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MReport March 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

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M R EP O RT | 23 EXPERT INSIGHTS don't think 2021 will be as large in refinancing because so many people already did so in 2020. That rise in Treasuries is not pushing mortgage rates up, though. It's still a great time to buy a house, if there's a house available for sale. The existing home market is at all-time lows in terms of inventory. Part of the reason that the pace of increase in home sales won't be as fast in 2021 as it was in 2020 is, there's simply not enough supply. Now, that could change. If the vaccine makes those existing homeown- ers who are nervous about selling their house in the presence of this disease more confident, and they started to offer them up for sale, that could increase sales. There is plenty of demand out there at these very low interest rates. There are lots of reasons people don't actually refinance, even though the interest rate itself might look preferable. They're either going to move in a couple years or maybe they already paid 15 years of the mortgage and they're paying mostly principal. So, what's the point [to refinanc- ing]? There's a variety of reasons why people don't actually act on that [lower mortgage rate]. Going into 2022, we actually think there might be a little bit of a slowdown in the existing home sales. Interest rates, we think, will top 3% out in 2022. That said, 2021 and 2022 are expected to be a couple of good years. They won't be the record- breaking year that 2020 was for the mortgage industry because of the huge volume of refinances that has already taken place. But, with the economy strengthening, the under- lying underpinnings will look good and housing will still do well. M // If housing inventories do begin to increase, do you think that we'll see any relief on affordability and availability for first-time homebuyers looking for entry-level homes? DUNCAN: Traditionally, new home prices been higher on aver- age than existing home sale prices. But with less than two month's supply of existing homes avail- able for sale? There's no question price appreciation will continue to grow. And that, of course, is a barrier to entry for lower income households. So, until there's increasing turnover in existing homes, it's going to be a challenge, particularly for lower income, first-time buyers. Builders have also traditionally not built to that segment because it was the strategy of the buyer of the entry-level existing home to put in some sweat equity and improve the home, make some payments, and then, a few years down the road, sell that existing home and move to a new home or to a higher-valued existing home. M // Do you anticipate the trend of more companies allowing remote work to continue? If so, what impact will that have on housing in terms of trends such as migration? DUNCAN: We've definitely seen migration from the urban core out to the suburbs. We see that in data that we have showing the location of where an application for a home loan is first filled out and the property which is being purchased. We can show you the impact of the virus in some of the major cities on migration. There is a move away from den- sity in New York, San Francisco, Boston, Chicago At Fannie Mae we've been working remotely since March (2020). In a three-day period, we went remote and have not returned to the office. Eventually, we will go back, at least to some degree, to the office, as will other businesses. There are benefits in terms of productivity from that return to the office. But there likely will be some permanent shift to more of work being done remotely from home than pre-COVID. That shift in working from home has housing implications. One is, you can increase com- muting distance if you don't have to commute as often. Also, land, typically, is cheaper further out from urban city centers. So that means the cost of housing would be lower. Also, house prices have come to anticipate two incomes. That's a change that took place as women entered the workforce. House price increases now partially reflect the greater fi- nancial strength of a two-income household. So, if you have a two-income household, and you're both working remotely, you might need two offices in the house. If a home has four bedrooms and you only have one child, now you need a bedroom for that child and rooms for two offices. This change in working habits absorbs the stock of hous- ing featuring a greater number of bedrooms. So, there are some impacts that are real and sustained. But I don't believe that the benefits of that override some of the productivity gains that are derived from work- ing in close proximity with your coworkers. "With the economy strengthening, the underlying underpinnings will look good and housing will still do well."

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