Enduring homebuyer demand and a relative lack of for-sale homes has stoked market competition and pushed home values upward at a new record pace. The 1.1% monthly increase in the U.S. Zillow Home Value Index in November was the strongest one-month rate of appreciation since at least 1996, when our records began. Given enduring and elevated levels of demand for homes, sharp increases in home values and strong sales volumes are likely to continue in the months to come. The Zillow Economic Research team predicts that home values will grow by 3.6% from November to February 2021 and by 10.3% in the twelve months ending November 2021. The current forecast also calls for sales volume to remain elevated in the coming year, finishing 2021 at 6.9 million sales, the most since 2005. This is driven by the current strength of the home buying market and our expectation that low mortgage rates, demographic tailwinds and an improving economy will continue to prop up market competition. And it appears that consumers are eager to open up their wallets in 2021, even as the economy continues to slowly recover. A report from the Federal Reserve Bank of New York found that the median household expects to increase their spending by 3.7% in the next twelve months, the most-optimistic outlook since 2016.
Recent mortgage market data reinforces the conclusion that buyer demand remains elevated and that mortgage interest rates are likely to stay low in the coming months. For-purchase mortgage applications ticked up 2% this week from the week before and now sit 26% above levels from this time last year. For-purchase mortgage application activity has remained up year-over-year for 30 consecutive weeks, and been up by double-digit percentages for all but two of those. And in their official statement this week, the Federal Reserve’s Federal Open Market Committee decided not to alter its current pace of mortgage-backed securities purchases and repeated their intention to keep the federal funds rate near 0% through 2023, even as the economy continues to recover. Both these decisions should continue to place downward pressure on mortgage rates, keeping them suppressed for the near future. The number of loans in forbearance ticked up this week from last week, but a decline in participation is expected at the end of the month, when plans that expired at the end of the previous month are removed from the count. The Mortgage Bankers Association did report a notable increase in the volume of borrowers making calls seeking relief on their loan, though It’s unclear how many of those will translate into loans that require assistance.
Accelerated growth rates in home construction figures in November showcase the enduring strength of the housing and homebuilding markets and suggest that builders are overcoming the constraints that have limited activity in recent months. Homebuilder optimism sat at a record high in November and pulled back only slightly in December, according to figures released this week. November’s construction figures suggest that activity has found a way to catch up to this elevated optimism. More permits were issued in November than in any month since 2006, and a notable increase in (admittedly noisy) multifamily starts and permits suggests that builders are broadening the scope of projects that they are taking on. After two monthly declines in the past three releases, a strong increase in permits indicates builders are breaking free from the restrictions that have hindered the industry of late and appear prepared for increased activity in the months ahead. There’s no denying that the November report was another strong reading for the housing market as the end of the year approaches.
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