June 11, 2024 – Another Trifecta

Economic Commentary

As we pointed out last week, this is a very busy period for consequential economic news. First, we had the jobs report this past Friday. This report took on additional importance after we finally had more moderate jobs growth in April. So how did we do in May? The economy created 277,000 jobs, which was more than expected. The unemployment rate rose from to 4.0% from 3.9%, which was a bit confusing given the large gain in jobs – especially considering the labor participation rate did not change. The Bureau of Labor Statistics also disclosed that the previous two months of job gains were revised downward by 15,000 jobs – a fairly insignificant number. Altogether, this report was seen as stronger than expected.

Of course, the pace of wage growth is just as important as a contributor to overall inflation. Last month wages grew 0.4% from the previous month and 4.1% year-over-year. These numbers were higher than expected. Speaking of inflation, the Consumer Price Index will be released tomorrow and that will be followed by the Producer Price Index on Thursday. That is a lot of information for the Federal Reserve to consider during their meeting which starts today.

As we also pointed out last week, the markets are not expecting a rate cut to be announced tomorrow when the Fed meeting concludes. However, it would be nice for the Fed announcement to be a little softer when it comes to their holding the line on higher rates. Certainly, in the past several weeks — which included the release of the minutes of the last Fed meeting — the members of the Fed have been fairly unanimous in their statements regarding holding higher rates for a longer period of time. The jobs report has made any softening language less likely to happen.

Weekly Interest Rate Overview

The Markets. According to the Freddie Mac weekly survey, mortgage rates eased back below 7.00% last week as the jobs report and Fed meeting approached. However, the initial reaction to the jobs report moved rates higher again. 30-year fixed rates eased to 6.99% from 7.03% the week before. In addition, 15-year loans decreased to 6.29%. A year ago, 30-year fixed rates averaged 6.71%, 0.28% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates retreated this week given incoming data showing slower growth. Rates are just shy of seven percent, and we expect them to modestly decline over the remainder of 2024. If a potential buyer is looking to buy a home this year, waiting for lower rates may result in somewhat limited savings.”  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

Existing-home sales fell in April as mortgage rates rose and home prices continued to rise. But some market segments are showing resilience: High-end home sales—listings at $1 million and above—posted significant gains in April, increasing 40% compared to a year ago, according to the National Association of REALTORS® latest housing report. The share of first-time home buyers also is rising. NAR’s existing-home sales index, which reflects completed transactions for single-family homes, townhomes, condos and co-ops, shows sales fell nearly 2% in April compared to March and are down by about 2% from a year ago. All four major regions of the U.S. saw a decline in home sales last month. “Home sales changed little overall, but the upper-end market is experiencing a sizable gain due to more supply coming onto the market,” says NAR Chief Economist Lawrence Yun. The market for homes priced at $1 million or more saw listings jump 34% in April compared to a year ago, and buyers responded to the greater housing choices. High-end home sales likely were behind the rise in the median price for an existing home, which climbed to $407,600—the highest price on record for the month of April. That’s nearly 6% higher than a year ago. “Home prices reaching a record high for the month of April is very good news for homeowners,” Yun says. “However, the pace of price increases should taper off since more housing inventory is becoming available.” More homeowners are listing this spring, with inventory of unsold existing homes climbing 9% in April compared to March. National housing inventory is at about a 3.5-month supply at the current monthly sales pace, which is still considered a brisk selling market. Source: NAR

With high mortgage rates keeping many homeowners from selling these days, homebuyers are finding their place in new construction. One-third (33.4%) of single-family homes for sale in the U.S. in the first quarter of 2024 were newly built, according to a new report from Redin. That share is essentially unchanged from Q1 2023 but down from a record-high 34.5% two years earlier. The pandemic homebuying boom sent builders into overdrive, and as a result, the portion of the housing supply that’s newly built is now roughly double pre-pandemic levels. Meanwhile, the supply of existing homes for sale has dropped. Mortgage rates hit a two-decade high last year and remain elevated, so many would-be sellers have opted to hang onto their low rate instead of moving and taking on a higher rate. “We have a fair amount of new-construction homes for sale, and thank goodness we do,” said Nicole Dege, a Redfin Premier agent in Orlando, Fla. “Buyers are having a hard time finding single-family homes in their budget because not many homeowners are letting go of their houses, and those who are listing tend to price high because they haven’t come to terms with the fact that prices have come down from their 2022 peak. Builders have a better understanding of the current market, so they’re pricing fairly, offering mortgage-rate buydowns and providing other concessions to attract buyers.” Source: National Mortgage Professional

The budding recovery in for-sale home inventory is continuing to build momentum, according to a new Existing Home Sales Outlook Report from First American Financial Corp. Despite the persistent stickiness of the lock-in effect, more homeowners are choosing to list their homes compared to one year ago. Citing Zillow data, First American deputy chief economist noted that new listings in April are up 16% annually. That’s still 22% below the average count of new April listings from 2018 to 2022 (excluding the pandemic-ravaged month of April 2020), but Kushi called the progress “a welcome development.” “Higher inventory levels offer more choices for buyers and potential sellers alike, boosting market activity as participants find more options suited to their needs,” Kushi said. Sellers, according to Kushi, have “un-anchored their expectations” from mortgage rates hit near-historic lows during the pandemic-era housing boom. The record-high levels of home equity being earned by homeowners could also be cushioning the blow from the lock-in effect; for an equity-rich homeowner, taking on a higher interest rate may simply not be as big of a deal, particularly if they’re downsizing or moving to a more affordable market. Source Scotsman Guide