Mortgage rates are at record lows this year, which might call into question how much mortgage rates may continue to drop and what could be the larger impact on residential real estate.
A webinar hosted on October 15 by Todd Teta, Chief Product and Technology Officer at ATTOM Data Solutions, and Eric Fox, Vice President Statistical Modeling, Analysis and Research Development at Veros, provided some insight to help answer these questions.
The two experts examined past trends in the mortgage industry and looked at predictive analytics and research to help weigh in on what the housing market might look like in the future.
Teta started the discussion by looking at this year’s trends in loan volumes.
“I view volumes as a better indicator of the broader market, particularly the demand side of real estate mortgage,” Teta said.
Teta’s analysis of past loan volumes showed that refinance loan volumes in the second quarter of 2020 were the highest they had been since 2013 with a 126% year-over-year increase. Refinance loans made up 62% of all loans and refinance volumes increased across the country. Meanwhile, the share of purchase loans slowed down by 28.8%.
Refinance loan rates dropped to around 3% during this same quarter and purchase loan rates fell even further to less than 3%.
In the third quarter, Teta says he expects to see higher loan volumes, and purchase originations will likely rebound as markets begin to re-open and the Federal Housing Administration fee increases.
30-year fixed mortgage rates have been below 3% for the past 12 weeks. However, they have begun to stabilize after the steady decline that has occurred over the past six months. Loan costs have also become more stable but are expected to go up when the FHA adverse market fee of 0.5% begins on December 1.
“There are some things that we are keeping our eye on that I think could potentially increase rates,” Teta said. “But we're not expecting a ton of impact here if any.”
According to Teta, mortgage rates are not expected to change much in 2021, despite several factors such as Federal MBS purchases, debt, GSE capital rules, and conservatorship release that could drive up rates. These factors may still cause loan volumes to decrease in the second half of 2021.
Eric Fox discussed what Veros’ prediction product, VeroFORECAST, says about the future of residential real estate prices.
“Somebody forecasting just one or three months into the future, we would be looking at things more like pending sales and very timely type data,” Fox said. “Looking at one to two years out, we're looking at a lot of economic data, and interest rates and loan volumes. If we're looking out into the 30-year time frame, obviously, it's very difficult to predict interest rates accurately that far out, and so it would be a fundamentally different type of model you'd be looking at.”
Fox said that property types, price tiers, population shifts, migration trends, and other variables are also important predictors.
VeroFORECAST’s outlook on the market from the third quarter of 2020 to the third quarter of 2021 predicts that home prices will continue to increase, despite the economic impact of the pandemic.
The national average prices of 100 metro markets are expected to increase by 5% year-over-year by 2020’s third quarter. In the top ten healthiest metro markets, prices could be up 10% by that same quarter, whereas the 10 lowest-performing metro markets in the U.S. could have average prices increases by just over 2% by the third quarter of this year.
The top 10 strongest markets over the next year are likely to be in the West, such as Boise, Idaho and Phoenix, Arizona as well as a number of metro areas in Washington, Utah, Colorado and Idaho.
Some of the markets expected to be the least-performing over the next 12 months include Midland and Odessa, Texas as well as California’s San Francisco-Oakland-Berkley area, the New York-Newark-Jersey City market ,and a few other markets in Louisiana, Massachusetts, Illinois, California and Missouri.
External factors such as COVID-19 and Hurricane Andrew, of course, had a significant impact on the residential real estate market. But Fox said that the effects of these events may have unexpected consequences that his company’s forecast may still be able to predict.
“The external events--I think it's just something to pay really close attention to,” Fox said. “Because oftentimes, especially in light of things on COVID, it's not quite what you think it might be.”