January 24, 2023 – Here Comes The Fed – Deja Vu? For the first time in 2023, the Federal Reserve Board will be meeting next week.

Economic Commentary

Here Comes The Fed — Deja Vu? For the first time in 2023, the Federal Reserve Board will be meeting next week, and chances are we will see another increase in short-term rates. We ended last year with the Fed raising rates by a smaller margin compared to their previous meetings. Will the Fed make this move a trend? We closed out 2022 with inflation moving in the right direction, but we are not sure the Fed is ready to acknowledge that they are winning the war.

The economy is definitely poised to slow down in the first half of 2023, and a slower economy also could help us cool inflationary pressures, but there are international events which could throw a wrench in the machinery. In 2022, Russia invading Ukraine was an example of such a wrench. Now we are hearing that China is getting ready to open up their economy by abandoning their “zero-COVID” policy. Of course, this opening is causing a surge in COVID which could result in the opposite effect.

This week we will get a look at the first reading of economic growth for the last quarter of 2022. You can be sure that the Fed is considering all of these factors and more as they ponder their decision in early February. However, they will also be figuring out how these factors will contribute to their statement after the meeting. As in previous meetings, the statement after the meeting may affect the markets more precipitously than the action of raising rates because the higher rates are expected. We are one week away from finding out. Stay tuned.

Weekly Interest Rate Overview

The Markets. Rates continued to move lower this past week, influenced by moderating inflation and weaker economic reports. For the week ending January 19, 30-year rates fell to 6.15% from 6.33% the week before. In addition, 15-year loans decreased to 5.28%. A year ago, 30-year fixed rates averaged 3.59%, more than 2.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “As inflation continues to moderate, mortgage rates declined again this week. Rates are at their lowest level since September of last year, boosting both homebuyer demand and homebuilder sentiment. Declining rates are providing a much-needed boost to the housing market, but the supply of homes remains a persistent concern.” 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

Millennials have made up the largest share of home purchase mortgage applications for the last six years. According to the CoreLogic Loan Application Database[1], Millennial homebuyer share rose to its highest level in 2022, comprising about 54% of overall home-purchase applications. The Millennial home purchase share has steadily increased since 2015, rising about two to three percentage points per year. At the same time, Gen Z — the generation succeeding Millennials whose members were born after 1997 — is entering the housing market. This year, the cohort comprised about 4% of overall home-purchase applications. The share of Millennial first-time homebuyer (FTHB) mortgage applications is even higher than the share of overall Millennial home purchase applications, a figure that comprises both FTHB and repeat buyers. About 72% of all the FTHB home-purchase applications in 2022 were from Millennial applicants. This is not surprising, as the largest cohort of the Millennial generation has already approached the peak age of first-time homeownership. Gen Z, the youngest cohort, made up 9% of the first-time home purchase applications in 2022, up three percentage points from 2021. Their share is likely to increase in the coming years. There are still many younger Millennials under 30 who have yet to become homeowners, so the demand from these Millennials is likely to remain strong in the coming years. At the same time, older Millennials are more likely to become repeat homebuyers. The share of Millennial repeat buyer home-purchase applications was already 43% in 2022, eight percentage points higher than Gen X’s share. That said, while the demographic tailwind remains favorable for the home purchase market, historically low for-sale inventories along with sky-high home prices and higher mortgage interest rates create affordability challenges. These headwinds may slow the influx of new Millennials entering the home purchase market. In addition to younger Millennials, Gen Z members are also likely to fuel the demand for housing over the next couple of years, especially if affordability improves. Source: Core Logic

Taking in all they have learned over the last year. RE/MAX has released the results of a new survey on the topics of consumer sentiments and their intentions for homebuying and selling amid the dynamic changes of the housing climate over the last year. All-in-all, results revealed that homeownership remains a top priority for consumers, and many have adjusted their previous plans in order to take advantage of ideal conditions or in anticipation of future recession conditions. “We’ve seen historic competition in housing over the last two years. As the market begins to rebalance, homebuyers and sellers remain focused on the goal of homeownership despite the ongoing fluctuations,” shares Nick Bailey, President and CEO. “The findings of this survey underscore Americans’ desire to own a home and highlights the important role real estate agents play in guiding them through the often-complex buying and selling process.” Going down to the numbers, 68% of respondents plan to buy a home in the next few years. Fifty-three percent of respondents have sped up the timeline of their homebuying plans as a result of declining affordability while about half said they would spend over budget on a bid on a house that did not meet their express criteria just to get into a home. The top three requirements respondents indicated wanting when moving were: moving closer to family (46%); better weather (44%); and closer to their job (40%). Source: DSNews

North American Van Lines, Inc. has released their annual migration map that details where Americans moved this past year. The map uncovered a sizable trend of Americans leaving high cost-of-living areas for warmer climates with more reasonable housing conditions, noting southern states received the largest amounts of movers. The map highlights the association between southern states lessening COVID-19 restrictions first in 2020, as well as lower tax rates, which Americans, coupled with warmer temperatures, may find appealing. Many of the moves revolved around the flexibility of remote work and those choosing to take the route of early retirement. “Across the board, a clear trend of Americans leaving expensive, highly taxed, and cold states for warmer states with lower tax burdens can be observed, at both the state and city level,” said Ryan Cox, Director of Consumer Channel at North American Van Lines. “It’s a continuation of what we saw in 2021 and 2020. We’re interested to see if these trends continue throughout 2023.” Overall, the number of moves in 2022 was less than 2021 and 2020. For the fourth year in a row, Illinois had the most significant percentage of outbound moves, while Tennessee, South Carolina, and North Carolina maintained their spots at the top of the inbound state list since 2020. Source: MReport