December 13, 2022 – Is it Going To Get Interesting Again? Throughout the pandemic, there was little interest in Fed watching.


Economic Commentary

Is it Going To Get Interesting Again? Throughout the pandemic, there was little interest in Fed watching. The Federal Reserve took short-term rates down to zero and kept them there for two years. Now we are accustomed to the Fed raising short-term rates at each meeting for the past eight months. And while the markets believe the meeting this week will lead to another rate hike, this one could be interesting.

The past four meetings over the past six months have seen increases of 0.75%, which are very significant. Of course, the increase in inflation has been just as significant. Each time after the increase, the Fed’s statement has reiterated their determination to raise rates as much as it takes to bring inflation down to their target rate of 2.0%. In this week’s meeting, the Fed is likely to raise rates again. But there could be two differences.

For one, the markets are predicting an increase of .50%. This is still a significant increase, but it would break the string of 0.75% increases, which would lead some analysts to surmise that the Fed is starting to arrive at the end of the road. This does not mean that the Fed won’t continue to increase rates, but they should slow down as the end comes nearer. This leads to the second possible difference.  Will the Fed indicate that they are beginning to slow down? Or will they keep up the strong anti-inflation rhetoric? Chairman’s Powell’s recent statement leans toward the latter. That is where it could get interesting — as up until now the Fed has been shouting war again inflation cries from the rooftops. Will the voices soften?

Weekly Interest Rate Overview

The Markets. Rates continued to ease in the past week. For the week ending December 8, 30-year rates fell to 6.33% from 6.49% the week before. In addition, 15-year loans decreased to 5.67%. A year ago, 30-year fixed rates averaged 3.01%, more than 3.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth. Over the last four weeks, mortgage rates have declined three quarters of a point, the largest decline since 2008. While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.” 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

FHA has released their 2023 loan limits, with a base loan limit of $472,030 for lower cost areas and a limit of $1,089,300 in high cost areas. The high-cost limits are identical to conforming limits for high-cost areas. The FHA national low-cost area limits are set at 65 percent of the national conforming limit of $726,200 for a one-unit property. Additional FHA base limits include: two-unit properties: $604,400; three-unit properties: $730,525; and four-unit properties: $907,900. Additional high-cost limits include: two-unit properties: $1,394,775; three-unit properties: $1,685,850; and four-unit properties: $2,095,200. FHA has published a separate list of counties with loan limit increases. You may view this list, along with a list of areas at the ceiling and a list of areas between the floor and ceiling, on the Maximum Mortgage Limits web page or look up individual areas using this link: Click Here. In addition, the national Reverse Mortgage limit (HECM) was set at the conforming high-cost limit, or $1,089,300. Overall, these higher loan limits will mean more choices for the average buyer in 2023. Note that these limits are effective only with applications assigned FHA case numbers on or after January 1, 2023. Source: FHA

Home remodeling is expected to drop off substantially over the next year, according to two reliable measures. The Leading Indicator of Remodeling Activity, a quarterly forecast from the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University projects year-over-year growth in homeowner remodeling and repair spending to shrink from 16.1 percent in 2022 to 6.5 percent by the third quarter 2023. And The National Association of Home Builders Remodeling Market Index for the third quarter posted a 10-point year over year decline in the third quarter, falling to 77. Carlos Martín, Project Director of the Remodeling Futures Program at the Joint Center, said annual gains in improvement and maintenance expenditures to owner-occupied homes are expected to decline sharply by the middle of next year. “Housing and remodeling markets are undoubtedly slowing from the exceptionally high and unsustainable growth rates that followed in the wake of the pandemic-induced recession,” Martin said. “Spending for home improvements will continue to face headwinds from declining home sales, rising interest rates, and the increasing costs of contractor labor and building materials.” “Although remodeling market gains are expected to cool significantly next year, homeowners still have record levels of home equity to support financing of renovations,” says Abbe Will, Associate Project Director of the Remodeling Futures Program. “Energy-efficiency retrofits incentivized by the Inflation Reduction Act of 2022, as well as disaster repairs and mitigation projects following Hurricane Ian will further support expansion of the home remodeling market to almost $450 billion in 2023.” The Mortgage Bankers Association

The value of a square foot of residential property in the suburbs has surpassed that of a square foot in urban centers, according to a recent report from Redfin. Nationwide, the typical home in a suburban neighborhood was worth $206 per square foot during the four weeks ending Sept. 25, per Redfin’s data. That’s just past the $205 per square foot in urban neighborhoods during that same timeframe, marking the first time since Redfin began tracking in 2018 that suburban square footage cost more than urban space. While home-price growth is slowing broadly all over the country, deceleration is thus far most prominent in urban areas compared to others. Price per square foot in urban neighborhoods, for example, grew 3.5% annually in September. That’s still a gain from the year prior, though substantially down from the peak growth rate during the pandemic and handily eclipsed by the 9.5% year-over-year growth in suburban neighborhoods, not to mention the 8.4% growth rate in rural areas. Total home-price growth is also deflating fastest in urban zones. Redfin reported that, during the four weeks ending Sept. 25, the typical urban home sold for $310,000, up 2.7% annually, while the typical suburban home sold for $385,000, up 6.6%. Part of the cause for the slowdown is simple, explained Sheharyar Bokhari, Redfin’s senior economist: urban home prices simply rose so much last year. “Urban home prices soared in 2021 as homebuyers gravitated back to city centers as the pandemic waned and affluent Americans–motivated by record-low rates–decided they wanted the best of both worlds: Homes with plenty of space for working from home, but located in walkable areas near shops and restaurants,” Bokhari said. “Today’s buyers can’t afford everything on their wish list, so many are prioritizing space over walkability. Urban neighborhoods will likely see prices–and price per square foot–fall on a year-over-year basis before suburbs and rural areas,” he continued. “House hunters may want to shift their search to urban neighborhoods, where they may find lower prices to help counteract the costliness of today’s mortgage rates. And now that space is just as valuable in the suburbs, it’s less likely that they’ll sacrifice space.” Source: Scotsman Guide

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