June 20, 2023 – The Fed did consider a pause, but they won’t call it a pause even though they did not raise rates. Why is that?

Economic Commentary

To the Fed, it is not a pause. When a kitten or puppy waves their paws at us, it is considered major cuteness in action. When the Federal Reserve Board is faced with a decision regarding the “pausing” of interest rate hikes, there is no cuteness involved – just a bunch of hemming and hawing (not pawing). So, the Fed did consider a pause, but they won’t call it a pause even though they did not raise rates. Why is that?

Because they don’t want to go on record saying that the fight against inflation is over. They are just “catching their breath” and keeping an eye on things before they decide what they are going to do next. The current inflation rate is somewhere around four percent and heading downward slowly. Certainly, that is much better than the inflation rate of 12 months ago, but it is still twice as high as the Fed’s official target of two percent. We have seen some real progress in certain areas, for example, you no longer need to take out a bank loan to purchase a dozen eggs! Lumber and wheat prices are also down significantly from their peaks.

On the other hand, the labor situation is still causing concern. We just don’t have enough workers to fill the almost 10 million jobs open in America. In the past we have always had enough of a flow of legal immigrants to fill jobs—but today the job openings far outweigh the increase of the residential population and legal immigrants together. With a shortage of workers, higher wages are the sticking point in the inflation battle. Not enough workers and not enough homes to put them in. So, while the Fed catches their breath—these are the things they are keeping their eyes on.

Weekly Interest Rate Overview

The Markets. There was a muted reaction to the anticipated pause by the Fed, which continued after the Fed’s announcement last week. For the week ending June 15, 30-year rates eased to 6.69% from 6.71% the week before. In addition, 15-year loans increased slightly to 6.10%. A year ago, 30-year fixed rates averaged 5.78%, less than 1.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve. As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next.”  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

As home prices escalated, inventory shrank, and families sought more living space, communities of rental houses emerged as a growing option. Here’s why they appeal—and what you should know. Although the BTR trend started shortly before the pandemic, that “poured gasoline on the fire,” says Michael Van Der Poel, managing partner at ACRE, a vertically integrated private equity firm that specializes in housing investment, including BTRs. People fled dense urban cores and crowded apartments for more space and greenery, says Shannon Hersker, senior vice president of Northmarq, a commercial real estate brokerage firm that represents builders entering the niche. Unable to buy a house, many turn to BTRs, says Don Walker, managing principal and CFO at John Burns Real Estate Consulting, a housing industry analyst firm. According to a National Association of Home Builders analysis of Census Bureau numbers, there were approximately 21,000 single-family BTR starts during the second quarter of 2022, a 91% increase compared to the second quarter a year before. Although many equate BTRs with three- or four-bedroom single-family homes, there’s increasing variety as the trend evolves. Homeownership remains the overwhelming desire of Americans. In a survey released by Bankrate last year, 74% of Americans called homeownership a part of the American dream. But the percentage was lower for younger adults, many of whom cited high prices, low inventory and an inability to save for a down payment as barriers. Millennials who can’t afford to buy—or who aren’t ready to be tied to a location—aren’t the only ones being targeted by BTR companies. They’re also marketing to aging baby boomers, who might want to eliminate chores and costs, and to people hit by unexpected life changes, such as divorce or death, who want to gain an instant community. Developer Levi Kelman, CEO and founder of Blue Onyx Companies, says operators in the Sun Belt see a significant number of renters with higher disposable incomes turning to BTRs for privacy and security. Source: REALTOR® Magazine

Regardless of age, people still want to buy homes. That’s the takeaway from a new report from ServiceLink, a provider of digital mortgage services to the mortgage and finance industries. The 2023 ServiceLink State of Homebuying Report (SOHBR) analyzes generational trends among recent homebuyers, their sentiment about today’s housing market, and the role technology plays throughout the process. The survey features insights from 1,000 homeowners who either purchased or tried to purchase a home within the past three years. According to the report, 52% of all respondents, across all generations, said they plan to consider buying a home. “Even with the ups and downs in today’s housing market, there is still a strong desire among several generations to obtain homeownership,” said Dave Steinmetz, ServiceLink’s president of origination services. “Our latest study suggests there are many homeowners and homebuyers who are ready to make their mark in the real estate market this year; whether it’s to purchase a new home or take out a home equity loan. This indicates there is an opportunity for lenders to provide more education and resources to buyers and homeowners to guide them throughout their homeownership journey.” The survey’s key findings include that, despite shifting market conditions, more than half (52%) of all respondents said they plan to consider buying a home. Of those respondents, 61% of millennials said they plan to consider buying a home, vs. 25% of Gen X, 12% of Gen Z, and 2% of baby boomers. Source: National Mortgage Professional

Sellers who refuse to accept offers from buyers with certain types of financing are denying homebuying opportunities to those who need them the most, experts say. Seller discrimination against buyers with FHA financing is creating another barrier to homeownership for lower-income households and people of color, who rely more on these loans, experts said at the Fair Housing Policy Committee meeting during the 2023 REALTORS® Legislative Meetings in Washington, D.C. The share of Black and Hispanic home buyers who use FHA financing is double that of any other loan product, said David Sanchez, special policy advisor with the Federal Housing Administration. And with 84% of FHA loans going to first-time buyers last year, seller discrimination based on financing is keeping many from being able to build wealth through homeownership, he added. There are similar misunderstandings about VA loans, said James Heaslet, chief of construction and valuation at the Department of Veterans Affairs. Many people believe that because VA loans don’t require a down payment, veterans—who comprise 14% of the homebuying market—“don’t have skin in the game” and aren’t attuned to being a responsible homeowner, he said. “Well, I had skin in the game when I raised my right hand and vowed to serve my country,” quipped Heaslet, who is a veteran himself. The reality is that the average VA buyer has a FICO score above 700 and $40,000 in cash reserves, Heaslet said. On top of that, only 4% of VA loans went into default in 2021 compared to 10% of FHA loans. Source: NAR