M id A tlantic Real Estate Journal — Fall Preview — September 25 - October 15, 2020 — 13C L ending
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By Shmuel Shayowitz, Approved Funding Residential real estate & mortgage market year-end update
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fastest rates in history. These are not the same components that were at play during the home sale surges prior to the great recession. That market was driven by speculators and investors looking to obtain homes, at any interest rate, that they may not necessarily have qualified for. Today, the borrower is more creditworthy. The amount of equity available to the average U.S. homeowner is unlike what we saw with the low-down and no-down-payment acquisitions. Furthermore, today’s home buyers are more mobile than ever before. The low rates and accumulated equity are now allowing homeowners to be move compared to the decline in mobility that we saw in the marketplace from 2003-2010. The remote work flexibility has fueled an even greater level of demand and desire for people not to be geographically
o say that 2020 was an unprecedented year would still fall short
by attempting to speculate how the markets will act over the next few months. Having experienced first-hand the tumultuous market downturn during the great recession of 2008, steered through the sub- prime mortgage market crash in the late ‘90s, and navigated through the many real estate booms, busts, and bubbles – I thought I had seen it all. Again, nothing is like what we have experienced in 2020. Mortgage rates are histori - cally low, and home prices are rising at all-time levels - a formula that has many won - dering how much longer this heated market can last. Home inventory levels were at all- time record lows, even before the pandemic. Since then, we have fallen another 25-30%. Conversely, the velocity of transactions is at an all-time high, equating to homes being listed and sold at one of the
restrained by their current residence. As to the historically low in - terest rates - it is my opinion, the biggest threat in maintain - ing these low rates will be infla - tion. The Federal Reserve has changed its model for measur - ing “high inflation.” They want to see inflation rise and will allow it to do so. As such, the Fed announced that they antici - pate that the Fed Funds Rate will remain at zero through at least 2023. It is important to emphasize that Fed Funds Rate and Mortgage Rates are two entirely different instruments. The Fed Funds Rate can change from one day to another, but a Mortgage Rate is in effect for over 30 years. Mortgage Rates will be affected by infla - tion because inflation erodes the buying power of the fixed return that a mortgage holder receives. Interestingly, the best way to
combat inflation is by raising the Fed Funds Rate, which they have communicated against. If inflation begins to rise, and there are already some signs of this, Mortgage Rates will start to climb in response. All this can occur while the Fed Funds Rate is at zero. If you would like to see an example of this, look no further then what transpired a few years ago when Mortgage Rates rose nearly 1%, while the Fed Funds Rate remained at zero. Finally, the election season will undoubtedly bring addi - tional volatility to the markets. Depending on the outcome of the Presidency, markets will react aggressively, and mort - gage rates might be in the line of fire. Refinance opportunities will begin to diminish as infla - tion heats up, and the year winds-down. Despite the risk of rising mortgage rates, we continued on page 16C
of truly en - compassing al l that we have endured the s e pas t few months. T h e C O - VID-19 pan - d emi c ha s disrupted all
Shmuel Shayowitz
facets of life – economically, medically, psychologically, emotionally, spiritually, and financially - the likes of which no one has experienced in their lifetimes. No market wizard could have foreseen how most of 2020 turned out, nor can anyone adequately predict how the remainder of the year might conclude. Despite my over two decades entrenched in the residen - tial real estate and mortgage markets, I too won’t fall prey
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