While the economy faces challenges from the coronavirus pandemic, the housing market has continued to show strength.
According to our recent quarterly Forecast, today’s housing market is characterized by record-low mortgage rates, increased home sales and price growth and constrained inventory.
But what exactly does this mean? Here are a few terms you should become familiar with to better understand the housing market and how it impacts affordability:
- Mortgage rates directly impact housing affordability. For homebuyers, locking in a lower interest rate could help potentially lower monthly mortgage payments. If you’re a homeowner, refinancing into a lower mortgage rate could also lower your payment.
- Home sales measure the number of homes sold every month. In a seller’s market, homes are being sold quickly, which means there is more competition for homebuyers. By contrast, a buyer’s market is marked by less competition and a decline in home sales.
- Home prices measure the change in home values over time. In addition to serving as an indicator for how much you’ll likely to pay for a home or how much your home will sell for, it is a tool to help assess housing affordability.
- Inventory indicates the number of active listings on the market. When demand exceeds supply, meaning there are more potential buyers than available homes, it is a seller’s market. By contrast, it’s a buyer’s market when there are more homes available than interested buyers.
What does this mean for you?
Whether you’re a homeowner, looking to sell or a renter interested in buying, these statistics can provide valuable insights into housing trends – and most importantly, your home investment.
Many homeowners have been able to lower their monthly payment by refinancing at today’s low rates. Total mortgage originations, which includes refinance applications, have soared because borrowers are refinancing their loans with terms better than their current mortgage. Refinance activity was the leading driver in housing’s the rebound this summer even though overall economic activity stalled.
For sellers, the market has seen a substantial increase in total home sales. In turn, this surge has put further pressure on housing inventory. For example, in August 2020, housing inventory declined 18.6% compared to August 2019. This limited supply, combined with strong buyer demand driven by low rates, has accelerated home price growth. This means today’s sellers can expect a higher sale price and faster sales in the current climate.
Buyer demand has surged as many potential buyers made the jump into homeownership to take advantage of today’s low rates. On average, mortgage rates today are more than a full percentage point lower than rates over the last five years, making a home that could have been unaffordable a year ago now affordable.
While there are still many uncertainties with the overall economy during this time, the American dream of homeownership has remained steadfast. For more insights, read our full forecast on Freddie Mac’s Economic and Housing research page.
For more information on buying, selling and owning a home visit My Home by Freddie Mac®.