December 20, 2022 – Happy Holidays From the Federal Reserve. Last week, the Fed raised short-term interest rates by “only” 0.5%.


Economic Commentary

Happy Holidays From the Federal Reserve. Guess you never thought you would receive a happy holiday message straight from the Federal Reserve Board of the United States. But they were concerned that you might think they were a bunch of scrooges ruining your year with horrific interest rate increases throughout 2022. So, they decided to leave you a holiday greeting like only the Fed can. As we mentioned previously, the past four Fed meetings over the past six months have seen significant interest rate increases of 0.75% each time.

Last week, the Fed raised short-term interest rates by “only” 0.5%. Now, this increase is still very consequential. But after the past six months, it feels like the Fed is taking their foot off the pedal a little bit. And their statement after the meeting indicated that they recognize progress is being made against inflation. Though, they are still preparing us for additional hikes in 2023 — which we are now assuming will be smaller.

Last week’s consumer price index was a major data point guiding the Fed in their decision. The increase of 0.1% from last month was less than forecasted. The core number excluding food and energy was also a tame 0.2%. Annually, we are now seeing a rate of 7.1%, down from last month. Is this enough progress to sway the Fed to continue easing up on the pedal? We won’t know that until the next meeting at the beginning of February. For now, we will just savor the holiday message. No return card is necessary!

Weekly Interest Rate Overview

The Markets. Rates fell slightly in the past week, with a mixed reaction to the Fed announcement. For the week ending December 15, 30-year rates fell to 6.31% from 6.33% the week before. In addition, 15-year loans decreased to 5.54%. A year ago, 30-year fixed rates averaged 3.12%, more than 3.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve’s monetary policy reverberated through the economy. The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand. The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high.”  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 recent analysis by the New York Times showed how decades of rising home prices and larger builds have created a shortage of small, entry-level houses for new buyers. It’s leading potential homeowners, along with real estate agents—to wonder: Are condos and townhomes the new starter home? The trend toward condos and townhomes as starter homes, it turns out, may not be all that new. “To me, [condos] were always an option as a starter home,” says Shane Herbert, who has been in real estate for 18 years, mostly in Utah, and is now founder and CEO of the real estate firm Bureau One. In some ways, it’s a misnomer to think “starter home” must mean “single-family home.” While home prices have jumped considerably during the pandemic, Herbert says, they’ve been rising steadily for quite some time. But affordability is not the only reason that young buyers are drawn to condos and townhomes. “I also see a trend that people are wanting more flexibility in their lives. Travel is more important. Life experience is more important,” Herbert says. “With a condo, in a lot of ways, you’re buying some independence.” That’s because, with a condo, owners are not responsible for exterior maintenance—things like mowing the lawn or clearing the driveway. Owning a condo is sort of like owning an apartment in that way: You’re only responsible for what’s on the inside (unless you have a townhome with a yard). This arrangement frees up time for more travel and life experience. And because it limits what renovations you can do, it can also save you some money, Herbert says. So, while the rising cost of single-family-home ownership is certainly a big factor, Herbert thinks condos and townhomes are also well-suited to the millennial lifestyle. “There is an equal movement and desire for people to have a different quality of life,” Herbert says. Source: NextAdvisor

Living a life on active duty in the armed forces can be a rough life. Changing orders requiring frequent relocation are a way of life for some assignments, as are living in barracks or other on-base housing for extended periods of time. But those that are able to transition from active duty back to civilian life face some challenging aspects of that transition—namely housing: where to find it and how to finance it. Knowing of some of challenges behind transitions to civilian careers, Freddie Mac has issued the results of a new survey from just under 2,000 active-duty servicemembers to understand the perceptions of active-duty military service members (and spouses) when it comes to home renting, ownerships, and financing (specifically VA loans). Other tracked information collected is their branch of service, gender, income, region, and urbanicity. The survey attempts to be representative of the armed forces as a whole. At the outset, the largest finding the survey revealed is that 87% of active-duty servicemembers are aware of the benefits of VA loans. Furthermore, 90% who are currently renting plan to utilize a VA loan to buy a home in the future. “The ability to find affordable housing in the current market is seen as a major challenge facing those transitioning from active duty,” said Stacy Walker, Director, Housing & Community Outreach for Freddie Mac. “The great news is that there are outstanding housing benefits available to veterans and the majority of those who want to buy a home plan to use them.” “To aid that effort, Freddie Mac is focused on education and outreach through a VA Home Loans guide and a CreditSmart [certified] financial education program tailored specifically for members of the military and veterans.” In addition, Freddie Mac has partnered with non-profit Soldier On, which has committed itself to ending veteran homelessness, in order to better engage with veterans using financial materials and tailored outreach programs. “The transition to civilian life can be a challenge,” said David Ramirez, Home and Credit Financial Education Program Manager for Soldier On. “The CreditSmart curriculum is helping us create a culture of financial readiness that provides veterans with the tools they need to be successful in their civilian life.” Source: DS News

ATTOM released its 2022 Grocery Store Wars analysis, which shows how living near a Trader Joe’s, a Whole Foods or an ALDI might affect a home’s value – as a homebuyer based on home price appreciation and home equity, or as an investor looking for the best home flipping returns and home seller ROI. For this analysis, ATTOM looked at current average home values, 5-year home price appreciation for YTD 2022 vs. YTD 2017, current average home equity, home seller profits, and home flipping rates in U.S. zip codes with a least one Whole Foods store, one Trader Joe’s store and one ALDI store. “Smart homebuyers might want to consider where they’ll do their grocery shopping when they’re shopping for a new home.” said Rick Sharga, executive vice president of market intelligence at ATTOM. “It turns out that being located near grocery stores isn’t only a matter of convenience for homeowners but can have a significant impact on equity and home values as well. And that impact can vary pretty widely depending on which grocery store is in the neighborhood.” While homes near a Trader Joe’s realized an average 5-year home price appreciation of 49 percent, and homes near a Whole Foods saw an average appreciation of 45 percent. Properties near an ALDI are ripe for investors, with an average gross flipping ROI of 54 percent, compared to properties near a Whole Foods which had an average gross flipping ROI of 28 percent and Trader Joe’s at 25 percent. Source: ATTOM

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