January 4, 2022 – The Year of the Fed? The last two years have been extraordinary in many ways.

Economic Commentary

The last two years have been extraordinary in many ways. The pandemic headlines this story, but there are many parts to this tale. We had an economy stop on a dime for the first time in history. So many adjustments were made, from millions working virtually, to wearing masks in public places.

The vaccines were supposed to lead us to the other side of the pandemic, but two obstacles arose. One was vaccine reluctance, and the other was variants of the virus. While these things have slowed the economic recovery, they have not stopped the recovery. This recovery was buoyed by record low interest rates and a red-hot housing market. Still, another significant part of the story concerns inflation.

When there is too much cash chasing too few goods, the price of those goods rise. The rise in real estate values and stock market have provided plenty of fuel for inflation which raged in 2021 amid supply shortages. Thus, the Federal Reserve has stepped in and made a statement that they are poised to remove their stimulus from the economy, while also raising interest rates in 2022. If the Omicron variant could be a threat to the recovery, could the Fed’s actions also provide additional obstacles? The Fed will be performing a highwire balancing act in 2022, fighting inflation while keeping an eye on the real enemy — which is highly contagious.

Weekly Interest Rate Overview

The Markets. Mortgage rates rose last week, effectively reversing the drop from the previous week. For the week ending December 30, 30-year rates moved up to 3.11% from 3.05% the week before. In addition, 15-year loans rose to 2.33% and the average for five-year ARMs increased to 2.41%. A year ago, 30-year fixed rates averaged 2.67%, more than .33% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates have effectively been moving sideways despite the increase in new COVID cases. This is because incoming economic data suggests that the economy remains on firm ground, particularly cyclical industries like manufacturing and housing. Moreover, low interest rates and high asset valuations continue to drive consumer spending. While we do expect rates to rise, the push of the first-time homebuyer demographic that’s been propelling the purchase market will continue in 2022 and beyond.” 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 ongoing pandemic, including its seismic effect on the U.S. economy and the way Americans live and work, has made 2021’s housing market anything but typical,” said Redfin Chief Economist Daryl Fairweather. “Remote work, low mortgage rates, a shortage of building materials and wealth inequality that has allowed an influx of affluent Americans to buy vacation homes, to name just a few factors, have come together to create a historic year for real estate. Buyers paid more for homes, bought sooner than they planned, searched outside their hometowns or all of the above. This year’s frenzied housing market has been one for the books—but it may become more balanced in 2022.” According to Redfin, these are just some of the top records that were broken over the course of last year:

• The typical home sold for nearly $400,000 ($386,000).
• The home supply fell to its lowest level in history.
• The typical home sold in just 15 days.
• Over 60% of the homes went off the market in two weeks.
• More than half the homes sold for over their list price.
• Mortgage rates hit a record low before rebounding.
• Investors corralled a record percentage of the market. Source: Redfin

Women are second only to married couples as a homebuying presence in the real estate market, according to the National Association of REALTORS®. Currently, 19% of the homebuying market are single women, while 9% are single men and 60% are married couples, according to NAR. Single women and single men show a high desire to own a home of their own, but single women outnumber men by about a 2-1 ratio. While a roughly equivalent percentage of men and women purchase because of the desire to own a home, the number of women who purchase a home to be near their friends and family is double that of men, NAR says. Single women buyers also are more likely to purchase a home if they have a child under the age of 18, and they’re more likely to purchase a multigenerational home to accommodate adult siblings, adult children, and grandparents. “These family obligations may make purchasing a home more attractive to a single woman buyer as she has the need for stable housing on a continual basis,” Jessica Lautz, NAR’s vice president of demographics and behavioral insights, writes at the association’s blog. Seventeen percent of single women buyers say they have kids under the age of 18 who live with them, and 13% say they live in a multigenerational home, according to NAR’s Profile of Home Buyers and Sellers. As the number of single women buyers rises, the share of married couples in the real estate market has been dropping. Lautz cites data that shows in 1990, 59% of Americans were married; that percentage has dropped to 52% more recently. Source: National Association of REALTORS® Economists’ Outlook blog

Military families with Veterans Affairs loans are losing out in the competitive housing market. Sellers are showing preference to buyers with more conventional financing or all-cash offers that they believe will offer a faster and smoother closing. Ninety-four percent of real estate professionals surveyed said sellers are most likely to accept an offer with conventional financing over a government-backed loan, according to a survey conducted by the National Association of REALTORS®. But sellers may have some outdated concerns over VA loans, Caitlin Turkovich, branch manager specializing in VA loans at Union Home Mortgage in Las Vegas, told CNBC. VA loans are partly guaranteed by the U.S. Department of Veterans Affairs and offer zero percent down financing. “VA loans are actually the easiest to qualify for if you have entitlements,” Turkovich told CNBC. Entitlements refer to the amount the VA will repay if the borrower defaults. Turkovich says VA loan buyers can take steps to try to stand out, like by making a 5% down payment. That matches the minimum for some conventional mortgages, and it also drops the VA loan funding fee from 2.3% to 1.65%, she notes. VA loan buyers also may make their offer stronger by offering earnest money—such as 5% versus the standard 1%, Cedric Stewart, a real estate professional with Keller Williams in Rockville, Md., told CNBC. “The largest earnest money deposit is another instrument to communicate an ease in the relationship,” Stewart said. Source: CNBC