January 17, 2023 – The Wild Card. The pace in which interest rates rose in 2022 was a surprise to just about everyone.


Economic Commentary

The Wild Card. The pace in which interest rates rose in 2022 was a surprise to just about everyone. There is no doubt that this phenomenon was spearheaded by what was considered rapidly progressive inflation. At the beginning, the Federal Reserve declared inflation a transitory result of the pandemic. However, inflation did not seem to be going away as 2022 progressed and some felt the Fed panicked by jacking up short-term rates too severely.

However, the Federal Reserve was determined to rein-in this inflation before it became embedded long-term within psyche of consumers and thus the economy. And indeed, as 2023 waned, we did start to see better news with regards to inflation. For example, the Consumer Price Index was up only a total of 1.0% from July through November. Earlier in the year we saw 1.0% increases monthly. On Thursday of last week, we saw the final 2022 report, which again came on the tame side, though a bit higher excluding the volatile components of food and energy. 

As mentioned earlier, consumer expectations are key with regard to the long-term “stickiness” of inflation. What is the consumer seeing? For one, gas prices have come down from near $5.00 per gallon to near $3.00 per gallon. The media loves to blast the trend of gas prices in the headlines. But short-term rates are stubbornly high, contributing to higher costs for credit cards, cars and more. The key to interest rates moving lower is convincing the Fed that we are winning the inflation battle. The good news is that better inflation news can cause long-term rates, including mortgages, to move lower even before the Fed makes their move.

Weekly Interest Rate Overview

The Markets. Rates moved lower in the past week, with an additional decline after the survey was released in reaction to the most recent inflation report. For the week ending January 12, 30-year rates fell to 6.33% from 6.48% the week before. In addition, 15-year loans decreased to 5.52%. A year ago, 30-year fixed rates averaged 3.45%, more than 2.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “While mortgage rates have resumed their decline, the market remains hypersensitive to rate movements, with purchase demand experiencing large swings relative to small changes in rates. Over the last few weeks latent demand has been on display with buyers jumping in and out of the market as rates move.”  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

Creating an accurate representation of your home when putting it up for sale is paramount for many people, but according to new research from Point2 using the right combination of words can sell your home much faster. To conduct their research, Point2 examined roughly 52 million words covering 730,000 properties on their site. Space was the top thing buyers looked for in 2022-based top keyword usage. “Room,” “space,” and “open floor plan” were among the top buzzwords that drew buyers in, while the word “garage” was the most-mentioned amenity in listings description across the country. Homes that feature a “porch/patio” or “yard” were also more likely boost interest among buyers, continuing a trend that started during the pandemic, with the word “fireplace” being a common word in $1 million-plus homes. When looking at regions, the most used keywords in the Northeast was “full bath,” while the South was “patio/porch,” the Midwest and West regions was “garage.” At all price points, the word “storage” was the most important buzzword noted by Point2. For example, homes on the affordable side are more likely to highlight the “great location” and flaunt the places of interest located “within walking distance”, meaning it would reduce or eliminate transportation costs. Conversely, only luxury homes mentioned a “wine cellar” and a “tennis court.” Notably, descriptions for ultra-luxury listings ($5 million and more) frequently mentioned “water views” alongside “breathtaking views” and “panoramic views.” Even so, no matter how expensive a home is, the descriptions were also sure to cover the essentials and frequently mentioned “storage” and a “full bath” (more likely an array of full baths). Source: DSNews

Most homeowners of the Gen X and Baby Boomer generations plan to retire and grow old in the homes they now live in, according to a new survey from Bank of America. Approximately 70% of homeowners ages 45-76 cite avoiding today’s high home prices and mortgage rates as reasons to remain in their current homes upon retiring. According to the data, nearly 95% of current mortgage holders benefit from loans with rates of 5% or less. Also, older homeowners may be less inclined to sell and rent as this adds a fluctuating cost which can be challenging for retirees with a fixed income. Bank of America’s Matt Vernon, Head of Retail Lending, says this demographic’s decisions can greatly impact residential home inventory, because this age group accounts for 70% of the country’s 84.7 million owner-occupied homes. “While home prices are holding steady in many parts of the country, demand continues to exceed supply, and there is still room for inventory to catch up before the housing market is in balance,” Vernon said. The survey showed that among those planning to stay in their homes when they retire, 78% “see no reason to move,” while 22% say they’ve “put so much work into their home that they don’t want to move.” In fact, 61% of Gen X and 69% of Baby Boomer homeowners have renovated or remodeled their home, adapting them to fit their lifestyles. With more people staying in their homes and fewer selling them, active home listings fell from 1,468,901 units to 732,276 units between July 2016 and September 2022. That’s a 50% decrease since Realtor.com began tracking this data, Vernon points out. “A decade of insufficient homebuilding has also exacerbated low inventory levels,” Vernon notes, “with housing supply growing only 6.7% from 2010 to 2020, roughly half the rate of the previous decade.” Vernon adds that this is not necessarily bad news for younger homeowning hopefuls, because many older-generation homeowners plan to give the next generation money to buy a home or give them their home to sell (38%, according to the survey) or pass down their home for the next generation to live in (36%). Source: MReport

Many are curious about what the luxury market will look like in 2023. Although demand has slowed down and available inventory has seen an increase, luxury real estate remains an outlier. When it comes to high-end housing, inventory hasn’t caught up with current demand. With 2023 rapidly approaching, a serious demand for luxury listings and too few builders are expected to keep prices from seeing any dramatic declines. According to Engel & Völker’s trend report on luxury homebuyers, millennials comprise more than half (59%) of the consumers looking to purchase a home over $3 million. Two-thirds of these buyers report having remote jobs and the ability to work from wherever they choose. This has led nearly all of them to either currently own, or be in the planning process of owning, a second home. Those with emerging affluence, defined in the report as first-time millennials and Gen Z homebuyers who make over $100,000 in household income annually, were more likely to move to a new city this year. When making the move, the most important factors included neighborhood vibe, walkability and proximity to restaurants and work. For these reasons, working with real estate professionals with local expertise is ideal. Data from Coldwell Banker Global Luxury’s 2022 Trend Report found that consumers hope to purchase a home in their dream location, specifically referring to international properties. A whopping 40% of consumers reported a higher quality of living or potential investment opportunities as their motivation for wanting to buy abroad. Luxury homebuyers in the market for a second property were found most likely to be married millennials or Gen X with children living at home. Of these consumers, one-third will be looking to purchase in a region they find convenient for recreational activities and home amenities such as pools, gyms and spas, according to Engel and Völker’s report. Source: Real Trends

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