January 23, 2024 – Just When You Thought It Was Safe.

Economic Commentary

Among the many variables expected to affect the markets this year will be the sideshow we affectionately call a Presidential election year. News about the elections will garner headlines throughout the year, competing with events such as two wars which are being fought on the other side of the globe. Politics and government news has always affected the economy, for example threats of shutting the government down over budget bickering. However, the Presidential election season has the ability to take the rhetoric to another level.

As usual, we will not get into politics in this commentary. However, as events unfold which could affect the economy’s performance, connections will be made. Just remember, as noisy as things get, we must separate the rhetoric from reality. For example, while there may be threats of a government shutdown, an actual shutdown rarely happens, and essential services are not shut off if it does happen. This does not mean the markets will not react to the noise and the last-second deals which inevitably come into place.

Meanwhile, we still must react to the day-to-day happenings. Next week we will witness a triple whammy to end the month of January. In the past 10 days we have had reports on inflation. And next week we have the first meeting of the Federal Reserve’s Open Market Committee for the year, the first data from January in the form of the jobs report and the first measure of economic growth for the 4th quarter of last year. As Hatcher said in the movie Rundown – “That’s a lot of cows”! Busy week coming up. 

Weekly Interest Rate Overview

The Markets. The Freddie Mac mortgage rate survey indicated lower rates on home loans for last week; however, they began to rise after the stronger than expected retail sales report was released mid-week as the survey period ended. For the week ending January 18, 30-year fixed rates fell to 6.60% from 6.66% the week before. In addition, 15-year loans decreased to 5.76%. A year ago, 30-year fixed rates averaged 6.15%, less than 0.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates decreased this week, reaching their lowest level since May of 2023. This is an encouraging development for the housing market and in particular first-time homebuyers who are sensitive to changes in housing affordability. However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale.”  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

Recent data highlights the changing profile of America’s home buyers. The median homebuyer age has jumped 10 years — to 49 — in two decades, new data shows. Repeat buyers were a median age of 58 in 2023, while first-time buyers were 35, per National Association of Realtors annual data released this week. The data analyzed transactions between July 2022 to June 2023. “We’re talking about a different profile of homebuyer today,” Jessica Lautz, NAR deputy chief economist, told Axios, referring to older and more affluent purchasers. The big picture: The age of first-time, repeat and overall homebuyers hit an all-time high in 2022 since the NAR began collecting data in 1981. Household income increased nearly $20,000 to $107,000 for all buyers in the 2023 report, compared with last year’s. The median age of all buyers increased from 31 in 1981 to 49 in 2023. Its record high was 53 the previous year, compared to 42 a decade ago. First-time buyers were a median of 35 in 2023 — up from 31 in 2013 and 29 in 1981. Repeat buyers were 58 — up from 52 in 2013 and 36 in 1981. Demographic info for homebuyers has also changed, possibly because of declining American birth rates and marriages. Seventy percent of buyers didn’t have a child under 18 living with them, per latest data— the highest share ever recorded by NAR. The repeat buyer category likely includes people with adult children, per Lautz. In addition, married couples have represented less of overall buyers in recent years. They made up 59% of buyers as of the latest data, compared with 65% in 2013 and 73% in 1981. Single women made up 19% of homeowners in 2023, while single men were 10%. Younger homebuyers have faced structural challenges that prevent many from entering the housing market, said BankRate senior economic analyst Mark Hamrick. Rising costs of higher education, shaky job security, less tenure in employment and shepherding the burden of retirement savings “have made it more difficult for younger people to establish a foothold with their personal finances,” he said. Source: Axios

According to a year-end report from Redfin, the share of U.S. homebuyers looking to move to a different metro area in November declined for the third straight month, dropping to 23.9% of all movers from a sample size of about two million Redfin users. This number represents the lowest share in about 18 months who want to pick up their lives and move across their state, or possibly over state lines to find an ideal job or living situation and is down from 24.1% a year earlier and 26% from its record high over the summer. Of those looking to move, reasons varied, but it all comes down to a few key datapoints. Of importance is the fact that there’s less flexibility to work remotely as employers continue to call workers back to the office (and employees resist). Also, home prices have generally gone up during the year, giving movers a compelling reason to stay put with their current living situation. Still, Redfin says, the migration rate remains above pre-pandemic levels of around 19% as some Americans are still chasing affordability. All 10 of the most popular migration destinations have lower prices than the most common origin of buyers moving in. Source: DSNews

Berkadia, New York, released its latest outlook on single-family rentals and build-to-rent properties, finding the single-family rental market is the fastest-growing segment in the nation’s housing landscape. Institutional capital has continued to grow in the single-family rental market, with $60 billion in 2022. Single-family rents are expected to end 2023 with growth of 3%; Berkadia posited that they’ll grow more than 3.5% in 2024, more than 4% in 2025 and more than 5% in 2026. They are expected to outperform home prices and apartment rent growth. From 2000-2019, single-family annual rent growth averaged 3.1%, compared to 2.8% for more traditional multifamily properties. Within the build-to-rent space, specifically, asking rents rose more than 3% year-over-year in 16 U.S. markets as of March 2023. Berkadia points to a number of factors as propelling the single-family rental demand. From a renter’s perspective, there’s appeal across generations, the rising cost of housing, migration patterns and neighborhood preferences, increased space requirements for many Americans as they continue to work remotely and demand for low-density living. From an investor perspective, there’s current low institutional exposure for the asset class, strong operational fundamentals, options in exiting the investment and a national housing shortage that drives need. Source: The Mortgage Bankers Association