February 4, 2025 – 2025’s First Big Data and Event
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Economic Commentary
The economic new year is now rolling along. While the markets await the anticipated results of the new Administration’s policies, the economy does not wait for anyone. Last week was the first big economic event of the year – a meeting of the Federal Reserve’s Open Market Committee. Most were predicting a pause by the Fed after lowering rates in December for the third time in 2024.
After two quick decreases at the end of the year, analysts were predicting the Fed would slow things down in 2024 because inflation was still exceeding their target rates of 2.0%. The softer inflation news that was released in January did give some hope that we might see the Fed a tad more aggressive than the markets were thinking. Nevertheless, the Fed did start the year by taking a pause, which means the first rate-cut of 2025 will not come until March, since the Fed does not meet in February.
This week we will see the first big data of 2025. January’s employment report will be released this Friday. We ended 2024 with a very strong report, as the economy added over a quarter of a million jobs to end the year. The economy added over two million jobs in 2024, and this strong job market is a significant factor which has given the Fed confidence to keep interest rates “higher for longer.” Thus, it will be interesting to see if the momentum continued into 2025. Circling back to the Administration’s policies, the creation of even more jobs is a high priority, which the Fed may see as inflationary. Too many jobs? A better problem than the opposite, we would think.
Weekly Interest Rate Overview
The Markets. The Freddie Mac rate survey indicated that mortgage rates were steady in the past week. The Fed decision to pause short-term rate decreases was announced as the survey period closed, but there was little reaction to the decision as it came to no surprise to the markets. According to the survey, 30-year fixed rates decreased one tick to 6.95% from 6.96% the week before. In addition, 15-year loans fell to 6.12%. A year ago, 30-year fixed rates averaged 6.63%, 0.32% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate has hovered between 6% and 7% for most of the last two and a half years. That trend continued this week, with the average rate remaining essentially flat at 6.95%. Driven by these higher rates and a persistent supply shortage, affordability hurdles still exist for many homebuyers.” 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 pandemic broke a lot of rules, including how long homeowners should stay put before selling. According to research from Bright MLS, many homeowners planning to sell in 2025 bought their homes less than five years ago. Next year’s home sellers will also be younger than usual, as baby boomers are planning to stay on the sidelines. Bright MLS surveyed 1,581 homeowners nationwide and about 17.5% said they plan to sell their home in 2025. Of those planning to move, 32.2% of them have lived in their homes for less than five years. The study found that the most active group of sellers in 2025 will be homeowners in their 30s and 40s, with 26.8% between the ages of 30 and 39 and 28% of homeowners between 40 and 49 saying they expect to sell in the next 12 months. Only 10.1% of older homeowners were planning to sell. “Record low mortgage rates during the pandemic were a huge incentive for individuals and families to buy a home. Many of these buyers also have been able to quickly accumulate significant equity in their homes as home prices have escalated,” said Lisa Sturtevant, Bright MLS chief economist. “This wealth gain has created financial security for this group of homeowners and is also allowing them to be move-up buyers even in today’s relatively high-interest rate environment.” The survey found that marriage, starting a family and career moves remain the main reasons for buying and selling a home. Nearly 37% of homeowners between the ages of 30 and 39 said it was for job reasons, such as a career change or to move for a new job. Another 34.4% said the move was prompted by family reasons, such as marriage, birth of a child, divorce and being closer to family. Source: Scotsman Guide
Nationwide Insurance conducted a Homeowners Survey, finding 51% of respondents say they have completed a major home renovation project within the past two years. The biggest spenders on home renovation projects are empty nesters–while they’re undertaking home renovations at roughly the same rate, they’re spending significantly more on the projects. The average empty nester working on a home renovation project spent $8,670, compared with $5,128 for the typical homeowner. Specifically, empty nesters are spending significantly more on kitchen remodels ($18,672 vs. a nationwide average of $9,702), full-home renovations ($90,000 vs. a nationwide average of $36,900) and window replacements ($15,375 vs. a nationwide average of $4,917). Three-quarters of homeowners list high costs as a key challenge when seeking contractors for home maintenance work, and 38% say they have DIYed projects typically done by contractors. The top DIY projects are basement renovations, front-door replacements, bathroom remodels, kitchen remodels, full-home remodels and home additions. However, 55% of homeowners who have completed major renovations over the past two years have not updated their insurance policies to reflect the changes or additions they have made. That can leave homeowners at the risk of being underinsured, Nationwide noted. Source: Nationwide
A surge of homes hitting the market as Baby Boomers downsize is expected to boost housing supply in lower-density areas across the U.S. over the next 15 years, potentially reshaping regional demographics, according to a report from Zillow. More than a quarter — 27.4% — of the nation’s owner-occupied homes could be listed for sale in the next two decades as Boomers vacate their properties. The anticipated “silver tsunami” of home sales is likely to inject significant supply into Midwest and Southern markets, where many empty-nest households are concentrated. This shift could redefine housing availability in these regions and create new opportunities for homebuyers. However, the impact on affordability is expected to be uneven. High-cost markets where housing demand is most acute due to employment opportunities — are unlikely to see a meaningful increase in supply from this trend. Zillow’s report highlights that the number of so-called “empty nest” households reached 20.9 million in 2022, up from 20.2 million in 2017. These households are defined as older owners with no children at home and at least two extra bedrooms. While 20.9 million empty-nest households exist nationwide, only 8.1 million families are “doubled up” — meaning living with non-relatives and in need of their own housing, according to Zillow. However, much of the potential housing supply from downsizing Boomers is concentrated in regions with relatively low demand. The more profound effect could be a reshaping of housing markets in regions where older homeowners have long held on to properties. That shift could attract new residents and realign housing demand in unpredictable ways. Source: Globe Street