Friday Update February 26, 2021
In America all markets are based off one big market, the debt market. And that's the one that's truly making headlines this week.
The 10 year US treasury yields started the year at about .9%. The expecatations of analysts were that the yield would rise to about 1.5% by the end of 2021. If you read last week's update you know we hit 1.35% last week, and in short time spiked to 1.61% yesterday. The stock market hates it and a lot of buyers probably don't even know how much they hate it yet.
Mortgage rates saw some of the steepest reprices in recent history. Now, rates are still historically pretty damn low, but home prices have gotten so high that these fluctuations for sure matter to buyers.
Quick recap, a 1% rise in mortgage rates drives monthly payments up around 10%. From personal experience it's pretty common that a 10% increase in a mortgage payment is something that many people can't afford and so they have to shop for a cheaper house, and in this market there may not be cheaper options to consider at all.
Speaking of houses, we have 252 single family homes for sale here in El Paso County. For the month of February we hit a record high median sales price of $405,000. This is our first time clocking a median over 400k ever.
Appraisals have been a problem and continue to be a problem. For any appraisers reading this I get it. You have no data to go from, the underwriters are pushing back on you, and the rate at which housing prices are spiking is hard to justify. Meanwhile on the agent side of things I can't remember the last time I showed a house that did not have multiple offers on it, and seeing homes with 10 plus offers on them is just the norm these days. If you are unable to put up some kind of appraisal gap on resales especially in the sub 500k range you're going to have a difficult time buying. Not impossible but quite close to it.
Ok so rates are finally rising. Time will tell how high they rise or if they reverse but let's say rates stabilize at this level. We're about .75-1% higher than the crazy low rates that we saw in August. Long story short this will take away some people's ability to buy. These will be the people on the very, very edge that barely qualified for a mortgage to begin with. And honestly this is a good thing for the market. This means that while prices continue to rise and rates aren't scraping the bottom of history we will have stronger borrowers becoming homeowners while, in theory, weaker borrowers work on their credit and with time become stronger borrowers who eventually become homeowners too. This is my rose colored glasses view on things that completely disregards the effects of income disparity. That's a whole other rant.
Refinance activity is going to slow way, way down. Lenders will be able to maybe catch their breath a little bit after one of the busiest years on record in 2020.
Maybe if the federal government allows it some loans will fail and we will see some foreclosures this year. That would be a welcome thing for our inventory levels. Looking at the county trustee's auction for the last several months they have cancelled several sales for lack of inventory and on average sell about 1 foreclosure every 2 weeks. Keep in mind that today we realistically have about 10-15 buyers for every house that's on the market. Let's say we do allow a bunch of foreclosures to hit. Those will get absorbed with the quickness with all this built up demand.
If rates continue to go straight up my updates will take on a seriously different tone. For now this is exactly the kick in ass this market needs.