Al's August 2020 Market Watch

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Real Estate

August, 2020

 Mortgage Rates Tick Slightly Higher

    Last month’s Market Watch discussed how record low mortgage rates were spurring the housing market. With rates as low as 3.03 percent, buyers were gobbling up available homes at a rapid pace. And after, rates went even further, hitting sub 3.00 percent, bottoming at around 2.88 percent for a 30 year mortgage. Well, in one short month times and rates have changed, especially for homeowners looking to refinance and take advantage of these low rates.

    Although mortgage rates for home buyers have ticked up slightly, the real hurt was put on homeowners wanting to refinance. Mortgage rates are still below 3.00 percent, averaging 2.99 percent for a 30 year mortgage according to Freddie Mac. But on August 12, Freddie and Fannie Mae announced that on September 1, they would be imposing a 0.50 percent fee on all refinances that will be sold to the companies; which is nearly all refinances under $510,000. The fee is meant to provide a cushion for the companies against possible mortgage defaults in the economic downturn.

    Even though the fee begins on September 1, lenders had already started adding the fee to their rate sheets immediately after the announcement. That is because it takes weeks for lenders to close and sell their loans to the two companies.

    The fee is equal to a $1,250 one-time, upfront fee on a $250,000 loan. However, analysts expect most consumers will absorb that fee by taking a higher rate. Covering the fee could increase that 2.88 percent rate somewhere between 0.125 percent and 0.375 percent. So, shoppers are now looking at rates between 3.00 percent and 3.25 percent.

    That being said, mortgage rates are still historically low. One year ago, the 30 year fixed was 3.60 percent says Freddie Mac. So, a 3.25 percent rate is still a pretty good deal. But that rate could rise before year end. Those that predict are indicating the basic rate could rise from today’s 2.99 percent rate, and hover around 3.18 percent in the next few months as the economy improves.

 Today’s Motivations To Buy

     Low interest rates are a key motivator for  perspective home buyers. As stated above, rates are at an all time low with sub-3.00 percent rates still possible to find. And that is showing in the demand for housing, especially in the Somerset County area. Available homes are flying off the market and causing a severe supply shortage. As of the end of July, Bridgewater had only a 2.65 months supply of available homes, Branchburg 2.08 months supply and Hillsborough 1.29 months supply.

    Low interest rates are a great motivator, but there normally needs to be a reason, or reasons, people decide it is time to move. Lifestyles may change, milestones reached, or perhaps an event may trigger the need to move. Last months Market Watch discussed how the pandemic factored into the decision to move, especially to suburban areas with more space and a place with more room for working from home.

    Recently released the results of a two part survey conducted in April and July. In April they asked perspective buyers what were the top four requirements in a new home. In July, they asked buyers the top four reasons they are actually moving.

    As the chart below indicates, the top four needs in the next home for perspective buyers in the April survey were: 1. More Interior Space; 2. More Outdoor Space; 3. Updated Kitchen; 4. Better Technology. Comparing that to the July survey, 1. More Interior Space; 2. Desire To Own; 3. Move From City To Suburbs; 4. More Outdoor Space.

    These results dovetails nicely on the July Market Watch discussion. The July Market Watch discussed how buyers are now having second thoughts of living in a condo or high rise and looking for a back yard, more space and more distance between them and their neighbors. They do not want to share common elements and press elevator buttons in this pandemic environment. They want to move from the city to the suburbs because of the fears of maybe being in a tightly congested area or contracting the virus. Buyers are now looking for a yard for their family because they are at home more. The July survey of reasons people are actually moving supports our last month discussion. also released results of a survey of the importance in the ability to work at home in buying a new home. The survey asked do they plan to buy a home due to remote work ability. As the chart below shows, 63 percent of the respondents said “yes”, that they are planning to buy a home that fits their needs for remote work. It does not indicate that two out of three respondents are going to be working from home, but it definitely means two out of three have that need. The buyer may be going back to working in an office, but if the situation again arises, they want a place to work from. They do not want to be on top of other family members and they prefer access to a place that is quiet where they can work. As discussed last month, the ability to work from home is becoming a key driver in finding a new home, and one that is encouraging many urban dwellers to look to the suburbs.