It would appear that the successor to Steven Mnuchin at Treasury will be Janet Yellen, the former head of the Federal Reserve. She would be the first woman to hold the position, just as she was the first woman to helm the central bank. At her Senate confirmation hearing, she urged that the legislative body “act big” when it comes to a new stimulus program, and will be in the position of championing President Biden’s proposed $1.9 trillion plan announced in the previous week. The Treasury will of course be issuing more new debt to finance new spending, and this will come at a time of record levels of government debt already. Ms. Yellen’s experience at the Fed and connections there will be useful in trying to eventually steer the government back toward something resembling a more balanced approach to tax and spending policy.

For the moment, it’s not clear what if any changes may come at the Federal Housing Finance Agency, presently headed by Dr. Mark Calabria. whose current term as director doesn’t expire until 2024. A Supreme Court case heard last month may decide whether or not the President has the authority to fire the FHFA director on an at-will basis. The agency presently has a structure akin to the one that was the CFPB, but that agency’s construction was ruled unconstitutional last year. Dr. Calabria has been looking to release Fannie Mae and Freddie Mac from government conservatorship and back to private ownership as part of reforming the housing market, but the two remain wards of the federal government more than 12 years after crumbling during the housing market crisis.

The last regulatory group that’s important to the mortgage market should also see no immediate change, as Federal Reserve Chair Jay Powell’s current term runs until next year, and at the moment, there’s little reason to think that he wouldn’t be reappointed. At the very least, it means that accommodative monetary policy, low rates and open-ended bond-buying programs are likely to continue. Under Powell, the Fed is using nearly an “all-in” strategy for monetary policy, employing both conventional and novel tools to support the economy. As well, the Chair has also at times implored the Congress to provide greater fiscal support. With a new monetary policy framework in place, the Fed would appear to be supportive of greater levels of government spending to spur growth; in turn, this could stoke firmer inflation, something that has eluded the Fed for many years now.

The housing market is certainly warm, but is it overheating? Probably not. Low rates and limited inventory amid strong demand have caused prices to rise very quickly, something on the order of 3-4 times the rate of income growth at a minimum. Falling mortgage rates have fostered this, since a lower rate allows for a given income to be able to carry a larger loan amount. However, it would appear that the bulk (perhaps all) of the declines in rates have occurred, and with the prospects for greater stimulus, increasing levels of vaccination and what should be declining levels of infection now that the holiday surge is passing that there are likely more reasons for mortgage rates to be steady to perhaps slightly higher as we go. Absent the falling-rate offset, higher home prices may start to bite into affordability a bit more, and that would provide tempering for price gains.

Existing home sales in December edged 0.7% higher, rising to an annualized rate of 6.76 million for the month. For 2020 as a whole, 5.64 million sales took place, a figure a little above our expectations for the year, but when we wrote our 2020 forecast in late 2019, we didn’t foresee the pandemic or its effects on interest rates and housing markets. Regardless, sales of existing homes for the month were at their highest annualized rate since 2006, with the median price of a home sold 12.9% above year-ago levels, with nominal prices just a little below all-time highs.

With prices high and nothing to buy — and now mortgage declines leveling off — the housing market is likely to be an increasingly challenging one for potential buyers until more supply comes on line. Although typically thin during the holidays, the current amount of supply is pegged at just 1.9 months at the present rate of sale, down from 2.3 months in November, and will remain extraordinarily tight even is this level doubles before spring (which seems unlikely).

If we get to a point where inflation is running warm for a while period and if we get to a place where unemployment is closing in on pre-pandemic levels for a good while, we’ll then see investors injecting concerns into mortgage pricing, and that only if the Fed isn’t still snapping up billions of dollars of mortgages every month. At present, wandering around just above all-time record lows is about all mortgage rates can do.

Mortgage Market information provided by Jon Aucutt, Main Street Bank
31780 Telegraph Road, Suite 100
Bingham Farms, Michigan 48025
jaucutt@msbmi.com

Not quite on cue, President-elect Biden announced a new $1.9 trillion plan of stimulus spending, including new direct payments toward individuals, expanded and lengthened unemployment benefits, increased tax credits for child expenses, aid for states and funds to cover the costs of vaccinating hundreds of millions of Americans. These outlays would be covered by new Federal borrowing, of course, and that means a spate of new issuance of Treasury bonds, which would come on top of already record-high levels. There is also the potential for more considerable Federal debt issuance to come, too, as the new administration will no doubt have a range of spending priorities it will want to fund at a time when raising taxes to pay for them isn’t likely to happen until the economy is more fully on its feet again.

