decline in mortgage rates is primarily due to growing uncertainty around geopolitical tensions surrounding Russia and Ukraine. But experts say it’s to be expected.

Here’s a look at how industry leaders are explaining the impact global uncertainty has on mortgage rates:

Odeta Kushi, Deputy Chief Economist at First American, says:

While mortgage rates trended upward in 2022, one unintended side effect of global uncertainty is that it often results in downward pressure on mortgage rates.”

In another interview, Kushi adds:

“Geopolitical events play an important role in impacting the long end of the yield curve and mortgage rates. For example, in the weeks following the ‘Brexit’ vote in 2016, the U.S. Treasury bond yield declined and led to a corresponding decline in mortgage rates.”

Kushi’s insights are a reminder that, historically, economic uncertainty can impact the 10-year treasury yield – which has a long-standing relationship with mortgage rates and is often considered a leading indicator of where rates are headed. Basically, events overseas can have an impact on mortgage rates here, and that’s what we’re seeing today.

Will Mortgage Rates Stay Down?

While no one has a crystal ball to predict exactly what will happen with rates in the future, experts agree this slight decline is temporary. Sam Khater, Chief Economist at Freddie Mac, echoes Kushi’s sentiment, but adds that the decline in rates won’t last:

“Geopolitical tensions caused U.S. Treasury yields to recede this week . . . leading to a drop in mortgage rates. While inflationary pressures remain, the cascading impacts of the war in Ukraine have created market uncertainty. Consequently, rates are expected to stay low in the short-term but will likely increase in the coming months.” 

Rates will likely fluctuate in the short-term based on what’s happening globally. But before long, experts project rates will renew their climb. If you’re in the market to buy a home, doing so before rates start to rise again may be your most affordable option.

Bottom Line

Mortgage rates are an important piece of the puzzle because they help determine how much you’ll owe on your monthly mortgage payment in your next home.

 

With forbearance plans coming to an end, many are concerned the housing market will experience a wave of foreclosures similar to what happened after the housing bubble 15 years ago. Here are a few reasons why that won’t happen.

There are fewer homeowners in trouble this time

After the last housing crash, about 9.3 million households lost their homes to a foreclosure, short sale, or because they simply gave it back to the bank.
As stay-at-home orders were issued early last year, the fear was the pandemic would impact the housing industry in a similar way. Many projected up to 30% of all mortgage holders would enter the forbearance program. In reality, only 8.5% actually did, and that number is now down to 2.2%.
As of last Friday, the total number of mortgages still in forbearance stood at  1,221,000. That’s far fewer than the 9.3 million households that lost their homes just over a decade ago.

Most of the mortgages in forbearance have enough equity to sell their homes

Due to rapidly rising home prices over the last two years, of the 1.22 million homeowners currently in forbearance, 93% have at least 10% equity in their homes. This 10% equity is important because it enables homeowners to sell their homes and pay the related expenses instead of facing the hit on their credit that a foreclosure or short sale would create.
The remaining 7% might not have the option to sell, but if the entire 7% of those 1.22 million homes went into foreclosure, that would total about 85,400 mortgages. To give that number context, here are the annual foreclosure numbers for the three years leading up to the pandemic:

The probable number of foreclosures coming out of the forbearance program is nowhere near the number of foreclosures that impacted the housing crash 15 years ago. It’s actually less than one-third of any of the three years prior to the pandemic.

The current market can absorb listings coming to the market

When foreclosures hit the market back in 2008, there was an oversupply of houses for sale. It’s exactly the opposite today. In 2008, there was over a nine-month supply of listings on the market. Today, that number is less than a three-month supply. Here’s a graph showing the difference between the two markets.Why a Wave of Foreclosures Is Not on the Way | MyKCM
The data indicates why Ivy Zelman, founder of the major housing market analytical firm Zelman and Associates, was on point when she stated:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

Recently Zillow announced they are ending their iBuyer program – a program in which Zillow will buy your home, fix it up, and sell it. It seems as though Zillow failed to accurately predict prices, costing over $400 million last quarter, and a chance that about 25% of employees could lose their jobs.
 
Zillow’s COO said, “It’s just challenging to predict future home prices in such a rapid and volatile market for home price appreciation.”
 
Now, let’s put a few things into perspective for individuals who focus on the Zestimate when selling or buying.
 

 

 

 
So all this makes you wonder how much water the Zestimate really holds. Let’s take a look at the Data Coverage and Zestimate Accuracy table. Let’s focus on the Tallahassee market by looking at Leon County.
 
