Housing: Prices spike despite pandemic
The housing market “is still racing on strong legs,” said Shawn Tully in Fortune. Last year, prices for single-family homes “spiked 9.4 percent—their best performance in over a decade”—thanks to low mortgage rates and historically limited inventory. This confluence of factors could keep prices “roaring in 2021,” particularly in neighborhoods surrounding “gateway cities such as San Francisco, Los Angeles, and New York,” where the “dearth of new construction that has endured since the catastrophe of 2008 and 2009” has left builders scrambling to meet demand from “affluent Millennials seeking home offices and backyards.” What’s being offered is “selling at the fastest pace in years”: Nearly half (47 percent) of all listings are selling in 60 days or less. And despite the run-up in prices, low rates have made mortgages cheaper to carry. Before the housing crisis of 2007, typical payments for a new house were almost 40 percent above their historical average. Now, even with the recent rise, the cost of a new home is still 3 or 4 percent below the traditional affordable line, based on average family income.
Rates are beginning to climb back up, said Orla McCaffrey in The Wall Street Journal, concerning analysts ahead of the spring buying season, which accounts for more than 40 percent of the year’s home sales. The average 30-year fixed-rate mortgage rate hit 2.81 percent last week—still amazingly low by historical standards, but the highest it has been since November. Mortgage rates are “closely tied to 10-year Treasury-note yields,” which have also been rising quickly. The housing market is hot now, “but there are growing concerns about how much longer this strength can last,” said Paul La Monica in CNN.com. Though Home Depot and Lowe’s both reported better-than-expected results, “rising interest rates could eventually be a problem,” and Home Depot has been careful not to promise investors equally good results for 2021.
For those who already own a home and are nearing retirement, there’s a lot of pressure to pay off your mortgage, said Katy McLaughlin in The Wall Street Journal. The 2008 financial crisis made advisers “wary of retirees carrying mortgages, especially when they must expose themselves to stock-market risk to meet income goals.” Yet the stock market has been so strong that “paying off a low-cost loan” can feel like leaving money on the table. What to do? It’s helpful to “run scenarios for how a lump-sum amount to pay off your mortgage could perform in various portfolios.” Be sure to model worst-case scenarios. Still, it’s “fairly easy to put together a low-risk portfolio that can outdo the savings most clients would get from paying off a loan.” The harder calculation is determining how much more secure you’d feel if you were able to retire debt-free.