It has been roughly a year since the COVID-19 pandemic began in the United States, and more people than ever are buying residential real estate in vacation housing markets, according to HousingWire.
In a study of counties that have seen the largest uptick of homebuyers – and, subsequently, home value – the top 10 are all in either vacation destinations or relatively affordable suburbs of big cities. That’s in line with the country’s sweeping work-from-home mandates put in place last March, which allowed millions of people with the capital to buy a home realizing they could work – and live – anywhere.
Space is king in this housing market, at least in the midst of a pandemic.
In addition, demand for second homes across the country has skyrocketed since last January – up to 84% year over year, according to Redfin. And in super populous cities like New York, now is a great time to buy a condominium or a co-op living space, said Ken Wile, New York Redfin real estate agent.
“The housing market in New York City will come back, but it hasn’t come back yet,” Wile said. “It’s difficult for sellers. A lot of people want to move out to the suburbs, but they don’t know what to do with their homes in the city. Some owners are taking a loss because they can’t get enough rent money to cover expenses.”
What remains to be seen is how the continued vaccine rollout and expected economic stimulus checks impacts the larger metro areas’ housing markets. With most people receiving immunizations from COVID-19, more work places could open back up to its employees – in turn, drawing them back to the city to avoid commuting from suburbs and vacation towns.
However, money from the government could also inspire potential homebuyers to make a down payment on a larger place and actually draw even more people away from crowded metro areas.
Spring housing market offers lowest supply on record
The spring housing market is shaping up to be the leanest and most competitive ever, as reported by CNBC. A sharp drop in new listings partly due to severe weather, combined with already record-low supply, will make it increasingly difficult for buyers to find their dream home at the perfect price.
There were nearly half as many homes for sale at the end of February, compared with a year earlier, according to a new calculation by realtor.com. Low supply was exacerbated by a drop in the number of new listings to come on the market.
“Last month’s record cold and snowstorms likely caused sellers to hit pause, even if only temporarily,” said Danielle Hale, chief economist at realtor.com. “However, in today’s inventory-starved market, any setback is significant.”
A pullback by sellers resulted in roughly 207,000 fewer homes newly listed for sale in the first two months of 2021 compared with the average for the same period over the last four years. To catch up, new listings would have to grow by 25% annually in March and April, which is unlikely.
While the effects of the winter storms should be temporary, higher mortgage rates will cut further into affordability and could mean fewer bidding wars as the spring market progresses.
Cash-out refinances hit highest level since financial crisis
Americans extracted more cash from their homes through cash-out refinancings in 2020 than in any year since the financial crisis, according to The Wall Street Journal.
U.S. homeowners cashed out $152.7 billion in home equity last year, a 42% increase from 2019 and the most since 2007, according to Freddie Mac. It was a blockbuster year for mortgage originations in general as well: Lenders churned out more mortgages than ever in 2020, fueled by about $2.8 trillion in refis, according to mortgage-data firm Black Knight Inc.
Some borrowers viewed cash-out refis as a way to cushion themselves against an uncertain economy last year. Others wanted to build and redecorate, and being stuck at home gave them the time to do the paperwork. Homeowners also had more equity available to tap: Though home prices tend to fall during economic downturns, they jumped during the Covid-19 recession.
“The support coming from home equity is unparalleled in helping smooth out the degradations from Covid,” said Susan Wachter, an economist and professor at the University of Pennsylvania. “For those who are in the position to refinance, it’s a major source of support.”
Cash-out refis got a bad rap after they exploded in the run-up to the 2008 financial crisis. Borrowers tapped their homes like they were ATMs. When home prices plunged, they were left owing more than their homes were worth. Now, in 2021, many economists expect home prices to keep growing.
Weekly mortgage rate update
Mortgage rates continue to increase as the economy improves with labor market optimism, vaccinations continuing to roll out and additional stimulus pending. But even as mortgage rates rise modestly, the housing market remains healthy on the brink of the spring homebuying season.
Homebuyer demand is strong, and for homeowners who have not refinanced but are looking to do so, they have not yet lost the opportunity.
The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 3.05%, which is 0.03 points higher than last week, and down 0.31 points from this time last year.
MARCH 12, 2021
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.