Zillow Data Coverage and Zestimate Accuracy Table: as of 11/9/2021 for Leon County, Florida - rates accuracy at 3 out of 5 stars with 102.8K homes on Zillow with 88.6K homes on Zillow. 57.2% accuracy within 5% of sales price, 73.2% accuracy within 10%, 82% accuracy within 20%, and a median error rate of 3.7%. https://www.zillow.com/howto/DataCoverageZestimateAccuracyFL.htm
 
Zillow rates it’s Zestimate 3 out of 5 stars. Would you trust the sale or purchase of your largest asset to something that rates itself a 3 out of 5 stars?
 
At about 80% of homes being valued within 20% of the sale price, that means that a $250,000 home could have a Zestimate of $200,000 or $300,000. As a seller, are you okay with the chance of losing $50,000 due to an inaccurate estimate? Or, as a buyer, are you okay with the chance of overpaying $50,000 due to an inaccurate estimate?
 
Or let’s say a seller lists their home for $50,000 over the market value. This could give off the perception you are not motivated to sell. You might think, “We can just drop the price later.” Well… yes, but sometimes the impact of this is not seen as well as pricing to the market straight out of the gate. Price reductions can be overlooked – flyers and emails announcing the adjustment can fall into a pile of other marketing mail. Then when you reduce, buyers will wonder if it was because of a defect.
 
Currently, Zillow suggests the following on their FAQ page about the Zestimate, “We encourage buyers, sellers and homeowners to supplement the Zestimate with other research, such as visiting the home, getting a professional appraisal of the home, or requesting a comparative market analysis (CMA) from a real estate agent.”
 
We suggest not supplementing the Zestimate with a professional appraisal or comparative market analysis from a real estate agent, but replacing the Zestimate with these more accurate methods of determining market values.

 

There are many headlines out there that claim we’re reverting to a more normal real estate market. That would indicate the housing market is returning to the pre-pandemic numbers we saw from 2015-2019. But that’s not happening. The market is still extremely vibrant as demand is still strong even while housing supply is slowly returning.
Here’s the definition of normal from the Merriam-Webster Dictionary:

“conforming to a type, standard, or regular pattern: characterized by that which is considered usual, typical, or routine.

Using this definition, here are five housing industry metrics that prove we’re nowhere near normal.

1. Mortgage Rates

If we look at the 30-year mortgage rate chronicled by Freddie Mac, we can see the average rates by decade:

Today, the average mortgage rate stands at 2.87%, which is very close to the historic low.

Currently, mortgage rates are anything but usual, typical, or routine.

2. Home Price Appreciation

According to Black Knight, a housing data and analytics company, the average annual appreciation on residential real estate prices since 1995 has been 4.14%.
According to the latest forecast from the National Association of Realtors (NAR), home price appreciation will hit 14.1% this year, which will be greater than any year since Black Knight began collecting this data.

Currently, home price appreciation is anything but usual, typical, or routine.

3. Months’ Supply of Inventory (Homes for Sale)

According to NAR:

“Months’ supply refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, six months of supply is associated with moderate price appreciation, and a lower level of months’ supply tends to push prices up more rapidly.”

As of the latest Existing Homes Sales Report from NAR, the current months’ supply of inventory stands at 2.6. That’s less than half of a normal supply.

Currently, the supply of homes for sale is anything but usual, typical, or routine.

4. Days It Takes To Sell a Home

The days-on-market metric gives an indication of how hot a market is and how quickly homes are selling. In 2019, prior to the pandemic, the average days on market stood at 35, according to NAR. Today, that number is cut in half and is now at 17 days.

Currently, the days-on-market metric is anything but usual, typical, or routine.

5. Number of Offers per Listing

According to NAR, the number of offers per listing stood at 2.2 in 2019. Today, that number is double at 4.5.

Currently, the number of offers per listing is anything but usual, typical, or routine.

When…

  1. Mortgage rates are near historic lows
  2. Price appreciation is at historic highs
  3. Housing inventory is less than half of the normal amount
  4. The time it takes to sell a home is cut in half, and
  5. There are twice as many offers on each house

…it’s hard to say we’re in a normal market.

 

During the Great Recession, just over a decade ago, the financial systems the world depended on started to collapse. It created a panic that drove some large companies out of business (ex. Lehman Brothers) and many more into bankruptcy.
The financial crisis that accompanied the current pandemic caused hardship to certain industries and hurt many small businesses. However, it hasn’t rattled the world economy. It seems that a year later, things are slowly getting back to normal for many companies.

Why is there a drastic difference between 2008 and now?

In a post from RealtyTrac, they explain:

“We changed the rules. We told banks they needed more reserves and that they could no longer underwrite toxic mortgages. It turns out that regulation — properly done — can help us navigate financial minefields.”

Here are the results of that regulation, captured in a graph depicting the number of failed banks since 2007.Why This Is Not Like 2008 Again | MyKCM

What was different this time?

