Interest Rates: The current 30-year mortgage rate is at 2.7%, a 14th record low since March.
Today’s mortgage rates are at a record low and they offer the very best deal of the year. Soon, that deal will vanish, and rates will rise, which will impact monthly payments and affordability. Many think the Federal Reserve is in charge of setting mortgage rates, but that is not true. Instead, they set the short term fed funds rate, currently at zero. This rate affects automobile loans, credit card rates, and small business loans, also known as “short term debt.” Long term debt, or 30-year fixed mortgages, are tied closer to long term bonds. Watching any movement in U.S. 10 Year Treasury bonds will indicate where mortgage rates are headed. Prior to this year, the 10-Year has never been below 1% (it is at 0.896% today). Similarly, prior to this year, mortgage rates have never been below 3% (they are at 2.7% today).
Bad economic news drives the 10-Year down and good economic news pushes it higher. COVID-19 and the economic recession due to the forced shutdown of the economy drove the 10-Year below 1% for the first time ever. There is a “spread” between the 10-Year bond and the 30-year mortgage rate that is fairly uniform over time. Capacity constraints and risk aversion prevented mortgage rates from immediately plunging below 3%, but they eventually got there in July.
By mid-2021, the bulk of the U.S. population will be inoculated from the virus. The economy will undoubtedly improve. With all this good news, the 10-Year has improved from 0.645% in September to 0.896% today. In 2021, over the coming months, there will be more good news to follow: a congressional relief package, more positive vaccine news, positive jobs reports, and positive economic reports. It will not be long before the 10-Year pops above 1%. As a result, expect mortgage rates to increase from today’s exceptional 2.7% level to 3.5% by the end of 2021.
Orange County Housing Market Summary:
- The active listing inventory plunged by 317 homes in the past two-weeks, down 9%, and now totals 3,152, its lowest level since tracking began in 2004. COVID-19 is not suppressing the inventory despite the recent surge in cases. In November, there were 15% more homes that came on the market compared to last year. Last year, there were 4,546 homes on the market, 1,394 additional homes, or 44% more.
- Demand, the number of pending sales over the prior month, decreased by 72 pending sales in the past two-weeks, down 3%, and now totals 2,549, its strongest December reading since 2011. COVID-19 has no effect on demand. Record low rates are fueling today’s exceptional demand. Last year, there were 1,949 pending sales, 24% fewer than today.
- The Expected Market Time for all of Orange County decreased from 40 days to 37, its strongest reading in 2020 and a Hot Seller’s Market (less than 60 days). It was at 70 days last year, much slower than today.
- For homes priced below $750,000, the market is a hot Seller’s Market (less than 60 days) with an expected market time of
27 days. This range represents 33% of the active inventory and 45% of demand.
- For homes priced between $750,000 and $1 million, the expected market time is 23 days, a hot Seller’s Market. This range represents 16% of the active inventory and 25% of demand.
- For homes priced between $1 million to $1.25 million, the expected market time is 34 days, a hot Seller’s Market.
- For luxury homes priced between $1.25 million and $1.5 million, in the past two weeks, the Expected Market Time decreased from 47 to 36 days. For homes priced between $1.5 million and $2 million, the Expected Market Time decreased from 63 to 53 days. For luxury homes priced between $2 million and $4 million, the Expected Market Time decreased from 123 to 119 days. For luxury homes priced above $4 million, the Expected Market Time decreased from 322 to 248 days.
- The luxury end, all homes above $1.25 million, accounts for 42% of the inventory and only 20% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.3% of all listings and 0.2% of demand. There are only 2 foreclosures and 6 short sales available to purchase today in all of Orange County, 8 total distressed homes on the active market, up 1 from two-weeks ago. Last year there were 68 total distressed homes on the market, more than today.
- There were 2,843 closed residential resales in November, 25% more than November 2019’s 2,269 closed sales. November marked a 15% drop compared to October 2020. The sales to list price ratio was 98.5% for all of Orange County. Foreclosures accounted for just 0.1% of all closed sales, and short sales accounted for 0.2%. That means that 99.7% of all sales were good ol’ fashioned sellers with equity.
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