Shiny Trinket

Supply falls far short of demand for single-family homes to buy in the U.S.

At the beginning of the pandemic, supermarket shelves were suddenly devoid of toilet paper, hand sanitizer, and masks, and we all heaved a collective sigh. What would it be next? How about houses for sale?

According to Realtor Magazine, the U.S. housing market needs nearly 4 million single-family homes to meet the nation's demand, according to a new analysis from Freddie Mac. The 3.8 million shortfall marks a 52% increase in the housing shortage since 2018.

Freddie Mac's chief economist, Sam Khater, weigh-in, saying, "This is what you get when you under-build for 10 years. We should have almost four million more housing units if we had kept up with demand the last few years."

He joins the chorus that contains Lawrence Yun, chief economist of the National Association of REALTORS®, who has called for greater inventory and more homebuilding to meet demand. "We need to build more homes," Yun told NPR, noting that since the housing crisis more than a decade ago, homebuilders have been building too few homes.

As predicted, a shortage in anything can prompt prices to rise, including homes. The median existing-home price for all housing types in February was $313,000, up 15.8% compared to a year earlier, according to the National Association of REALTORS®. However, the need is felt most keenly in entry-level homes, making it more expensive for first-time buyers to enter the market, Khater told The Wall Street Journal.

RealtorMag cites the equation formulated by Freddie Mac, which calculated the housing shortage of nearly 4 million by factoring in the amount of single-family homebuilding that would be needed to match the demand from household formation, second-home purchases, and replacement of damaged or aging homes. Then they compared it to the pace of construction in trying to meet that demand.

The bottom line: Homebuilders need to construct between 1.1 million and 1.2 million single-family homes a year to meet long-term demand. But that rate would need to be even higher to remove the void that exists now, according to Robert Dietz, chief economist at the National Association of Home Builders.

Source: Realtor, CoreLogic, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are trending sideways so far today.  Last week the MBS market improved by +27 bps.  This may've been enough to move rates or fees lower last week. We saw a good deal of intraday volatility through the week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to move rates this week. 1) Central Bank, 2) Coronavirus, and 3) Technicals.

1) Central Bank: We get key interest rate decisions and policy statements from China, The European Central Bank, Canada, Russia, and Indonesia this week. ECB will get a lot of attention from bond traders as they said that they would step up and front-load their bond purchase program at their last meeting. We need to see if they actually did do that and what their future plans/schedules are.

2) Coronavirus: The faster the GLOBAL economy gets going, the worse it will be for rate markets. While the U.S. sees vaccination rates at 50%, Globally, there has been a 12% increase in cases in the past week to hit a new record high.

3) Technicals: The technicals are well defined and very narrow this week.

This Week's Potential Volatility: Average

Rate markets do not get a lot of economic data this week that can likely cause volatility and move rates. The market will pay close attention to the opening of economies around the world. Some countries are getting hit hard by the coronavirus as of late, helping to keep a lid on rates.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Summit Lending has over 15 years of experience in the mortgage industry. We are here to help home borrowers arrange mortgage finances while explaining the complicated procedure of any type of home loan in it's simplest terms.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.