This year’s housing market has become the backbone to economic recovery in the U.S. during an unprecedented time in history. The last quarter of 2020 is upon us so let’s take a moment to recap where the housing market was headed at the beginning of the pandemic and where we think it is going for the remaining months of the year.
Hit the Pause Button
Due to the COVID-19 pandemic, the U.S. economy was purposely paused throughout the spring months—a traditionally busy time in the housing market. Fortunately, even with an ongoing pandemic, interest rates remained low. Once shelter-in-place orders were lifted across the country, home shoppers jumped back in the market to purchase homes. The traditional home buying ramp up in the spring and summer months was delayed so we are now seeing more and more people enter the market this fall season.
“On an aggregated level, the housing economy remains rock solid despite the shock and awe of the pandemic,” stated Franklin Martel, president and CEO of CoreLogic.
Forbearance Plans Declining
We have also seen a decline in those needing forbearance plans beginning in June 2020. Initially, many people did not understand the consequences of forbearance. Once education about forbearance plans improved, borrowers were able to better understand their options and make more informed decisions. More than two million COVID-19-related forbearance plans are set to expire in September 2020.
V-Shaped Recovery
There continues to be a strong demand for housing. We have seen a v-shaped economic recovery since March 2020 (when the country was under shelter-in-place orders). Home sales and new home constructions have continued to increase nationally.
13.6 million Americans are still unemployed, but we are seeing that number drop due to the increase in available jobs. 1.4 million new jobs were added in August 2020. We are also seeing a surprising improvement in unemployment numbers in the service and hospitality, and recreation and entertainment industries which suggests a quick and strong economic recovery.
Home Affordability
The Fed announced on September 16, 2020 that interest rates will be low for a long period of time. How long? Through 2023 and possibly beyond. This is great news for home buyers and those looking to refinance. When rates are low, monthly payments are lower—which ultimately increases your home affordability.
For example, for every 1/8 percent (or 0.125 percent) drop of interest rate, there is about a 2 percent increase in what you can afford. Right now, we have a big boost in affordability due to extremely low rates. In fact, home buying power is up about 13%. That is huge! So, if you were able to afford a $500,000 home, you would now be able to afford a home priced at $565,000.
Is Inflation Good or Bad Right Now?
The Fed has two main jobs:
For most of the past decade, the Fed has maintained a target inflation rate of 2 percent. After meeting in September, the Fed is willing to let its current policies drive inflation above the standard 2 percent target inflation rate for extended periods to help keep interest rates low.
The policymaking Federal Open Market Committee (FOMC) shared this message to emphasize the inflation goal right now:
“It will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
The Bottom Line
We are seeing that more and more people are confident in entering the housing market—this is great news for both buyers and sellers. With rates remaining low through at least 2023, you are in luck if you are considering buying or refinancing a home.