So Begins The Dog Days of August. Every year we seem to publish the “Dog Days of August” edition. And there is always new fodder for the edition. Certainly, August a few years ago was unique because we were in the height of the pandemic. This year, the battle between good and evil is taking place within our economy. What is the good? A remarkable jobs machine cranking out hundreds of thousands of jobs every month which is contributing to a resilient economy. This week we will get another picture of the employment situation representing what is right with today’s picture.
What is evil? The Federal Reserve continuing to hike interest rates in an attempt to knock the resilient economy off of its perch. It seems the Fed will not rest until they pull the economy into a recession. The bottom line is that interest rates are going higher for a longer period of time because the Fed does not want the economy to be doing this well. Of course, they are using this economic poison to fight another evil – inflation. The Fed would be happy to have an expanding economy if inflation was under control.
So, the real Dog Days of August question this year is—can the Fed bring inflation under control without causing a recession? We think everyone in America should go on vacation in August and find out the answer when they get back in September. Did we mention that the Fed is not meeting in August? Even they need a Dog Days of August breather. Maybe our August editions will feature a beach forecast. Just watch out for dog sharks!
Weekly Interest Rate Overview
The Markets. Rates rose slightly last week as the Fed meeting approached. For the week ending July 27, 30-year rates rose to 6.81% from 6.78% the week before. In addition, 15-year loans increased to 6.11%. A year ago, 30-year fixed rates averaged 5.30%, approximately 1.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates inched up slightly after a significant decline last week. Higher interest rates continue to dampen activity in interest rate-sensitive sectors, such as housing. However, overall U.S. consumer confidence is unwavering, surging to a two-year high in the Conference Board’s Consumer Confidence Index for July 2023. Rising consumer confidence often leads to greater spending, which could drive more consumers into the housing market.” 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
The National Association of Realtors (NAR) 2023 Community & Transportation Preferences Survey, which is a national poll of 2,000 adults conducted every three years to gauge people’s partialities regarding their home’s location or potential location as well as community attributes they find desirable, found this year that Americans who live in walkable communities are reporting higher quality of life levels. “With COVID in our rearview mirror, this study shows that a substantial demand for walkability persists for Americans of all ages,” said NAR President Kenny Parcell. “NAR has conducted community preference surveys for over 20 years, providing Realtors and their communities with valuable information on shifting American lifestyles and migration trends. To help local communities and Realtor® associations improve the places they live, NAR generates this survey and makes the results available to all.” Among noteworthy findings of the survey, if deciding today where to live:
- 79% said being within an easy walk of other places and things, such as shops and parks, is very/somewhat important. 78% of those indicated that they would be willing to pay more to live in a walkable community.
- 85% said sidewalks and places to walk are very/somewhat important.
- 65% said having public transport nearby is very/somewhat important.
- 56% said they would prefer a house with a small yard and be able to walk to places vs. 44% who would prefer a large yard and would need to drive to most places.
- 53% would prefer an attached dwelling (own or rent a townhouse/condo/apartment) and be able to walk to shops, restaurants, with a shorter commute to work vs. 47% who would prefer a single-family home (own or rent) and have to drive to shops, restaurants, with a longer commute. Source: MReport
New Western has released a report—The Flip Side 2.0: An Outlook for Residential Real Estate Investing in 2023—on single-family real estate investor sentiment in the U.S. The report found that approximately 60% of survey respondents believe the U.S. is in a housing shortage, and as a result, 80% of the surveyed investors are selling homes at or above asking price after renovating the properties to make them habitable. According to the report, from Q1 2023 to Q2 2023, homes saw double digit growth in more than a dozen markets. Approximately 55% of survey respondents said location/neighborhood was the most important consideration to their buyers. As consumers look to find more housing options, investors are delivering much needed supply back to the market. On average, homes purchased through New Western that are later renovated sold for 31% less than new traditional homes for sale in the same market. “Investor sentiment is positive right now as they haven’t let the macroeconomic environment slow them down,” said Kurt Carlton, Co-Founder and President of New Western. “The U.S. is lacking about 320,000 listings valued at the affordable range for middle-income buyers. These investors see the housing shortage as an opportunity to deliver homes for buyers where the payoff is larger than the profits.” The National Association of Homebuilders (NAHB) projects the construction of 830,000 homes this year, but what goes unnoticed is the expected 350,000 home flips involving vacant and uninhabitable properties revitalized by independent rehabbers. These rehabbers are stepping in to address scalability challenges and fill the gaps in individual markets, driven by demand. For the remainder of 2023, investors are confident in the residential real estate market; about 70% of respondents plan to invest in one to three properties, and 75% saw business growth from the second half of 2022 to date. Source: DSNews