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Sales of Luxury Homes Soar as Low Rates, Stay-at-Home Shoppers Fuel Market

Sales of high-end homes climbed 41.5% year over year in the third quarter, according to online real estate broker Redfin (NASDAQ:RDFN), the largest year-over-year jump since at least 2013.

In a news release Monday, Redfin said that sales of luxury homes, defined as the top 5% of market values, as well as sales of second- and third-tier houses climbed year over year, while sales in the bottom two buckets fell by 4% each. The median sale price of a top-tier luxury home in the U.S. in the quarter was $862,700, up 6.5% year over year, while the median price of a house in the bottom tier was $90,000.

A for sale sign in front of a house.

Image source: Getty Images.

In a typical downturn, it is the luxury market that takes the biggest hit, but as Redfin chief economist Daryl Fairweather noted, “This isn’t a normal recession.” Changes in behavior driven by the coronavirus pandemic are pushing more high-end buyers into the market, while keeping first-time buyers away.

“Remote work, record-low mortgage rates, and strong stock prices during the pandemic are allowing America’s wealthy families to gobble up expensive houses with home offices and big backyards in the suburbs,” Fairweather said. “Meanwhile, scores of lower- and middle-class Americans have lost their jobs or are still renting in the city because they’re essential workers and have to commute into work, so they’re unable to reap the benefits of homeownership.”

The number of homes for sale in the luxury bracket climbed 8.4% year over year, while the inventory of homes available for sale in the bottom three tiers fell by 7.9%, 7.6%, and 4.8 %, respectively.

Houses across the spectrum are selling faster than ever, with the median days on the market falling for every price tier.

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Will Lower Mortgage Rates Aid NVR to Post Higher Q3 Earnings?

NVR, Inc.’s NVR third-quarter 2020 earnings and revenues are expected to have registered an improvement on a year-over-year basis.

In the last reported quarter, the company’s earnings and revenues missed the Zacks Consensus Estimate by 5.3% and 3.5%, respectively. On a year-over-year basis, earnings and revenues decreased 19.9% and 10%, respectively, as the COVID-19 outbreak had a significant impact on all facets of its busines.

Nonetheless, the company has a strong earnings surprise history, having surpassed analysts’ expectations in 12 of the trailing 14 quarters.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has increased 1.3% to $62.01 over the past seven days. The estimated figure indicates an increase of 10.5% from the year-ago quarter. The consensus mark for revenues is pegged at $2 billion, suggesting a 7% increase from the year-ago reported figure of $1.87 billion.

NVR, Inc. Price and EPS Surprise

NVR, Inc. Price and EPS Surprise

NVR, Inc. price-eps-surprise | NVR, Inc. Quote

Key Factors to Note

NVR’s third-quarter Homebuilding revenues (accounting for 97.7% of total revenues) are expected to have increased from the year-ago level, buoyed by strong housing market fundamentals backed by lower borrowing costs.

The improved sales trends can be attributed to solid monthly housing sales data. Markedly, pending home sales, new home sales and existing home sales rose 8.8%, 4.8% and 2.4% in August. Robust fundamentals of the U.S. housing industry have been a boon for NVR and other homebuilding stocks like D.R. Horton DHI, PulteGroup PHM, Meritage Homes Corporation MTH, as well as others. Recently, Meritage Homes announced in September that it has been experiencing unprecedented demand for homes, as is evident from 73% year-over-year growth in total orders for the July-August period. Importantly, the momentum continued in September as

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Mortgage rates set another record low, sparking new strength in refinances

  • Refinance volume surged to the highest level since mid-August as mortgage rates dipped to 3.01%.
  • Refinances jumped 8% last week and were 50% higher than a year ago, according to the Mortgage Bankers Association.



a stop sign: An 'Open House' sign is displayed as potential home buyers arrive at a property for sale in Columbus, Ohio.


© Provided by CNBC
An ‘Open House’ sign is displayed as potential home buyers arrive at a property for sale in Columbus, Ohio.

