Even in dark economic and psychologically trying times, some beacons of light reveal themselves.
During the Great Depression, it was the film industry. From 1929 to 1933, “talkies” attracted about 73 million moviegoers per week to theaters nationwide, according to a report from Richard Butsch, professor of sociology, American studies and film and media studies at Rider University in New Jersey. The height of attendance was in 1930 when 90 million people flocked to theaters every week, escaping their troubles via the silver screen.
Fast forward nine decades to 2020. Amid a global pandemic that has claimed more than a million lives worldwide, put millions of Americans out of work, forced businesses to close permanently and shocked the travel and hospitality industries, one of these beacons has been the housing market.
In the third quarter of 2020, mortgage lending made history with the largest single quarter for purchases ($455 billion), refinancing ($867 billion) and total lending ($1.3 trillion) on record, according to Black Knight, a mortgage technology, data and analytics provider.
In almost every area, the housing market has defied expectations. However, not everyone has benefitted from the boom. First-time homebuyers face increasingly expensive home prices, which has made it all but impossible to break into the housing market even with low mortgage rates.
As we near the end of a year that—for better or worse—will not soon be forgotten, we take a look at the biggest housing market winners and losers of 2020, as well as what surprised housing insiders.
2020 Housing Market Winners
Mortgage rates were a high point for folks looking to buy and refinance in 2020, dropping to their lowest level—2.67% for the 30-year fixed rate—in the almost 50 years this data has been tracked, according to Freddie Mac’s Primary Mortgage Market Survey. From the beginning of January, when the 30-year fixed rate was at 3.72%, rates have been steadily declining.
The Federal Reserve kept a lid on rates by implementing aggressive monetary policy early in the pandemic. Without its strategy of buying bonds, mortgage rates could have skyrocketed.
And higher rates would have diluted the potent mortgage market, which might have slowed down home price growth in addition to making borrowing more expensive for homebuyers and refinancing less profitable for homeowners.
“My view is that low rates had more of an impact in supporting pricing rather than increasing the number of transactions,” says Gary Beasley, CEO at Roofstock, a marketplace for buying and selling investment properties. “The reasons people were looking to move would have existed even with higher interest rates, but these higher rates would have served to temper price increases.”
Low rates were the push some hesitant buyers needed to get off the fence, says Julie Busby, a real estate broker at Compass Real Estate in Chicago. The downside to these never-before-seen rates was that it created a massive logjam in lender pipelines, causing closings to be delayed by weeks or longer.
“One side effect we did see is that the lenders’ turnaround times increased,” Busby says. “Quick closings have become difficult as lenders are inundated with refinances and purchases.”
Home sales are up, even as home prices continue to climb. In October, existing home sales rose to a seasonally adjusted yearly rate of 6.85 million, the fifth consecutive month of growth, according to the latest report by the National Association of Realtors. Home sales shot up by 26.6% during the same period last year.
The percentage of Americans who own a home—67.4% in the third quarter of 2020—was the highest in 12 years. In the third quarter of 2019, the rate was 64.8%. Real estate agents were stunned by the comeback the housing market pulled off after a slow start to the usually busy spring season.
“In the beginning, Covid-19 was a concern for many buyers and sellers, given there was so much economic uncertainty,” says Noah Kragerud, owner and Realtor at Ark Realty Group for Keller Williams in Portland, Oregon. “Even Realtors like myself were extremely worried whether we’d even have jobs or income in the months ahead. As interest rates dropped, we realized the demand was still there and people still wanted to sell or move to a different home that suited their shifting needs.”
Home Price Appreciation
If you were a homeowner in 2020, home price appreciation was a big winner. According to the latest home price index from CoreLogic, a property analytics firm, home prices in October increased year-over-year at their fastest rate since April 2014.
On a national level, home prices were up by 7.3% in October compared to the same time last year, which has boosted home equity levels and made homeowners a little richer.
In the third quarter of 2020, home equity increased by 10.8% year-over-year, according to CoreLogic’s home equity report. On a per mortgage basis, that’s a $17,000 annual increase—collectively, it’s about $1 trillion.
Homeowners refinanced nearly 2 million mortgages in just the third quarter of 2020, up 84.5% from the same time last year.
