August 13, 2024 – The Election Factor

Economic Commentary

At the very beginning of the year, we discussed factors that would affect the markets and interest rates in 2024. There were plenty of factors to discuss—from economic growth to the progress against inflation. Most of those factors were “up in the air” – for example, we had no idea how long it would take to show progress in the war against inflation. Of course, there were also factors that would pop up during the year – factors which could not be predicted. These factors would include wars, natural disasters and apparently widespread tech outages.

One factor was certain – the Presidential Election taking place in November. Though we can’t predict who will win, we did say that the date is guaranteed and so would be the mudslinging which will take place back and forth. We also can’t predict how the markets will react to one side winning. But we will say that the markets don’t like uncertainty. Already we have had two extraordinary events during this cycle. These included an assassination attempt and the withdrawal of the incumbent candidate. Will there be more surprises? Again, we can’t predict, but it is likely to be a wild ride.

In the more immediate term, this week we will see the release of data shedding light on the inflation picture for July. There will also be a report on retail sales for July. These reports will be scrutinized carefully as the markets are placing bets for an interest rate decrease by the Fed when they meet in September. We have had some good inflation reports lately and the hope is we can continue to make enough progress to make the members of the Fed comfortable taking such an action. Certainly, July’s jobs report has put more pressure on the Fed to do so.

Weekly Interest Rate Overview

Freddie Mac reported that mortgage rates hit their lowest level in the past year as the markets continued to react to a weaker than expected jobs report. 30-year fixed rates fell to 6.47% from 6.73% the week before. In addition, 15-year loans decreased to 5.63%. A year ago, 30-year fixed rates averaged 6.96%, approximately 0.5% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less than favorable employment report and financial market turbulence for an economy that remains on solid footing. The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move. Additionally, this drop in rates is already providing some existing homeowners the opportunity to refinance, with the refinance share of market mortgage applications reaching nearly 42 percent, the highest since March 2022.”  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

Existing home sales fell again in June, as home prices continued to surge to record highs. But opportunities for buyers are increasing. Median home sales prices have never been higher, and that might be making home buyers skittish—but this may not persist for much longer, the National Association of REALTORS®’ latest monthly housing report suggests. Existing home sales, reflecting completed transactions for single-family homes, townhomes, condos and co-ops, dropped 5.4% year over year in June, even as home prices remained resilient. The median existing-home sales price climbed 4.1% in June to $426,900, the second consecutive month that saw a new record, NAR reported. Still, “even as the median home price reached a new record high, further large accelerations are unlikely,” says NAR Chief Economist Lawrence Yun. “Supply and demand dynamics are nearing a balanced market condition. The month’s supply of inventory reached its highest level in more than four years.” While home sellers can cash in on their growing equity, potential home buyers are seeing hints that the housing market is thawing. More listings are coming on the market, which means more choices for home buyers and possibly less competition. “We’re seeing a slow shift from a seller’s market to a buyer’s market,” Yun says. “Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.” Indeed, inventory of unsold existing homes grew 3.1% in June compared to the previous month and are up about 23% from a year ago. As housing inventory increases, properties are staying on the market longer—typically 22 days in June, up from 18 days a year prior, NAR reports. Source: NAR

The U.S. Department of Housing and Urban Development (HUD) proposed a new rule that would implement a permanent program to sell seriously delinquent single-family mortgages insured by the Federal Housing Administration (FHA). These sales have been tested by HUD since 2002, but HUD said that the proposed rule will improve community stability and expand the availability of affordable homes for families as the market faces a supply challenge. The proposed rule requires all note purchasers to adhere to mission-oriented post-sale requirements, including the establishment of exclusive first-look opportunities for prospective homeowners. For example, when the property associated with the note is sold, a first look will be offered to owner-occupants, nonprofit organizations and government entities. In addition, according to the proposed rule, HUD must also prioritize awarding these loans to nonprofits and governmental entities. “This proposed rule will help struggling homeowners, stabilize neighborhoods, and make more affordable homes available for the people we serve,” HUD acting secretary Adrianne Todman said in a statement. FHA Commissioner Julia Gordon added that the proposal “creates a permanent, standardized set of rules for note sales in the future that incorporates our learnings from previous sales that have taken place as part of the demonstration program.” “The new rules underscore the importance of loss mitigation and promote owner occupancy and neighborhood stabilization,” Gordon said. HUD is requesting public comments by Sept. 16, 2024. Source: HousingWire

Zillow released its latest state of the market report which found that home listings are piling up as buyers step back from peak home shopping season faster than normal. As competition cools, sellers are stepping up price cuts to try and entice buyers struggling with affordability. A housing market that for years has been defined by fast sales and few options is starting to look more like it did before the pandemic in terms of competition among buyers and their negotiating power, if not costs. The total number of homes on the market has risen throughout the year, ticking up 4% from May to June to stand nearly 23% above last year’s low level. While inventory levels are still about 33% below pre-pandemic averages, that’s the smallest deficit since the fall of 2020 – when the pool of available homes was quickly dropping due to record-low mortgage rates and the explosion of remote work during the first year of the pandemic. Well-priced and marketed listings are still selling relatively quickly. But buyers are enjoying a few more days to weigh their choices than they had last summer. Homes sold in June were typically on the market for 15 days before the seller accepted an offer. That’s five days shorter than pre-pandemic norms, the smallest difference since June 2020. With many buyers pushed to the sidelines by costs, Zillow’s count of home sales for May was 27% below pre-pandemic. Zillow’s Sales Nowcast peaked in May this year before taking a 9% step down in June, defying a trend of ticking up in June over the past four years. Sales are now 35% lower than pre-pandemic norms. With the rise in inventory, home value growth has pulled back. Annual appreciation is 3.2% nationally – down from a 2024 peak in March of 4.6%. Monthly growth has decelerated to 0.6% – the slowest June appreciation since 2011. Slower home value growth in the months ahead could give struggling buyers a chance to catch up – Zillow forecasts home values to rise just 1% nationally through June 2025 While sellers still have a slight edge nationally, Zillow’s market heat index shows a balanced market may be just over the horizon. Nearly one-fourth of listings (24.5%) received a price cut in June, the highest rate for this time of year in Zillow records dating from 2018. The typical home value in the U.S. in June was $362,482 – up 0.6% from last month and 3.2% higher than last year. That monthly growth is the lowest seen in any June since 2011. The typical monthly mortgage payment, assuming 20% down, was $1,918. Source: Zillow