The post mentioned above explains:

“In 2008 the government saw the foreclosure meltdown as a top-down problem and set aside $700 billion for banks under the Troubled Asset Relief Program (TARP). Not all of the $700 billion was used, but the important point is that the government did not act with equal fervor to help flailing homeowners, millions of whom lost their homes to foreclosures and short sales.
This time around the government forcefully moved to help ordinary citizens. Working from the bottom-up, an estimated $5.3 trillion went to the public in 2020 through such mechanisms as the Paycheck Protection Program (PPP), expanded unemployment benefits, tax incentives, and help for local governments. So far this year we have the $1.9 billion American Rescue Plan with millions of $1,400 checks as well as proposals to spend trillions more on infrastructure…Bank deposits increased by nearly $2 trillion during the past year and credit card debt fell.”

Many have suffered over the past year. However, the economic toll of the current recession was nowhere near the scope of the Great Recession, and it won’t result in a housing crisis.

 

There has been a lot of discussion as to what will happen once the 2.3 million households currently in forbearance no longer have the protection of the program. Some assume there could potentially be millions of foreclosures ready to hit the market. However, there are four reasons that won’t happen.

1. Almost 50% Leave Forbearance Already Caught Up on Payments

According to the Mortgage Bankers Association (MBA), data through March 28 show that 48.9% of homeowners who have already left the program were current on their mortgage payments when they exited.

This doesn’t mean that the over two million still in the plan will exit exactly the same way. It does, however, give us some insight into the possibilities.

2. The Banks Don’t Want the Houses Back

Banks have learned lessons from the crash of 2008. Lending institutions don’t want the headaches of managing foreclosed properties. This time, they’re working with homeowners to help them stay in their homes.
As an example, about 50% of all mortgages are backed by the Federal Housing Finance Agency (FHFA). In 2008, the FHFA offered 208,000 homeowners some form of Home Retention Action, which are options offered to a borrower who has the financial ability to enter a workout option and wants to stay in their home. Home retention options include temporary forbearances, repayment plans, loan modifications, or partial loan deferrals. These helped delinquent borrowers stay in their homes. Over the past year, the FHFA has offered that same protection to over one million homeowners.
Today, almost all lending institutions are working with their borrowers. The report from the MBA reveals that of those homeowners who have left forbearance,

3. There Is No Political Will to Foreclose on These Households

The government also seems determined not to let individuals or families lose their homes. Bloomberg recently reported:

“Mortgage companies could face penalties if they don’t take steps to prevent a deluge of foreclosures that threatens to hit the housing market later this year, a U.S. regulator said. The Consumer Financial Protection Bureau (CFPB) warning is tied to forbearance relief that’s allowed millions of borrowers to delay their mortgage payments due to the pandemic…mortgage servicers should start reaching out to affected homeowners now to advise them on ways they can modify their loans.”

The CFPB is proposing a new set of guidelines to ensure people will be able to retain their homes. Here are the major points in the proposal:

A final decision is yet to be made, and some do question whether the CFPB has the power to delay foreclosures. The entire report can be found hereProtections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X.

4. If All Else Fails, Homeowners Will Sell Their Homes Before a Foreclosure

Homeowners have record levels of equity today. According to the latest CoreLogic Home Equity Report, the average equity of mortgaged homes is currently $204,000. In addition, 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant.
Just like the banks, homeowners learned a lesson from the housing crash too.

“In the same way that grandparents and great grandparents were shaped by the Great Depression, much of the public today remembers the 2006 mortgage meltdown and the foreclosures, unemployment, and bank failures it created. No one with any sense wants to repeat that experience…and it may explain why so much real estate equity remains mortgage-free.”

What does that mean to the forbearance situation? According to Black Knight:

“Just one in ten homeowners in forbearance has less than 10% equity in their home, typically the minimum necessary to be able to sell through traditional real estate channels to avoid foreclosure.”

The reports of massive foreclosures about to come to the market are highly exaggerated. As Ivy Zelman, Chief Executive Officer of Zelman & Associates with roughly 30 years of experience covering housing and housing-related industries, recently proclaimed:

“The likelihood of us having a foreclosure crisis again is about zero percent.”

 

 

According to many experts, the real estate market is expected to continue growing in 2021, and it’s largely driven by the lasting impact the pandemic is having on our lifestyles. As many of us spend extra time at home, we’re reevaluating what “home” means and what we may need in one going forward.
Here are 4 reasons people are reconsidering where they live and why they’re expecting to buy a home this year. 

1. Record-Low Mortgage Interest Rates

In 2020, the average interest rate for a 30-year fixed mortgage hit a record low 16 times, continuing to fall further below 3%. According to Freddie Mac, the average 30-year fixed interest rate today is 2.65%. Many wonder how low these rates will go and how long they’ll last. Len Keifer, Deputy Chief Economist for Freddie Macadvises:

“If you’ve found a home that fits your needs at a price you can afford, it might be better to act now rather than wait for future rate declines that may never come and a future that likely holds very tight inventory.”

