December 21, 2021 – Happy Holidays! The celebration of holidays has certainly changed during the past two years.

Economic Commentary

Happy Holidays! Thanksgiving and Chanukah are over. Now Christmas, Kwanzaa and the New Year is upon us. The celebration of holidays has certainly changed during the past two years. But the meaning of these holidays have not changed, and before we get into the economics of the day, we wanted to wish our readers Happy Holidays.

Now for some market news. The Federal Reserve met last week for the final time of 2021. With inflation roaring and the economy rebounding, statements made before the meeting were definitely more hawkish. Chairman Powell actually suggested that we stop using the word “transitory” when describing today’s inflation.

On the other hand, before they met, the November jobs report was disappointing with regard to the number of jobs created and the experts are still trying to determine whether the effects of the new COVID variant will be severe. In the end, the Fed’s announcement indicated that they are fully prepared to fight inflation by increasing the pace of their tapering of purchases of mortgages and bonds and adding a prediction of “multiple” interest rate hikes in 2022.

Weekly Interest Rate Overview

The Markets. Mortgage rates rose slightly this past week, and the day-to-day fluctuations intensified after the Fed made their announcement. For the week ending December 16, 30-year rates moved up to 3.12% from 3.10% the week before. In addition, 15-year loans fell 2.34% and the average for five-year ARMs remained at 2.45%. A year ago, 30-year fixed rates averaged 2.67%, more than .33% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates inched up as a result of economic improvement and a shift in monetary policy guidance. While house price growth is slowing, prices remain high due to solid housing demand and low supply. We expect rates to continue to increase into 2022 which may leave some potential homebuyers with less room in their budgets on the sideline.”  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

According to AARP’s newly released Home and Community Preferences Survey, seventy-seven percent of adults 50 and older say they want to remain in their current homes over the long term. But many say their home would need to be outfitted to accommodate aging in place. Some older adults say they would consider leaving their current home for one that allows them to age independently, particularly if it cost less or was physically easier to maintain, the survey shows. “It’s really important that we understand what people’s housing preferences are, what they want, what they need, and how well their options are meeting their needs,” says Rodney Harrell, vice president of family, home, and community at AARP. “It’s foundational to our work to improve housing options and communities.” The number of older adults is growing: The number of households headed by people aged 65 and older is expected to increase from 34 million to 48 million over the next two decades, according to Urban Institute data. Nearly 80 percent of respondents to the AARP survey own their home, with 51% having no mortgage. Some respondents said they already live in a home that allows them to age in place, such as with a bathroom on the main level or a room on the first floor that could be used as a bedroom. But a third of participants said they would need to modify their current home so they or a loved one could live there.  “A portion of seniors are aging in place but are also stuck in place,” Linna Zhu, a research associate at the Housing Finance Policy Center at the Urban Institute, told AARP. “They don’t have the financial resources to help them move or relocate or downsize, or they cannot afford to live in nursing homes.” Source: AARP

Realtor.com’s recent Monthly Rental Report has found that, despite sharp declines during the time of the pandemic, large metro U.S. cities considered tech hotbeds have rebounded, and with it, comes a rebound in high rental prices. Realtor.com’s analysis of rents in the 10 biggest U.S. tech cities, surpassed readings reported in March 2020 by an average of 6.3%. “With rents continuing to surge to new highs nationwide, including in big tech hubs, September data confirms the U.S. rental market has moved past the recovery phase and is fully back in business. Rental demand remains unseasonably high, driven by still-limited housing supply, rising mortgage rates pushing buyers towards renting, and more people returning to big cities,” said George Ratiu, Manager of Economic Research for Realtor.com, commenting on the study. “At the same time, it’s important to put recent rental activity in the context of housing trends throughout the pandemic. Rents didn’t rebound from COVID declines as quickly as for-sale home prices, but rental activity has now reached a level not unlike the homebuying frenzy seen earlier this year, before fall seasonality kicked in. The good news is that if rents continue to parallel home listing prices, rental price growth could potentially begin cooling this winter.” At the outset of the pandemic in March 2020, many city-dwellers sought larger and more spacious living quarters, as the option to work remotely became more commonplace. As more and more became vaccinated beginning in April 2021, larger urban rental markets began to show signs of resiliency, eventually hitting its stride over the past two months, with September data showing big city rents not only having recovered, but are making up for lost time with double-digit gains. Source: DSNews

Housing affordability in September fell to its lowest level since 2008, according to First American Financial Corp.’s Real House Price Index (RHPI). And yet, adjusted for consumer house-buying power, housing is undervalued in most markets, according to First American’s chief economist. First American, released its September 2021 RHPI recently. The index measures the price changes of single-family properties throughout the United States, adjusted for the impact of income and interest rate changes on consumer house-buying power over time at national, state and metropolitan area levels. Because the RHPI adjusts for house-buying power, it also serves as a measure of housing affordability. “Two of the three components of consumer house-buying power swung toward declining affordability,” said Mark Fleming, chief economist at First American. “Record nominal house price growth and rising mortgage rates outpaced the growth in household income.” “Even though household income increased 3% since September 2020 and boosted consumer house-buying power, the RHPI increased 17.5 percent compared with last September, the highest yearly growth rate since 2014,” he said. According to Fleming, the annual nominal house price growth in September remained near record levels and affordability declined, “but the housing market is not overvalued,” he said. “Historically low mortgage rates and rising incomes have allowed home buyers to borrow more, giving them the ability to bid up house prices.” He continued, “If housing is appropriately valued, house-buying power should equal or outpace the median sale price of a home. In September, house-buying power was more than $170,000 above the median sale price nationally, indicating that the housing market may even be undervalued. Of course, real estate is local, but even at the market level, consumer house-buying power exceeds the median home price in most markets.” Source: First American