Mortgage rates moved even lower last week after setting multiple record lows in recent months, spurring more borrowers to call their lenders and apply for a refinance, but homebuyers were quite as motivated. 

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 slipped to 3.01% from 3.05%, while points decreased to 0.37 from 0.52 for loans with a 20% down payment. 

In response, refinance application volume, which is most sensitive to weekly rate moves, rose 8% for the week and was 50% higher than a year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. That is the highest refinance volume since mid-August.

Applications for a mortgage to purchase a home fell 2% for the week but were 21% higher than a year ago. While the annual comparison is strong, purchase volume has been falling little by little and is now down just over 4% from four weeks ago.

“There are signs that demand is waning at the entry-level portion of the market because of supply and affordability hurdles, as well as the adverse economic impact the pandemic is having on hourly workers and low- and moderate-income households,” said Joel Kan, an MBA economist. “As a result, the lower price tiers are seeing slower growth, which is contributing to the rising trend in average loan balances.”  

The average loan size increased again, to a record $371,500, thanks to stronger activity on the

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Mortgage rate forecast Q4: Will the low rates continue? | Money

However, Ken H. Johnson, a housing economist at Florida Atlantic University, is less optimistic about a quick economic recovery. “Rates will remain low for at least another year,” he says. “I just do not see full or near-full economic recovery until COVID-19 no longer or minimally impacts the economy.”

— Economic recovery could boost rates

Greg McBride, CFA, Bankrate’s chief financial analyst, sees rates holding steady in the coming year. “Mortgage rates will remain at historically low levels and in no way be an impediment to well-qualified borrowers, but they won’t be quite as low as what was seen in the summer of 2020,” he says. “A refinance fee taking effect in Q4 2020 and further economic improvement will push rates a bit higher.”

Audrey Boissonou of Guarantee Mortgage in Walnut Creek, California, says the direction of the economy will prove crucial. “I’m locking people in in the high 2s right now,” she says. “I am seeing nothing that makes me think rates will go up. Of course, it all depends on what happens in the next few months. It can all change on a dime.”

Predicting rates is always a challenge, as Boissonou notes. But if the Fed’s attitude is any indication, then rates could remain low over the next year.

The Fed has set a pattern of keeping long rates low in challenging times, says William Emmons, the lead economist at the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis. “The demonstrated willingness of the Fed is to do the old cliche of ‘whatever it takes,'” says Emmons, who adds that he doesn’t state the Fed’s official position. “That’s pretty widespread, the belief that the Fed will do whatever it takes.”

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Different mortgage rates and requirements

If you’ve been comparing mortgage rates for the purchase of a second home or an investment property, you’re already on a promising path: You’ll either have a place to go for vacations, or you’ll have a place that’ll generate income and put more money in your pocket.



a view of a picnic table: A view from an outdoor patio


© alexandre zveiger/Shutterstock
A view from an outdoor patio

Either way, the opportunity to own more than one property is an enviable position to be in, but how you classify that property makes a difference in how much you’ll pay to finance and own it.

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Second home vs. investment property

Are you buying a second home, or are you making an investment?

This might be confusing, especially if you’re thinking about occasionally renting out the property – using it regularly for vacation, for example, but also making it available on Airbnb for some of the time you’re not using the property and instead are living in your primary residence.

Earning some money from your property doesn’t automatically make it an investment, however. Accurately defining the piece of property depends on how much time you spend in it.

Elliot Pepper, co-founder, certified financial planner and director of tax at Northbrook Financial in Baltimore says that you need to pay attention to what he calls “the 14-day limit rule.”

“Very broadly speaking, if you personally live in your second home for 14 days or fewer – or less than 10 percent of the days it is rented – during a year, then it would be considered a rental property and the income earned would be taxable,” Pepper says, “but you would also deduct the expenses associated with the property.”

On the flip side, if you use the property for more than 14 days or more than 10 percent of the time it’s rented,

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