the legal cap on how much the Treasury can borrow. The limit is fast approaching. And although the Treasury can keep raising money beyond the formal Aug. 1 deadline, it’ll have to reduce its borrowing until Congress again raises the cap sometime this fall. That means fewer long-term bonds hitting the market, leaving bond buyers to compete for the existing pool of Treasuries. As they bid up bond prices, yields turn lower. Once Congress ups Washington’s debt limit again, yields should trend up. After limiting its borrowing for weeks or months, the Treasury will sell a flood of bonds and investors will probably demand a moderately higher yield to buy them all.
Look for the yield on the 10-year Treasury note to be near 1.8% by year-end. Kirk’s comment on the above came from Kiplinger’s Letter Aug 14, 2021Long term interest rates in coordination with Mortgage-Backed Securities and other economic indicators drive the housing interest rates.
You can expect housing 30-year mortgage rates to climb to 3.5-3.75% by the end of this year. Assuming the predicted 1.8 yields on 10-year notes becomes reality. Still, buying a home is a great move for most Americans. Tax benefits, family stability, and purchasing equity with every mortgage payment over time will create real wealth for your family.
Anyone searching for a home today knows full well the pickings are slim. The supply of U.S. homes for sale is near a record low, and the gap between supply and demand is widening.
The U.S. is short 5.24 million homes, an increase of 1.4 million from the 2019 gap of 3.84 million, according to new research from Realtor.com.
The U.S. Census found that 12.3 million American households were formed from January 2012 to June 2021, but just 7 million new single-family homes were built during that time.
Single-family home construction has suffered from a severe labor shortage that began well before the pandemic but was then exacerbated by it. Supply chain disruptions in the past year have pushed prices for building materials higher, and as pandemic-induced demand soared, prices for land increased as well.
While new household formation is actually slower than it was before the pandemic, homebuilders would have to double their recent new home production pace to close the gap in five to six years. A new household can be either owner-occupied or rented.
“The pandemic has certainly exacerbated the U.S. housing shortage, but data shows household formations outpaced new construction long before Covid. Put simply, new construction supply hasn’t been meeting demand over the last five years,” said Realtor.com chief economist Danielle Hale. “Millennials, many of whom are now in their 30s and even 40s, have debunked the industry’s ‘renter generation’ expectations.”
Household formation is when an individual moves out of a shared living situation.
Single-family home construction has been rising steadily since it bottomed in 2009 during the Great Recession. It is still not as high as it was just before the housing boom and is actually running at the slowest pace since 1995, according to the U.S. Census. The slower pace comes as the largest generation enters its typical homebuying years.
“Despite the extraordinary efforts of our trade partners, the supply chain issues that have plagued the industry throughout the pandemic have increased during the second half of the year,” Pulte CEO Ryan Marshall said in a release. “We continue to work closely with our suppliers, but shortages for a variety of building products, combined with increased production volumes across the homebuilding industry, are directly impacting our ability to get homes closed to our level of quality over the remainder of 2021.”
Other builders are citing the same issues. Some, including Pulte, have said they are slowing sales themselves in order to keep up with their backlog of demand. As a result, stocks of the builders have been trading significantly lower over the past week.
Due to the shortage, prices for new and existing homes are rising at a record pace. For new construction, which has always come at a price premium, homes with a median value of $300,000, which is considered relatively affordable, represented 32% of builder sales in the first half of 2021, down from 43% during the same period in 2018.
Builders simply can’t afford to produce cheaper homes, given their rising costs.
“No matter how you frame the scenario, it will take a more meaningful shift in the pipeline to meet demand in the foreseeable future,” Hale said.
By Diana Olick
A prolonged period of low mortgage rates is taking its toll on the refinance market, as most borrowers who qualify have already gone through the process.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.03% last week, with points increasing to 0.34 from 0.29 (including the origination fee) for loans with a 20% down payment.
As a result, applications to refinance a home loan dropped 4% for the week, seasonally adjusted, and were just 2% higher than a year ago, the Mortgage Bankers Association reported. Rates were just 5 basis points higher at this time last year, but they were lower last fall and at the start of this year, so a large share of borrowers have lower rates than today’s.
“Recent uncertainty around the economy and pandemic have kept rates low over the past month, which is why the refinance index has oscillated around these levels,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
Applications for a mortgage to purchase a home rose 1% for the week but were 16% lower than a year ago. Home sales have been slowing, as potential buyers hit an affordability wall. Home prices were up 18.8% in June, a record annual gain, on the S&P Case Shiller national home price index.
“Home purchase activity continues to be dominated by higher price tiers of the market, with the purchase average loan size now at $396,500, the highest average in five weeks,” Kan said.
Mortgage rates started this week slightly lower but still haven’t moved much. That could be about to change in either direction.
“All lenders will face increased volatility in the coming days due to the release of several important economic reports culminating in Friday’s big jobs report,” said Matthew Graham, chief operating officer at Mortgage News Daily.