With debt supplies already high, there may be more supply than demand when any new debt comes to market, and the swell of new debt would of course have some effect on interest rates. However, for at least a time, the effect of excess supply on interest rates is greatly muted as there is a willing buyer in the market with unlimited resources to absorb it as needed: The Fed. Absent the Fed’s commitment to buy up $80 billion per month of Treasuries and another $40 billion of MBS, fixed-income markets might have already become clogged with supply, and interest rates would likely be higher than not. As more debt comes with new fiscal outlays, this tempering mechanism should help keep rates from rising more measurably. Presently, and with this in mind, Treasury yields have already settled back from last week’s peak by a bit, and mortgage rates should settle a bit, too.

Even though there are plenty of reasons that should keep rates from rising much in the near term, it’s also starting to feel as though they increasingly have fewer reasons to decline much, let alone routinely set new record lows as they did so many times in 2020. It’s early times, to be sure, but the holiday COVID-19 surge will likely start to diminish, greater levels of inoculation will begin to happen and (hopefully) expand as we go, and the warmer weather of spring (less being cooped up indoors with others) is within shouting distance for at least some of the U.S. All should permit somewhat greater levels of economic activity, and a fresh blast of cash into the economy from new stimulus would see growth accelerate to an even greater degree. All that argues for somewhat firmer than softer rates, but there is still a difficult patch to navigate, so rates aren’t going anywhere very fast at the moment.

Two expressions of the current (or at least near past) climate suggest that things remain a challenge. The Fed’s own survey of regional economic conditions (aka “Beige Book”) revealed a softer tenor of economic activity in the six weeks leading up to January 4. Of the 12 Federal Reserve districts, two reported essentially unchanged levels of activity and two reported declining levels. Seven reported only “modest” gains in their economies and just one said the improvement was “moderate”. The previous report was on balance rather stronger, so economic activity tailed as 2020 came to a close.

Although mortgage rates did kick a little higher last week, there’s no reason to expect any sustained increases, and the small bump should have no significant effects on either home buying or refinancing. Simply, the picture hasn’t changed much; rates are just less fantastic than they have been, and last week’s bump seems as though it’s already giving way to a fallback for this week. With that as a thought, we think that the average offered rate for a conforming 30-year FRM as reported by Freddie Mac will settle back by perhaps five basis points or so by the time next Thursday morning rolls around. No, we won’t be back at record lows, but not all that far from them.

Mortgage Market information provided by Jon Aucutt, Main Street Bank
31780 Telegraph Road, Suite 100
Bingham Farms, Michigan 48025
jaucutt@msbmi.com

We can’t know the future, though. Some unexpected something(s) will of course occur in 2021, whether they happen on an individual or intimate basis, or to select groups of folks or even all of us collectively. Housing markets — homeowners and homebuyers alike — are one such collective, and neither could have expected the profound changes and opportunities that arose last year. Even though rates were already pretty low by historical standards when the year 2020 began, they have firmed up a little from their annual low as the year came to a close. With a record-long economic expansion entering its 11th year, a cessation of trade wars that tempered growth and growth picking up speed, odds then favored somewhat firmer rates, but the virus had other ideas.

With one country after another closing, and uncertainty and risks skyrocketing, investors got spooked and came to a point of selling everything to move to cash; interest rates spiked, financial markets became unhinged and central banks across the world moved into emergency positions, slashing rates, buying bonds and opening up new lending and market-support facilities, moving to liquefy every market and be the buyer of last resort for a range of assets if need be. The market panic was quelled, and a depression likely averted. Lockdowns ensured that the economies of many countries would fall into record-setting recession for a time, only to quickly (if partially) emerge.

As they did, unprecedented opportunities arose for homeowners. For those in difficult straits, and with the experience of at least some lessons learned in the last housing bust, a nearly instant forbearance program for homeowners was released, and without even the burden of proof of hardship. Millions signed up; a core of the most troubled homeowners (numbering about 2.8 million) yet remain in forbearance. For others who experienced no payment troubles, opportunities to refinance at record low rates — multiple times — appeared. Freddie Mac’s formal all-time low for a conforming 30-year (3.31%) FRM was touched in mid-April, broken by the end of the month a new record low was set in 17 weeks since then, falling to as low 2.66% near the end of the year.