This sense of urgency is driving many to buy this year.

2. Working from Home

Remote work is a new normal for many businesses, and it’s lasting longer than most expected. Many in the workforce today are discovering they don’t need to live close to the office anymore and they can get more for their money by moving a little further outside of the city limits. David Mele, President at Homes.comsays: 

“The surge in the work-from-home population has rewritten the playbook for many homebuying and rental decisions, from when and where to relocate, to what people are looking for in their next residence.”

The reality is, for some people, working remotely in their current home is challenging, especially when there may be other options available.

3. More Outdoor Space

Another new priority for homeowners is having more usable outdoor space. Being at home is driving those in some areas to seek less densely populated neighborhoods so they have more room to stretch their legs. In addition, those living in apartments and townhomes are often looking for extra square footage, both inside and out.
According to the State of Home Spending report by HomeAdvisorof the households surveyed, almost half reported spending 27% more on outdoor living over the past year. This is a trend that’s expected to grow in 2021 and beyond.

4. Avoiding Renovations

It’s recently come to light that many homeowners would also rather buy a new home than go through the process of fixing up the one they have. According to the 2020 Profile of Home Buyers and Sellers report from the National Association of Realtors (NAR), 44% of homebuyers purchased a new home to “avoid renovations or problems with the plumbing or electricity.”
Depending on what needs to be addressed, today’s high buyer demand may make it possible to skip some renovations before selling. Many of these homeowners have prioritized buying over renovating for convenience and potential cost savings.

 

This year challenged us to reprioritize everything – from the way we use our time to where we work, how we socialize and gather together, and our needs at home. For many, this also meant making decisions about how to best support and engage with our extended families, near and far.
In some cases, we weren’t able to see our relatives and loved ones who were living in senior facilities. In others, maybe older children moved back home. Jessica Lautz, Vice President of Demographics and Behavioral Insights for the National Association of Realtors (NAR), says:

A lot of families have an aging senior relative who was living independently or in senior care and wanted to move them into their home.

These changes led more homebuyers to invest in multi-generational homes to accommodate more long-term plans. A multi-generational home, according to the 2020 Profile of Home Buyers and Sellers from NAR, is a home that has adult siblings, adult children over the age of 18, parents, and/or grandparents in the household.
A recent study from NAR shows that since the health crisis began, there’s been an increase in purchasing trends for homes that cater to this dynamic:

“Buyers who purchased after March were more likely to purchase a multi-generational home at 15% compared to 11% who purchased before April.”

There are many reasons for this uptick in preference toward multi-generational homes. The graph below shows the top two reasons and how they’ve increased this year:More Generations Are Living under One Roof This Year | MyKCM
More homeowners are making arrangements to accommodate their loved ones so they can safely take care of them at home.

Homeowners in mortgage forbearance most likely are in a situation where they won’t have to make payments until March 2021. Once to payments come due, it could take years for the foreclosure proceedings to finalize.
According to a report released from Black Knight based on previous natural disaster recovery patterns, mortgage payment delinquencies are not expected to return to the levels they were at until at least March 2022. With natural disasters, 90-day delinquencies peak about 3 or 4 months later, not to mention the times it can take in the state of Florida to go through the courts.

COVID has placed pressure on mortgage delinquencies for about 5 months now. Early state delinquencies fell 9% in August, during which time serious delinquencies grew 5%. August’s mild increase may mean the 90-day mortgage delinquencies could be approaching their peak. JuIn September about 88.9% of first-lien mortgages completed a monthly payment, compared to about 88.6% in August, and 87.5% in June.

Parking garages are taking up valuable urban land, and as this pandemic evolves we seem to be driving less and using driving services more. There is, no doubt, a concern that this could permanently change the demand of parking garages.
Developers are already repurposing garages into more applicable businesses. A developer in Boston is building a 1.6 million square foot condominium and hotel tower in the place of an existing parking garage.
David Schechtman, a senior managing director at Meridian Capital Group said, “By 2018, 2019, 2020, I would say every time I would take a garage to market, 50 percent of the queries start with, ‘Hey do you have the zoning analysis, what else can I do here?… Any time a garage comes to market there’s tremendous interest in it.”
There were 14,200 parking garages in 2000, and 19,000 in 2020. However, as more people work from home this use of land is becoming less lucrative.
Schechtman stated, “People started saying, ‘Maybe it should be storage, or an education facility, or rehab or medical… People started looking at landlocked garages and saying ‘OK, I can’t build a condominium here, there may even be a condominium upstairs, but what else can I do?”
Some garage owners have already repurposed the use of their garage for storage for e-commerce companies like Amazon.
Be on the lookout for some other ways parking garages will be repurposed as this pandemic continues.

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