January 21, 2025 – 2024 Redux?

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Economic Commentary

If you read all the predictions for 2025, it seems as if we are expecting 2024 to happen all over again. Interest rates are supposed to go down, but they are likely to move slowly. The economy is supposed to slow down, but it is continuing to hold on in growth mode.  Real estate inventory is supposed to continue to increase, but many are still holding onto their homes for dear life.  Real estate sales are supposed to pick up due to rising inventory, but the increase is predicted to be modest.

We do now have a new President with the passing of the inauguration, and this has the potential to bring major changes. However, the Administration’s slim majority in Congress means that change may come slower than expected in some areas.  And some are worried that enacting all the campaign promises may lead to additional pressure on inflation, which does not bode well for lower interest rates.

Here is the good news.  Predictions and warnings are typically not on point. Predicting major changes in the markets takes courage and it is easier to predict incremental movements from year-to-year. We are not guaranteeing what markets will turn – nor in which direction, but the potential for major changes is present and cannot be ignored. Interest rates moving down more quickly than predicted would be a good start.  But we understand that rates moving down too quickly could ignite housing inflation. Thus, 2025 could be a balancing act.

Weekly Interest Rate Overview

The Markets. Though Freddie Mac reported higher mortgage rates last week, they actually declined after the inflation reports and the survey were released.  According to the survey, 30-year fixed rates increased to 7.04% from 6.93% the week before. In addition, 15-year loans rose to 6.27%. A year ago, 30-year fixed rates averaged 6.60%, 0.44% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates ticked up for the fifth consecutive week and crossed seven percent for the first time since May of 2024. The underlying strength of the economy is contributing to this increase in rates.” 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

Three-quarters of homeowners born before 1964 are likely to leave much of their $17 trillion in home equity to their children, according to Freddie Mac’s latest analysis of Baby Boomers’ housing perceptions, preferences and plans. Freddie Mac’s new survey of respondents 60 and older also found that the majority of Boomers who own a home feel confident they will have a financially comfortable retirement. This is accompanied by a growing preference of some Boomers to downsize. “As the youngest Baby Boomers turn 60 this year, this research provides an opportunity to learn from a generation that has weathered multiple economic cycles and pivotal moments in recent history, including the Great Financial Crisis and pandemic,” Freddie Mac SVP and Head of Single-Family Acquisitions Sonu Mittal said. There are roughly 65 million Baby Boomers, accounting for 20% of the U.S. population and 36% of total homeowner households. Total household net worth has increased by approximately $44 trillion, or $332,000 per household, since the pandemic (Q4 2019 to Q2 2024). Of that, Boomer overall wealth increased by $19 trillion, or $486,000 per household–half of which is due to house price appreciation, Freddie Mac reported. Retired homeowners feel more confident than non-retired homeowners in believing they will have a comfortable retirement. Aging in place remains preferable, but new trends have emerged. As in 2016 (66%) and 2021 (69%), Baby Boomer homeowners again feel confident they would remain in their current homes, with 68% of respondents indicating they either plan to age in place or do not have plans to move again. However, of Boomer homeowners looking to move at some point in the future, 66% indicate they also plan to downsize, with nearly 9 out of 10 respondents currently owning a residence with three or more bedrooms. Of the Boomer homeowners who moved in the last decade, 36% say they downsized from their previous property. Source; Freddie Mac

Allied Van Lines released its U.S. Migration Report, analyzing where people are moving in the U.S., and reporting that moves decreased slightly–by 7%–between 2023 and 2024. Allied attributed the dip in moves through the year to fluctuating mortgage rates and economic uncertainty. The top inbound states for moves were North Carolina, South Carolina, Tennessee, Georgia and Virginia. Specifically, the top cities were Charlotte, N.C., Greenville, S.C., Raleigh, N.C., Nashville, Tenn., and Dallas. Allied pointed to more affordable housing and economic stability in such areas as compelling–the same areas have seen an increase in job opportunities and industry over the past few years. The top five outbound states were Illinois, California, Pennsylvania, Washington and Colorado, with the top five outbound cities as Chicago, Detroit, Los Angeles, San Diego and Seattle. “As we see a drop in interstate moves for the second consecutive year, it’s clear that factors like rising mortgage rates, inflation, work-from-home culture and the search for affordable living are reshaping how and where people choose to relocate,” said Steve McKenna, Vice President and General Manager for Allied Van Lines. “The continued migration to Southeastern states reflects the growing appeal of regions offering economic stability, lower costs of living, and expanding job markets in industries like tech and health care.” Timing of moves shows a clear trend too, Allied said. People like convenience and non-disruptive times to move. The most popular days to move were recorded as Friday, Tuesday and Wednesday. The most popular months to move are June, July and May.  Source: The Mortgage Bankers Association

The financial costs of the climate crisis are now starkly apparent to Americans in the form of soaring home insurance premiums – with those in the riskiest areas for floods, storms and wildfires suffering the steepest rises of all. A mounting toll of severe hurricanes, floods, fires and other extreme events has caused average premiums to leap since 2020, with parts of the US most prone to disasters bearing the brunt. A climate crisis is starting to stir an insurance crisis. Across all US counties, those in the top fifth for climate-driven disaster risk saw home premiums leap by 22% in just three years to 2023, compared to an overall average of a 13% rise in real terms, research of mortgage payment data has found. The Guardian has analyzed the study’s data to illustrate the places in the US at highest risk from disasters and insurance hikes.  “This has been the canary in the climate coalmine, and it’s now hitting households’ pocketbooks,” said Ben Keys, an economist at the University of Pennsylvania’s Wharton School and co-author of the research. “You can deny climate change for whatever motivations you have but when insurance is going up because you live in a risky area, that’s hard to deny.” Heightened disaster risk now results in a $500 jump in premiums, on average, for households, Keys’s paper finds. People looking for home insurance, required for a mortgage, are now facing tangible climate costs even before they have to pay out for flooding cover, which is typically separate from home policies. “The cost of living in harm’s way has gone up disproportionately,” said Keys. “We are seeing the first broad-based direct cost of climate change for homeowners because of these insurance increases.”   Source: The Guardian

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