Potential homebuyers took notice, too. The year began with an early start on the spring homebuying season with a solid winter showing for sales, but that came to a relative standstill in March through May, only to revive with vigor and then some as the economy re-opened through the summer. The delayed action of the spring market was joined by additional demand from second-home buyers looking to escape to remote locations, away from virus and strife, and by buyers who could now work remotely and so no longer felt constricted by proximity to center-city workspaces. With competition for houses fierce and existing home prices rising sharply, it’s also likely that some demand has been “advanced” from the coming year in order to grab a home before costs increased further.

With the existing home market tight and expensive, and possibly with commuting to work far less of a concern, sales of new homes also enjoyed a strong period during the mid-part of 2020, but sales are settling back to a very solid (if less frenetic) trend as the year turns. Before a pandemic dip last spring, sales of new homes had been in a 10-year uptrend, and seem poised to return to that kind of steady, solid (if unspectacular) improvement now that the pandemic distortion in sales has cycled through.

Existing home sales have started to cool a bit from heady annualized levels too, although that’s to be expected as the winter months kick in. The spring-bumped-into-summer housing season has passed, and while there is still plenty of demand there is little supply to be had, and even fewer homes are put up for sale once the onset of the extended holiday (and then winter) season begins. The National Association of Realtors Pending Home Sales Index contracted again in November, declining by 2.6%, a third consecutive decline. Compared to a year ago, though, contract signings are still some 16.4% higher, and if we weigh this change against sales levels last December/January, it looks like this will translate into a 6.25 million (or so) annualized rate of sale. October’s 6.86 million (annual) was the recent peak, and sales are likely to continue to cool somewhat until the next spring cycle kicks up again.

As we look ahead to the coming year there is reason for optimism, what with ever-expanding inoculation (hopefully) allowing for greater freedoms for schooling, travel, entertainment and socialization. Should things work out as hoped, portions of the economy here and elsewhere across the globe that have been severely curtailed could start to re-engage again in a more meaningful way, re-igniting employment gains. Economic stimulus for businesses should help keep at least some of them alive and viable until this happens, while new cash distributed as checks this winter will be available for spending as soon as opportunities arise. Faster growth seems likely in 2021, and will come at a time when the Federal Reserve remains committed to a low-and-liquid stance for monetary policy (although they may need to re-think this sooner than they presently expect).

Overall, for our part, we’re hopeful about the prospects for the year ahead, even it if may be a while yet before seeing someone maskless doesn’t elicit a response. May great things lie ahead for you and yours in the coming year, and happy new year to you all.

Mortgage Market information provided by Jon Aucutt, Main Street Bank
31780 Telegraph Road, Suite 100
Bingham Farms, Michigan 48025
jaucutt@msbmi.com

1. Get your finances in order.

Start by getting a full picture of your credit. Obtain copies of your credit report. Make sure the facts are correct, and fix any problems you find. Next, find a suitable lender and get pre-approved for a loan. This will put you in a better position to make a serious offer when you do find the right house.

2. Find a house you can afford.

As with engagement rings, there’s a general rule of thumb when it comes to buying a home: two-and-a-half times your annual salary. There are also a number of tools and calculators online that can help you understand how your income, debt, and expenses affect what you can afford. Don’t forget, too, that there are lots of considerations beyond the sticker price, including property taxes, energy costs, etc.

3. Hire a professional.

While the Internet gives buyers unprecedented access to home listings and resources, many aspects of the buying process require a level of expertise you can’t pick up from surfing the web. That’s why you’re better off using a professional agent than going it alone. If possible, recruit an exclusive buyer agent, who will have your interests at heart and can help you with strategies during the bidding process.

4. Do your homework.

Before making a bid, do some research to determine the state of the market at large. Is it more favorable for sellers or buyers? Next, look at sales trends of similar homes in the area or neighborhood. Look at prices for the last few months. Come up with an asking price that’s competitive, but also realistic. Otherwise, you may end up ticking off your seller.

5. Think long term.

Obviously, you shouldn’t buy unless you’re sure you’ll be staying put for at least a few years. Beyond that, you should buy in a neighborhood with good schools or one where schools are improving. Whether you have children or not, this will have an impact on your new home’s resale value down the line. When it comes to the house itself, you should hire your own home inspector, who can point out potential problems that could require costly repairs in the future.

