April 26, 2022 – The “R” Word. Another word is coming up with more frequency – recession.

Economic Commentary

The “R” Word. We have had a lot of words bantered about in the past year or so – pandemic, war, inflation, stagflation and more. Now another word is coming up with more frequency – recession. Basically, analysts are predicting that sometime in 2023, the medicine the Federal Reserve is going to apply to the economy to overcome inflation will slow the economy to the point of bringing on a “shallow” and short-lived recession.

If you look back, we have been relatively recession-free since the Great Recession of 2008. We did have a short pandemic-induced recession two years ago, but that was expected when you shut the economy down for a period. Since then, the recovery has been sharp, with the main challenge being supply woes which have fueled the inflation we are now experiencing. Oil is a perfect example of this phenomena, as oil prices plunged to lows during the pandemic-induced recession and thus production was pared down. Bringing production back on-line has been a struggle. You can’t just turn certain things off and on.

So is a recession in our future, and will it be mild as predicted? There is no way of knowing, but we can say that any slowdown in the economy is likely to ease the threat of inflation and, in reaction, rates may ease a bit. Hopefully that will bring a better balance to the economy versus the “bust and boom” cycle we have witnessed over the past two-plus years. Let’s add another word to our equation – stability. Economic stability would be a welcome sight for the future of our economy. Even a leveling of home prices would be nice.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued their upward climb in the past week.  For the week ending April 11, 30-year rates rose to 5.11% from 5.00% the week before. In addition, 15-year loans increased to 4.38% and the average for five-year ARMs also climbed to 3.75%. A year ago, 30-year fixed rates averaged 2.97%, over 2.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “This week, mortgage rates averaged five percent for the first time in over a decade. As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation.”  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

A new survey shows many homeowners plan to list their home over the next six months, with high expectations of making a profit on the sale. Sixty-four percent of about 3,000 consumers recently surveyed by realtor.com® said they intend to sell their home this spring or summer. That could bring some welcome relief to a housing market that has been starved for inventory. “While sellers are expected to hold the upper hand in 2022, navigating the listing process remains a challenge—particularly for those also buying in today’s fast-paced market,” says George Ratiu, senior economist and manager of economic research at realtor.com®. “Homeowners who are ready to move forward with pandemic-delayed plans will find plenty of opportunity this spring and summer. Although accelerating inflation is leading to higher housing costs and living expenses, many buyers remain interested in finding a home. At the same time, recent housing trends suggest demand is beginning to moderate as higher mortgage rates push monthly payments out of some buyers’ budgets, underscoring the long-term need for more affordable inventory.” Homeowners have great expectations for when they do decide to sell. Aspiring sellers responding to the survey say a top reason is the desire to profit from the current market. Millennials are expected to represent nearly half—49%–of sellers who plan to list within the next six months. They have financial motivation to stick to their plans, the survey found. Their top reasons for selling are pressure from rising inflation and economic uncertainty. They showed higher shares than other generations of wanting to move to a more affordable home and a need to sell for financial reasons. Regardless of age, aspiring sellers are readying their homes to list. They are taking steps to prepare, such as making repairs, cleaning, and decluttering. Source: realtor.com®

A large portion of homeowners born after 1981 are itching for new addresses. A new study shows Millennials and Gen Z’ers are primed for home sales by Spring 2023. Coldwell Banker found more than two-in-five (44%) of Gen Zer homeowners (age 18-25) and over a third (35%) of Millennial homeowners (age 26-41) plan to sell their homes within the next 12 months. “With more than two in five Gen Z and over a third of Millennial homeowners planning to sell their homes in the next 12 months, reaching these generations is key to unlocking inventory in 2022,” M. Ryan Gorman, CEO of Coldwell Banker Real Estate, said. According to Statista, there are 72.26 million Millennials in the U.S. There are 67.06 million Gen Z’ers but some of those are as young as nine years old. The same survey found that 59% of Gen Zers and 65% of Millennials say they expect good real estate agents to use social media (e.g., Facebook, TikTok, Instagram) for marketing purposes. The survey was conducted online within the United States by The Harris Poll among 2,012 U.S. adults ages 18 and older, among whom 1,309 were homeowners. Source: National Mortgage Professional

A growing number of homeowners are viewing reports about the lean housing inventory and fierce buyer competition and may increasingly be deciding to stay put and renovate their current home instead. Seventy-nine percent of more than 1,500 homeowners surveyed say they’d rather renovate their current home than move to a different one, according to a survey conducted by Discover Home Loans. But home renovations aren’t easy to take on lately. Forty-two percent of homeowners say that rising interest rates are delaying their home improvements. Also, nearly half say that they have faced material delays in their house projects. More than half of homeowners—57%—say they have undertaken projects that have gone over budget. Nearly two in three report their project cost has increased since their initial contractor bid, too. Forty-two percent of homeowners say they have delayed their home improvement project because of rising costs. “As the U.S. continues to deal with rising material costs and supply chain issues, it’s more important than ever for homeowners to plan ahead for their remodel,” says Rob Cook, vice president of marketing, digital, and analytics. “The best first step is to get your financing in order.” Source: NAR