June 25, 2024 – Is the Fed Over-Communicating?

Economic Commentary

The Federal Reserve Board has always been very careful regarding making public statements that will affect the markets. As a matter of fact, in years past the Fed was much more clandestine regarding their opinions to avoid roiling investors. So much so that there were complaints about the Fed not being open enough about what they were up to. This led for calls for a more open Fed.

More recently, the members have made an effort to communicate more publicly. There are scores of public speeches and additional testimony in front of various congressional committees. There has been so much communication that some are now complaining about “over-communication.” Despite this additional communication, there is still a black-out period in which public states are limited in the period before a Fed meeting.

Indeed, the present time seems to be such a period of excessive communication. After all, the Fed has not raised or lowered interest rates for just about a year. They have made adjustments in the run-off rate of their portfolio, but no actual rate movements have been announced. Thus, the Fed may be trying to control interest rates more through their statements, rather than their actions. For example, so many speeches by Federal Reserve Governors have mentioned that progress against inflation has been slower than expected, it feels as if the Fed does not want the markets to become too optimistic about the prospects of a rate decrease. In theory, they could be supporting the current level of long-term rates as a result. A valid observation or a vivid imagination? Not sure—but it would be nice if the Fed publicly took a more balanced approach.

Weekly Interest Rate Overview

Freddie Mac reported that mortgage rates continued to ease last week. The positive inflation news of the previous week was followed by a weaker than expected retail sales report indicating that consumer spending could finally be cooling off. 30-year fixed rates eased to 6.87% from 6.95% the week before. In addition, 15-year loans decreased to 6.13%. A year ago, 30-year fixed rates averaged 6.67%, 0.20% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates fell for the third straight week following signs of cooling inflation and market expectations of a future Fed rate cut. These lower mortgage rates coupled with the gradually improving housing supply bodes well for the housing market.” 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

Single women in the United States are outpacing single men in homeownership. A 2023 Pew Research Center survey using 2022 census data found that single women owned 58 percent of the nearly 35.2 million homes owned by unmarried Americans, while single men owned 42 percent. The reason behind this disparity in homeownership is unclear. Housing researchers believe it could be linked to women’s longer life expectancy, disproportionate caregiving responsibilities and—in the case of younger women in particular—a narrowing gender wage gap. The Pew report attributes the difference to the number of older women who outlive their partners. Homeownership rates among unmarried adults rise with age, according to the report. About 70 percent of single heads of households aged 65 or older own their home, compared to 44 percent of those between the ages of 35 and 44. And women tend to live longer. The average life expectancy for men in the United States is about 73 years, compared to about 79 for women, according to the Centers for Disease Control and Prevention. “A lot of women tend to stay with the house when their husband dies, which typically leads to homeownership,” said Juan Gonzalez, an adjunct professor of finance and business economics at the USC Marshall School of Business. Women’s higher longevity may not account for the full disparity, however. While the Pew report found that the gender difference in homeownership rates was limited to older unmarried adults, the National Association of Realtors’ (NAR) 2024 annual homebuyer and sellers generational trend report shows single women bought homes at higher rates than single men last year regardless of age. Overall, the NAR report found single women accounted for 19 percent of homebuyers, while single men made up 10 percent. That difference is similar among several age groups, though it narrows among older Gen Zers and Millennials while widening among most older adults. NAR’s Deputy Chief Economist Jessica Lautz told The Hill it’s hard to determine why single women are outperforming their male counterparts in home buying. But she said women’s disproportionate caregiving responsibilities may have something to do with it. “They’re more likely to be single moms, and they’re more likely to be purchasing a multi-generational home,” said Lautz. “So, they may have an elderly relative within that home as well.” Women shoulder more caregiving work than men, research shows. Census data from 2022 shows 80 percent of single-parent households are headed by women. On top of this, two-thirds of unpaid caregivers to older and sick family are women, according to the Family Caregiver Alliance. Source: The Hill

KB Home, a national homebuilder, commissioned a survey conducted by The Harris Poll to better understand homeownership perceptions and homebuying trends. The survey found that four in five respondents believe that owning a home is a milestone in life and part of the American Dream, but the survey also revealed that many respondents are discouraged in the home buying process and lack a complete understanding of it. The survey asked Americans—from Gen Zers to baby boomers—about the importance of homeownership, what factors drive homebuying decisions, and their knowledge of the homebuying process:

• Top of Mind: In addition to four in five Americans (83%) believing that homeownership is an essential life milestone, 40% think about buying a home at least once a week, especially Gen Zers (62%) and Millennials (55%).
• Making It Work: About six in 10 people (58%) would spend less on nonessentials to save for a down payment for a home, and more than two in five (45%) would consider taking on a gig job or side hustle.
• Reasons to Own: U.S. adults cite privacy (49%), long-term financial benefits (44%) and a place to make memories (33%) as the most important reasons to own a home.
• Good Vibes: More than half of Americans (51%) associate homebuying with being excited. Many also associate homebuying with feeling proud (43%), motivated (32%) and confident (30%).
• Lacking Confidence: Over half of Americans (56%) feel that they are in a worse position to buy a home than prior generations.
• The Great Unknown: one in four associate homebuying with being stressed or nervous.
• The Basics: A majority of Americans have a poor understanding of many aspects of homebuying. Only around half correctly identified the meaning of terms such as “APR” (56%) or “PMI” (54%); of this group, Gen Zers and Millennials are less likely to be familiar.
• Financial Knowledge: Only about one in three people know key facts about financing a home, including that a minimum down payment of 20% is not required (36%) or that one can qualify for a mortgage with a credit score in the 500s (28%). Source: Mortgage Point

As national home prices have continued to climb upward through the first half of 2024, U.S. homeowners with mortgages saw their home equity increase by 9.6% year over year in the first quarter, bringing total net homeowner equity to more than $17 trillion – near all-time highs – at the end of March. According to the latest CoreLogic Homeowner Equity Report, homeowners with mortgages, which account for roughly 63% of all properties, collectively gained $1.5 trillion in equity since the first quarter of 2023, an average increase of $28,000 per borrower. These figures represent the greatest gains in equity since late 2022. “With home prices continuing to reach new highs, owners are also seeing their equity approach the historic peaks of 2023, close to a total of $305,000 per owner,” said Dr. Selma Hepp, chief economist for CoreLogic. “Importantly, higher prices have also lifted some 190,000 homeowners out of negative equity, leaving only about 1.8% of those with mortgages underwater.” Rising home prices through 2023 and the first quarter of 2024 have helped the share of homes with negative equity to fall by 16.1% year over year, to 1.2 million homes or 2.1% of all mortgaged properties. Quarterly, the number of mortgaged homes in negative equity decreased by 2.1%, to one-million homes or 1.8% of all mortgaged properties. The term “negative equity,” also referred to as a borrower being underwater or upside-down on their mortgage, means the borrower owes more on their mortgage than their home is currently worth. Source: CoreLogic