Let’s Get Your Search Started Today!

I had a request for some of the latest market reports and I figured what a better way to give you this information than in a blog – information that you can access, download, and decide what to do with.

Check out the reports here, and if you’re looking for a specific area, let me know!

WAYNE COUNTY
OAKLAND COUNTY
MACOMB COUNTY
ST. CLAIR COUNTY
LAPEER COUNTY
GENESEE COUNTY
LIVINGSTON COUNTY
WASHTENAW COUNTY
MONROE COUNTY
COMPILED METRO DETROIT

SCHEDULE YOUR HOME BUYING CONSULTATION TODAY!

So how do you make sure you’re doing your part to build a good relationship with your agent?

I’ve listed eight things that you should avoid doing if you want to keep you and your agent happy throughout the home buying process. Remember that your agent has your best interest in mind, so modifying these behaviors is ultimately about making your home buying journey a success!

What to avoid:

1. Not Doing Your Own Research

So you finally have a budget and want to buy a house. Great! Now what? You call a real estate agent. Should that be the end of your work? Definitely not!

Yes, agents know all about houses, but don’t depend on your agent to guess on the specifics of what you’re looking for. Do you want a bungalow, or maybe a duplex? What areas are you interested in? Are you particular about having a nice view? These are things you should know for yourself – and don’t forget to inform your agent!

Make sure you know what you want before calling an agent. That said, if you need help determining what you’re looking for, ask your realtor what factors you should be considering and they will be happy to guide you. That’s where their expertise can really help!

2. Calling the Listing Agent On Your Own

This is what you have a realtor for, so why would you do more work than you have to? That is their job: to do the calling for you.

Most importantly, your agent knows how to position your inquiry and negotiate on your behalf. Keeping some distance between you and the listing agent is essential to a successful transaction.  

3. Depending On Listing Syndication Websites More Than Your Agent

The Internet is a wonderful place, with lots of information available at your fingertips. True as this is, a computer will not be as reliable as a trusted agent. There is no harm in poking around various home search sites, but when you want more information on a property it’s best to call your agent. Licensed agents have information available to them that the public can’t access. Who wouldn’t want the inside scoop?

4. Waiting Too Long

When you find the perfect house, make your offer. There is nothing worse than dragging your feet and missing out on the home of your dreams. Yes, this is a big decision. But if you’ve done your research ahead of time and know what you want in a home, when you find that house, it’s time to pull the trigger.  Being decisive will help you get what you want.

5. Lowballing

“This offer may be ridiculous, but could you check if they’d take it?” Buying real estate should involve a negotiation, within reason. You want to make an offer that will start a conversation, not one that will result in a definitive “no”, or worse, no response at all. So if you really like the home, why would you risk making an offer that will go ignored? If you have built a strong relationship with your agent, you should be comfortable asking them for their feedback on your offer, and listen to their advice.

6. Asking your Agent to Show Properties Without Being Pre-Approved

Your agent knows that this is the most important first-step in the home buying process. Yes it’s tempting to put this off until you’ve found your dream home, but waiting that long can lead to missed opportunities. If you’re scrambling to get pre-approval when you’re ready to make an offer, you may miss out on the house. Worse, you could fall in love with a home only to find out later that you don’t qualify to buy it. Save yourself the heartache of losing out on the home of your dreams and make sure you get pre-approved before you start looking!

7. Negotiating on Visible Problems After the Inspection

Problems that you notice about the home when you first view it–peeling paint, cracked tiles–should be factored into your initial offer on the home. The point of the inspection is to call your attention to problems that aren’t visible to the average person. When you come back to the seller to negotiate after the inspection, limiting your requests to those items only discovered through the inspection will help keep your deal on track. Asking for a credit on peeling paint at that point may cause unnecessary tension between you and the seller or worse, cause the deal to fall apart.

8. Looking at Homes Completely Outside of Your Price Point

Insisting on looking at homes outside your price point is really just a gateway to disappointment. Most of the time, when people look at something they cannot afford, they then think they have found the perfect house. But if it’s outside your budget it’s outside your budget, and there is not much you can do about that.

It is best to simply not look at homes that you cannot afford, or risk more heartache and a more difficult home buying experience overall.