February 2, 2022 – Fed Speaks – Here Comes Jobs. Last week we had the first meeting of the Federal Reserve Open Market Committee for the year.

Economic Commentary

Fed Speaks – Here Comes Jobs. Last week we spoke about the fact that we are in the midst of a trifecta of economic data. Last week we had the first meeting of the Federal Reserve Open Market Committee for the year. We were expecting an eventful meeting, but not from a standpoint of immediate action. Instead, the market was fixated on learning when the first rate increase might come and further hints regarding how many increases are on the way.

To that end, the Fed statement after the meeting indicated that a rate increase was imminent, which is being interpreted as the next meeting in March.  The statement also indicated a shrinking of their bond assets would commence shortly thereafter. This was not a surprise to the markets, but the tone was most hawkish with regard to their fight against inflation. The second leg of the trifecta was the release of the preliminary estimate of fourth quarter growth.  Subject to two revisions, nevertheless, the estimated growth rate of 6.9% was seen as very strong and will support the Fed’s move to remove stimulus from the economy.  

And this week we get the third leg of the trifecta. The jobs report will be released on Friday. This is actually the first official measure of data in 2022 – the January jobs report. Also, subject to revisions, the markets will be looking hard at the pace of wage growth, as well as the number of jobs added. Wage inflation is a data point that the Fed is looking closely at as they decide on future rate increases. Plus, as we approach full employment, we will see whether the labor participation rate starts to rise as workers return to the labor force.

Weekly Interest Rate Overview

The Markets. Mortgage rates leveled off in the past week, but started back up again after the meeting of the Fed adjourned. For the week ending January 27, 30-year rates fell one tick to 3.55% from 3.56% the week before. In addition, 15-year loans rose one tick to 2.80% and the average for five-year ARMs increased to 2.70%. A year ago, 30-year fixed rates averaged 2.77%, more than .75% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Following a month-long rise, mortgage rates effectively stayed flat this week. Recent rate increases have yet to significantly impact purchase demand, as history demonstrates that potential homebuyers who are on the fence will often enter the market at the start of rate increase cycles. We do expect rates to continue to increase, but at a more gradual pace. Therefore, a fair number of current homeowners could continue to benefit from refinancing to lower their mortgage payment.”  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 majority of home buyers—87%—finance their home purchase. But some aspiring buyers may delay their purchase due to persistent myths over down payment requirements. Thirty-five percent of consumers believe they need a down payment of 16% to 20% of the purchase price. Ten percent believe they need more than 20% for a down payment to purchase a home, according to the National Association of REALTORS®’ survey data. With home prices rising by double digits over the past year alone, that could make saving for a down payment an even tougher hurdle to jump. However, the typical down payment is much lower. For first-time home buyers, the average down payment over the last three years has ranged between 6% and 7%, Jessica Lautz, NAR’s vice president of demographics and behavioral insights, writes on the association’s blog. For repeat buyers, the typical down payment was 17% last year, according to NAR. The down payment among those buyers has been rising over recent years as home equity for owners has grown. Many repeat buyers roll the equity from their previous home into buying their next home. Buyers have several loan options. For example, among about 23% of first-time buyers, the Federal Housing Administration loan remains popular. FHA loans allow borrowers to put down as little as 3.5% on the purchase of a home. Source: National Association of REALTORS® Economists’ Outlook blog

About 40% of 2,100 Americans recently surveyed say they are considering a move in 2022. Gen Z and millennials, remote workers, renters, and parents with young children are all planning a move, according to a new survey from LendingTree. For the more than 800 survey respondents planning a move this year, their top reasons are a home that is more pet-friendly, offers more outdoor space, and has a large kitchen. The home features leading their housing searches also typically differ by age group. Gen Zers and Gen Xers ranked a happy home for their pets as a top must-have. Millennials, on the other hand, prioritize outdoor space. A large kitchen ranks highest among priorities for millennials and baby boomers, the survey finds. Source: LendingTree

Supply chain backups for materials continue to hit the new-home market and are causing some new owners to have to move into unfinished homes. The problems stem from ongoing factory closures caused by the pandemic, transportation delays, and port capacity limits. The shortages are especially popping up in the lack of windows, garage doors, appliances, and paint. The shortages have been occurring since the pandemic began. Home builders say there’s been little improvement and it is still taking weeks longer than normal to finish homes because of widespread shortages. About 90% of home builders surveyed in November 2021 said they were experiencing supply disruptions, up from 75% in January 2021, according to Zonda, a real estate research firm. To try to help counter the delays, some builders are stocking up on products or trying to find suitable substitutes for some materials. The builder Epcon Communities in Dublin, Ohio, said that some of their buyers moved into their new homes before gutters and downspouts were installed because of shortages. Meanwhile, city officials in Sacramento, Calif., established a policy in November 2021 that allowed builders to close on homes with temporary garage doors due to delays. Builders with Homes by WestBay LLC in Riverview, Fla., say they’ve started ordering windows six months in advance. Prior to the supply chain issues, they could order them just 60 days ahead of time. “About the time we’re getting ready to pave streets in a new subdivision … we’re ordering windows for 100 homes,” Willy Nunn, president and CEO of Homes by WestBay, told The Wall Street Journal. He says the homes are about a month to two months behind their normal schedule. Materials aren’t just taking longer to arrive but are also costing more. Builders are passing along those increases mostly on to home buyers. The median price of a newly built home in November reached a record high of $416,900, nearly 19% higher than a year earlier. Source: The Wall Street Journal