February 14, 2023 – Advanced Nomenclature For Valentine’s Day. First, it was predicted that the economy would experience a “slow-down.”

Economic Commentary

Advanced Nomenclature For Valentine’s Day. Today is Valentine’s Day. Do not forget to say and do something special for your loved one(s). There are so many names of our spouses and other close relationships. Significant other, partners, girl/boyfriend, fiancé, husband, wife, better-half, consort, companion, sweetheart, loved one and more. With so many to choose from, we should not be so overwhelmed by the different names they keep using to predict our economy in 2023.

First, it was predicted that the economy would experience a “slow-down.” Then we heard the word recession and also the words mild recession. As inflation roared, we introduced the possibility of stagflation – a slowing economy accompanied by strong inflation. Now that inflation seems to be waning, we are hearing the latest term – “soft-landing.” For many a soft landing is the best-case scenario.

What we would have in a soft-landing scenario is an economy which slows down, but does not stop growing. Sort of like a train passing slowly through a station, but not stopping to pick up passengers. In order to achieve a soft-landing, we would need inflation to continue to slow and interest rates to continue to come off their highs. The economy would grow, but not fast enough to re-ignite inflation. Could this bring about an economy that bounces back quickly? We are not sure and perhaps that scenario would be labeled the “trampoline economy.” Only time will tell. In the meantime – Happy Valentine’s Day!

Weekly Interest Rate Overview

The Markets. Rates calmed down a bit after they rose following the surprise jobs report of the previous week. For the week ending February 9, 30-year rates rose to 6.12% from 6.09% the week before. In addition, 15-year loans increased to 5.25%. A year ago, 30-year fixed rates averaged 3.69%, more than 2.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Following an interest rate hike from the Federal Reserve and a surprisingly strong jobs report, mortgage rates increased slightly this week. The 30-year fixed-rate continues to hover close to six percent, and interested homebuyers are easing their way back to the market just in time for the spring homebuying season.” 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. Also showing the 30-day average of SOFR beginning January of 2023.

Real Estate News

It may come as no surprise that among millennials who have intended to buy a house this year, 92% said in a recent survey that inflation has impacted their goal. Yet most of them aren’t letting it serve as a roadblock, according to the survey from Real Estate Witch, an education platform owned by real estate data firm Clever. While 28% of those millennials are delaying their buying plans, the remainder say they’re responding by saving more money for the purchase (59%), spending more than expected (36%), buying a fixer-upper (26%) and buying a smaller home (25%). Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years. The typical first-time buyer was age 36 in 2022, up from age 33 in 2021, according to the National Association of Realtors. Last year, first-time buyers made up 26% of home purchases, compared with 34% in 2021. The combination of year-over-year double-digit price jumps for much of 2022 and rising mortgage rates created an affordability problem for many buyers. However, the situation is gradually improving as home prices continue sliding. The median price for an existing house was $366,900 in December, just 2.3% higher than a year earlier and down from $370,700 in November, according to the Realtors association. Last June, the median price was $416,000 — 13.4% higher than in June 2021.Additionally, interest rates on mortgages have eased from their highs reached in October of last year. Source: CNBC

Javelin Strategy and Research’s newest report, Mortgage Pandemic or Just the Sniffles: Fast-Track Cures and Long-Haul Boosters, reveals that 55% of Gen Zers and 37% of millennials would consider rent-to-own agreements as an alternative to homebuying. However, due to low awareness and availability of rental properties with an option to buy later, rent-to-own agreements make up less than 2% of living situations. “We heard from hundreds of consumers on triggers and questions about rent-to-buy, most desirable features, regional differences, and, notably, interest for second homes and investment properties. The level of excitement and passion was surprising,” said Babs Ryan, lead analyst for the digital lending practice at Javelin. Deals come in a variety of options. What happens upon opting in or out to buy varies widely, affecting factors that include share of monthly payment put aside for down payment, purchase price of the property, and exit fees. In some cases, the lessor purchases a property selected by the renter, according to the new report. Javelin’s study found that consumers are interested in—and motivated by—taking a house and a neighborhood for a ‘test drive,’ when exploring rent-to-own options. Javelin recommends that lenders shift from a focus on mortgages to a suite of living solutions, centered on the flow and changes in people’s lives rather than on financial products. Catering to renters and those in multigenerational households, beyond solutions for ownership, engages a greater population than homeowners, since 14.3 million renters plan to move in the next 12 months vs. 5.4 million homeowners, according to Census data. “As evidenced by the low buy-conversion rate, U.S. rent-to-own models need rehabbing, including innovative business models, non-traditional investors and management, partnerships with real estate agent and other non-financial parties, and data-driven marketing gurus,” said Ryan. Source: MReport

Adjustable-rate mortgages, which offer homebuyers on a budget an initially low interest rate, are making a big comeback. But as financial markets churn and the economy remains shaky, some borrowers are regretting their decision to opt for what many see as a risky gamble. About 43% of those who took out an ARM regretted it, according to a recent survey by U.S. News & World Report. ARMs work by offering a fixed mortgage interest rate, usually lower than a 30-year fixed-rate loan, for a period of several years. Then the rate resets, usually annually, according to what interest rates are doing at the time. The popular 5/1 ARM, for example, will have a fixed rate for five years that then resets every year thereafter based on the market. That’s where folks can get themselves in trouble if they can’t afford their new mortgage payments when rates increase. “ARMs can still be a great tool for the right buyer,” says Erika Giovanetti, a loans expert at U.S. News & World Report. “Especially now, they are a really good way for people to be able to afford those monthly payments, but people need to be aware of the exact terms they are agreeing to in the loan agreements. They also need to be able to have a plan in place to afford higher monthly payments.” About 1,200 borrowers with an ARM participated in the survey. Half of them said they opted for an ARM because the introductory rate was lower than those on fixed-rate mortgages. And slightly more than half said they did so because they plan to refinance or sell their home before their rate starts to adjust. But it’s important to note that there are no guarantees that rates will be lower, or that borrowers will be able to find a buyer for their home, when that fixed rate period is over. Some 58% of the borrowers who spoke to U.S. News said they’d had “hesitations” about taking out an ARM for exactly that reason. Source: Realtor.com