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Amid the Pandemic, Mortgage Rates Set Records

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As residents of the U.S. sort through the many updates on the progress of containing the outbreak of COVID-19 cases, anxiously await news for a vaccine and patiently waiting to find out when life will return to some sense of normal, the U.S. economy fluctuates with the positive and not so encouraging updates.  Most recently, the news of the economic uncertainty due to the pandemic has impacted mortgage rates, yet again.

According to an article published by CNN, mortgage rates recently dropped below 3% for a 30 year mortgage.  This drop marked a 50 year record low for mortgage rates.  As a result, many home buyers, and those that were sitting on the fence debating purchasing a home, have decided that there’s no time like the present to make the move.  The demand for homes has increased, especially since the lower rates has allowed more prospective home buyers to afford homes that might have been just beyond their reach just a few short weeks ago.

However, just as the daily news cycle is filled with promise coupled with concerning medical and economic updates, the good news about rates is wrapped with a warning of what may be on the horizon.  Since the rise in coronavirus cases seems to be surging again, more job layoffs and even job losses could be inevitable.  Obviously, as unemployment rises, home buyers can be hesitant, if not unable, to purchase a home.

As the article quotes Danielle Hale, chief economist for Realtor.com, things could look up soon, “On the upside, signs of progress toward a coronavirus vaccine give hope that there’s a path to a new normal where health concerns don’t dominate decision making.”  We all hope that comes sooner rather than later.

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Positive Trends in Home Purchases are Encouraging to Real Estate Professionals

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Across the country, Americans have been sheltering in place and practicing social distancing in an effort to help slow the spread of COVID-19.  Many normal activities have been modified or even put on hold.  With the slow reopening of the country, many potential home buyers have emerged and seem to be ready to take the leap into home ownership.

Mortgage applications, according to an article published by CNBC.com, rose for the fourth consecutive week, up by an encouraging 11 percent.  Despite the fact that, overall, mortgage applications are still about 10 percent lower than they were this time in 2019, it appears the gap is closing.

The article, written by Ty Wright, quotes MBA economist Joel Kan, ‘”We expect this positive purchase trend to continue — at varying rates across the country — as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring home buying season.”’

Despite the fact that refinance applications have been on the decline, after a very busy early spring, it appears home purchases may fill that gap. In fact, according to the article, mortgage applications are up pretty significantly, “New York led the purchase demand with a 14% jump in those applications. Illinois, Florida, Georgia, California and North Carolina also had double-digit increases last week.” It seems buyers, anxious to return to some normal life activities and move forward with purchasing their first or next home, are encouraged by mortgage rates that are still below 3.5% for a 30 year period.

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Why is Real Estate an Essential Business?

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As the nation, and most of the world, cope with the spread of COVID-19, many have been asked to stay at home, except to perform essential business.  As a result, many businesses have been required to close their doors for the time being, deemed “non-essential”.  However, a number of industries have been designated “essential businesses”, and, therefore, continue to operate.  One of these essential industries is real estate. 

Forbes published an article written by Dima Williams.  ““Life’s basic needs are food, water and a roof over your head, which makes real estate an essential service,” Florida Realtors, that state’s largest trade association, wrote late last month’, Williams writes. Many aspects of the real estate industry are deemed essential such as settlement services; staff that perform title search, notary and recording services for real estate transactions; leasing of residential properties; property management and maintenance; and construction. 

Despite the fact that life seems to be “on hold” for many people and businesses, the fact is that many life changes continue to occur during the pandemic.  This includes people needing to find housing due to homes being sold and landlords providing notices.  Nevertheless, the method in which these aspects of real estate continue to be executed may have changed a bit.  For example, appraisers may complete a “drive by” appraisal, home buyers view homes via virtual tours and when a home is sold, it may be completed via a “drive thru closing”.  

Its clear that important work continues to be done by these professionals, helping bring some glimpse of normalcy to the professionals as well as the clients that need them.

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Home Mortgage Applications Soar into the New Year

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2020 has been good to the home mortgage industry so far.  According to an article published last week by CNBC.com, “Total mortgage application volume surged 30.2% last week from the previous week”.  Mortgage companies not only saw an influx of refinance applications, but also an unseasonably high number of home purchase applications.

Interest rates dropped to the lowest level since fall of 2019 and, as a result, refinance applications surged.  In fact, according to the article written by Diana Olick, “Those applications jumped 43% for the week and were 109% higher than a year ago. The refinance share of mortgage activity increased to 62.9% of total applications from 58.9% the previous week.”

However, home purchase applications pulled in some impressive numbers, especially considering the housing market typically doesn’t pick up until February.  The volume of home purchase applications came in at the highest tally since October of 2009. 

Unfortunately, this high demand for homes is met with a very low supply of homes. With a continued supply and demand mismatch, prices could soar and leave some prospective home buyers priced out of the market.

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Photo Credit: Gerd Altmann

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Experts Make Predictions for the 2020 Real Estate Market

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As 2019 comes to a close, the trends of the real estate market for the past year are being reviewed an analyzed.  However, just as it is with all new beginnings, there is also much anticipation and speculation about what 2020 will bring for real estate professionals, home owners and potential homeowners.  Unfortunately, some real estate experts are not seeing much change in the low housing inventory trend in the coming year.

In an article published by Forbes, written by Aly J Yale, Yale states, “…According to the 2020 National Housing Forecast from Realtor.com, the national housing shortage will continue in the New Year, possibly reaching “a historic low level.”  Inventory growth is absent in nine out of ten markets, down from a much more optimistic two of three markets seeing growth at the beginning of 2019.

Contributing to the problem, homeowners are remaining in their homes longer, averaging 13 years.  Additionally, although home construction has seen growth, most of the new homes are “upper-tier” homes.  This leaves entry home buyers little supply in contrast to the large demand.  With homes for sale in the lowest price tier down 10 percent through 2019.

Some positive news to look forward to are the anticipation of mortgage rates remaining low and home prices remaining steady, maybe declining in some markets. 

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Photo Credit: Mark Moz

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