December 6, 2022 – One Data Point or End Game? We received a report that indicated that inflation came in below market expectations.

Economic Commentary

One Data Point or End Game? Just about one month ago, the Bureau of Labor Statistics released the Consumer Price Index (CPI) for October and it was like a breath of fresh air. Really, the bad inflation news we have experienced since the beginning of this year was suffocating to say the least. And then we received a report that indicated that inflation came in below market expectations.

Mind you, it did not say that inflation had disappeared. And it was only one data point, as Treasury Secretary Janet Yellen so aptly pointed out. But when you are getting hit on the head with a blunt instrument and it stops even for a few seconds, it feels like a relief. We point this out because one week from now we will see the CPI released for the month of November. If it shows that inflation is easing, could this be the beginning of the end of the Fed’s campaign to raise rates? Recent remarks from Fed Chairman Powell shows they may be leaning that way. 

Last week we had the jobs report. The increase in jobs of 263,000 was seen as stronger than expected. The unemployment rate remained at a very low 3.7%. Plenty of attention was focused upon another measure of inflation – wage growth. The 0.6% increase in wages from October to November brought the annual growth to 5.1%, which was higher than expected. Yes, last month’s inflation report was just one data point. But there is a lot more data on the economy’s dance card. And the Fed starts their meeting next week just as the November CPI numbers are released.

Weekly Interest Rate Overview

The Markets. Rates continued their slide in response to less hawkish words from the Fed Chair.  For the week ending November 30, 30-year rates fell to 6.49% from 6.58% the week before. In addition, 15-year loans decreased to 5.76%. A year ago, 30-year fixed rates averaged 3.11%, more than 3.25% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continued to drop this week as optimism grows around the prospect that the Federal Reserve will slow its pace of rate hikes. Even as rates decrease and house prices soften, economic uncertainty continues to limit homebuyer demand as we enter the last month of the year.” 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 Federal Housing Finance Agency (FHFA) announced the maximum conforming loan limits for conventional conforming loans to be acquired by Fannie Mae and Freddie Mac in 2023. In most of the nation, the 2023 maximum conforming loan limit for one-unit properties will be $726,200, an increase from $647,200 in 2022 — the second largest increase in history. According to FHFA’s seasonally adjusted, expanded-data HPI, house prices increased 12.21%, on average, between the third quarters of 2021 and 2022. Therefore, the baseline maximum conforming loan limit in 2023 will increase by the same percentage as required by the Housing and Economic Recovery Act (HERA). For areas in which 115 percent of the local median home value exceeds the baseline conforming loan limit, the maximum loan limit will be higher than the baseline loan limit. The new ceiling loan limit for one-unit properties in most high-cost areas will be $1,089,300 — or 150 percent of $726,200. As a result of generally rising home values, the increase in the baseline loan limit and the increase in the ceiling loan limit, the maximum conforming loan limit will be higher in 2023 in all but two counties or county equivalents in the U.S. For a map showing the 2023 maximum loan limits across the U.S. click here.  Source: FHFA

More people are expanding their home search away from urban centers and toward smaller towns and rural areas, NAR data shows. House hunters have been expanding the scope of their home search over the past year, moving a median of 50 miles away from their previous property—a record distance, according to the National Association of REALTORS®’ 2022 Profile of Home Buyers and Sellers. The historical average is about 15 miles. Home buyers are eyeing small towns and rural areas as they search for greater housing affordability and more space, NAR’s research suggests. “For many, remote work decisions were formalized in the last year, providing clarity for employees to permanently move to more distant areas,” says Jessica Lautz, NAR’s vice president of demographics and behavioral insights. In the third quarter of this year, nearly 61% of views on realtor.com® listings came from users located outside of the listing’s metro, a higher number than previous quarters. Faced with high home prices and rising mortgage rates, home buyers are revisiting what they can afford and where. “For buyers with flexibility, relocating to a lower-priced market could help offset higher mortgage costs,” says Danielle Hale, chief economist for realtor.com®. “There’s also a takeaway for sellers in these areas: On a well-priced home, you could still see strong interest from these out-of-towners.” The share of buyers who purchased homes in small towns (29%) and rural locations (19%) reached record highs over the past year, NAR’s research shows. On the other hand, the share of homes purchased in suburban (39%) and urban (10%) areas declined from a year ago. Besides the potential cost savings, home buyers may be tempted to move away from urban hubs for other reasons. “Family support systems still prevailed as a motivating factor when moving and in neighborhood choice,” Lautz says. Source: REALTOR® Magazine

The chief economist for the National Association of Realtors (NAR) believes that elevated mortgage rates and declining sales, combined with a severely limited inventory, will prevent large price drops in the housing market nationwide in 2023. NAR Chief Economist Lawrence Yun provided his 2023 outlook on the residential real estate market during NAR NXT, The Realtor Experience, an event held in Orlando, Fla. “For most parts of the country, home prices are holding steady since available inventory is extremely low,” Yun said. He compared the current market to the one that existed during the Great Recession and said today’s market conditions are fundamentally different. “Housing inventory is about a quarter of what it was in 2008,” Yun said. “Distressed property sales are almost non-existent, at just 2%, and nowhere near the 30% mark seen during the housing crash. Short sales are almost impossible because of the significant price appreciation of the last two years.” He added that signs point to mortgage rates topping out. He cited October’s consumer price index, which showed inflation rising less than economists had expected — at a 7.7% annual rate vs. the predicted 7.9%. “The gap between the 30-year fixed mortgage rate and the government borrowing rate is much higher today than it has been historically,” he said. “If we didn’t have this large gap, mortgage rates wouldn’t be 7%, they would be 5.8%.” Source: National Mortgage Professional

Although showings remain above pre-pandemic levels, home showing traffic continued its decline in September, according to data from the ShowingTime Showing Index. Affordability remains a major challenge for home shoppers, despite recent moderate price declines and an increase in the number of homes for sale from this time last year. Showing traffic is down 7% from August, in line with previous years — meaning fewer buyers are engaging in home showings. Showing activity across the U.S. continued to normalize in September, with a 17% year-over-year decline in buyer traffic. Home shoppers continued to see less competition, with just 14 markets recording moderate increases in showings per listing, compared to more than 70 in August. “In addition to the regular seasonal slowdown we would expect, buyers who can’t overcome affordability challenges are opting out of the market and contributing to the fewer showings we saw in September,” said Mike Lane, VP of Sales and Industry for ShowingTime. A majority of listings averaged between four and nine showings. The number of markets that saw increases in the number of showings per listing fell from 70 to 14, with buyers seeing less competition and enjoying more time and options. Source: MReport