Refinance activity increased in 183 of 215 metropolitan statistical areas that ATTOM Data, a real-estate data firm, analyzed in its third-quarter 2020 U.S. Residential Property Mortgage Origination Report, as mortgage rates continued their descent, deepening the pool of eligible borrowers.
Mid-way through December, as mortgage rates continue to scrape the bottom, there are now 18.8 million eligible refinance candidates, according to Black Knight. As defined by Black Knight, eligible refinance candidates include borrowers with 720 FICO scores or higher, who have at least 20% equity in their homes, are in good standing with their home loan and can shave at least three-quarters of a percentage point off their mortgage rate by refinancing.
2020 Housing Market Losers
The 2020 housing market was a tough one to break into—in many areas of the country—for first-time homebuyers. Stories abounded of multiple bids driving up home prices and pushing out buyers on a budget.
Mortgage down payments were the highest they’ve been since 2000, according to ATTOM Data. This comes as credit availability remains squeezed after lenders pulled back at the beginning of the pandemic in early March, which means some homebuyers likely had to put more money down to qualify for a mortgage.
Nationwide, the median loan amount on homes purchased—$275,500—jumped in the third quarter by 24.2% compared with the same time in 2019. This was also 10.3% higher than median prices in the previous quarter, which pushed some first-time buyers out of the market, says Glenn La Mattina, senior vice president of operations at National Realty Investment Advisors.
“We heard a lot of buyers say they were going to take a break because they didn’t want to get involved in bidding wars,” Mattina says.
Surprise: Not All Markets Were Challenging
Many motivated homebuyers who found themselves in expensive markets decided to leave, thanks in large part to work-from-home flexibilities that were ushered in by Covid.
Suburbs outside of major cities became prime destinations as people were lured by affordable home prices—especially compared to expensive cities like San Francisco and New York.
“We’ve seen more people flock to the suburbs than ever before amidst the pandemic,” says Tim Pascarella, president at Ross Mortgage Corporation in Troy, Michigan.
Major cities took a beating this year, as Covid shut down restaurants, entertainment and workspaces, forcing folks to spend more time in their own homes. And in big cities like Los Angeles and New York, those homes are usually very expensive and very small. And sometimes you have to share them with roommates.
This indoor time gave many people the chance to reflect on what’s important to them, and it turns out space was the No. 1 priority.
“I’ve seen the biggest negative impact in metropolitan areas like New York City and San Francisco. The amount of money pumped into those major cities by people simply living and doing business there is substantial,” Pascarella says. “People who were paying major dollars to live in those areas are choosing to live somewhere cheaper and safer while working from home.”
According to a recent report by Redfin, an online real estate marketplace, there’s been a 50% uptick in the number of people wanting to leave New York and Los Angeles since last year.
The most popular destinations for people interested in living outside of their metro area were Sacramento, Las Vegas and Phoenix.
“First-time homebuyers did face more challenges this year than in the past. Since the start of the pandemic, California has experienced record-low inventory (the number of available houses for sale). With low inventory comes high home prices,” says Suzanne Seini, realtor at Active Realty in Orange County.
In Manhattan, many older millennials with families who might’ve been waffling about leaving the city (just one more spring!) likely had their minds made up for them when Covid hit. They were suddenly working from home with their partner, children, pets and Zoom teachers.
“From March through June, activity in New York dropped to (trivial) levels as buyers physically left the market,” says John Walkup, chief operating officer and co-founder of UrbanDigs, a real estate data analytics firm.
Surprise: New York Real Estate Just May Be OK
New York was hit particularly hard by Covid-19 in the early stages of the pandemic, and real estate suffered, so much so that real estate experts worried about a mass exodus. Fast forward to the fall, and New York slowly began to regain its footing.
It turns out, Brooklyn home prices have been holding steady, and many other parts of the city have seen improvements compared to last year.
Overall, the New York City population has declined just 0.01% from 2019 to 2020.
As the millennials leave the big cities for more affordable digs in places like Texas and Florida, there is a whole generation of young, eager people who will take their place after college in a couple of years. These Gen Zers will likely bring their few worldly belongings from all corners of the country and move into the cramped, overpriced apartments with bad views and running toilets like generations before them have done.
And they’ll get the one thing the rest of us with home gyms and backyards won’t get: spring in New York City.