April 18, 2023 – We feel that it is about time that we revisit the predictions we reviewed at the end of 2022.

Economic Commentary

There Are Predictions and Then There Are Predictions. We are now over one-quarter of the way through the year. We will soon have the first measure of economic growth for the first quarter of the year – just in time for the Federal Reserve to meet again and decide whether to raise short-term rates again. Thus, we feel that it is about time that we revisit the predictions we reviewed at the end of 2022. Spoiler alert – most predictions were off the mark. For example, Fannie Mae predicted a recession to start in the first quarter of this year. After the economy produced 800,000 jobs in the first two months of the year, they have shifted the forecast of a slight recession during the second half of the year.

Since the economy is stronger than predicted, mortgage rates should have risen higher than forecasted. Yet, the Realtor.com housing forecast predicted average mortgage rates of 7.4% in 2023, with a peak during the first half of the year. In reality, mortgage rates have not risen to these levels, so unless they spike from here, we are not likely to reach these heights. In addition, we went back and did a review, but did not see many predictions of a banking crisis and certainly did not see a specific warning about the largest bank that went down. Silicon Valley Bank was the second largest banking failure in history.

Some are now predicting that the concerns in the banking sector are what may finally tip the economy into recession. Time and time again we have indicated that predicting the future is futile. If any of these high paid prognosticators could actually predict the future with some accuracy, they would be investing in financial futures and making a fortune. As for us, we like an economy that has defied expectations on the plus side and hope it continues while inflation continues to ease. Probably not as fast as the Fed would like, but that is another story. 

Weekly Interest Rate Overview

The Markets. Rates were stable to slightly lower in the past week, with not much of a reaction to recent favorable inflation data. For the week ending April 13, 30-year rates fell one tick to 6.27% from 6.28% the week before. In addition, 15-year loans decreased slightly to 5.54%. A year ago, 30-year fixed rates averaged 5.00%, more than 1.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates decreased for the fifth consecutive week. Incoming data suggest inflation remains well above the desired level but showing signs of deceleration. These trends, coupled with tight labor markets, are creating increased optimism among prospective homebuyers as the housing market hits its peak in the spring and summer.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Zoning is one of the most contentious issues in many jurisdictions across the country, no matter how big or small, but one thing zoning officials should be considering is ways to address the ongoing affordability crisis in creative ways that benefit municipalities and its residents alike. This information comes by way of Zillow’s Home Price Expectations Survey which polled 117 highly-placed housing market executives and economists. Of those surveyed, zoning reform was an overwhelmingly popular answer to create more opportunities in existing and new neighborhoods in growing communities to effectively address affordability. In addition, encouraging local governments to support and not deny affordable housing initiatives in zoning in the form of tax credits plays a big part in creating an image of opportunity for what some would call “low-income” housing. “It seems straightforward: We need to build more homes,” said Dr. Skylar Olsen, Zillow’s Chief Economist. “Changes through policies like modest densification will give us more ‘at bats’ to create density and help communities stay livable for everyone. Without a huge injection of new homes in the near future, affordability will continue to be a challenge for many—especially for first-time home buyers.” Source: MReport

International investors have a much healthier outlook on American real estate than domestic buyers, a new survey shows. Wealthy international investors once again have their eyes on U.S. real estate, with 80% saying it’s a “safe investment” and the majority calling current market conditions “excellent” or “good,” according to a new survey from Global Luxury Coldwell Banker Real Estate. The positive sentiment among international buyers is significantly higher than that of domestic buyers: Fannie Mae’s Home Purchase Sentiment Index neared an all-time low recently. For international buyers, who tend to purchase in cash, “the dream [of homeownership] is alive and well,” says Liz Gehringer, president and COO of Coldwell Banker Affiliate Business. “Affluent buyers are flocking to diverse U.S. locations to enhance their portfolio diversification, with many opportunities for growth, investment and building long-term wealth.” Investment opportunities as well as inspiration from the entertainment industry and social media may be inspiring more international buyers to purchase in the U.S. A third of about 1,200 respondents to the survey say they are motivated to purchase U.S. property because of frequent business trips, a recent vacation, social media, dual citizenship or being inspired by a U.S.-based movie or television series. Source: NAR

Regional lenders support the majority of commercial loans. Recent banking disruption could prompt them to pull back, says NAR Chief Economist Lawrence Yun. With the inflation rate remaining elevated and the recent collapse of two large regional banks, some may find it a bit more difficult to borrow money for new investment and development, National Association of REALTORS® Chief Economist Lawrence Yun said. Yun also predicted a softening in overall commercial transactions, but he said there’s plenty of reason for optimism, noting that the multifamily, retail and industrial sectors continue to see strong demand. Regional banks are a critical source of funding for commercial borrowers because national banks are less likely to provide funds to the average commercial transaction. Yun also predicted that the transaction volume nationwide for commercial properties valued at $2.5 million and higher will decline to $450 billion this year from $600 billion last year, due to higher interest rates and regional bank woes. Despite the uncertainty, there are bright spots in the economy and in the commercial sector, Yun noted. Job growth is solid, which means businesses are expanding their footprint and apartment and retail rents continue to grow, albeit at a lower rate than in 2022. In addition, multifamily construction is booming and reached a 40-year high at the beginning of this year. Source: Realtor® Magazine