June 29, 2021 – The Transitory Word. It seems every year, market analysts come up with a new term to describe the economic scenario.

Economic Commentary

The Transitory Word. It seems every year, market analysts come up with a new term to describe the economic scenario. In the 1970’s it was “stagflation” – a mixture of a stagnant economy and elevated inflation. In the 2000’s we had the economic “conundrum” — a diversion in the relationship between lower interest rates and economic growth. Today, the word is “transitory.”

Ordinarily, when inflation rises, interest rates increase as well. After all, the cost of money should go up when inflation escalates. Well, inflation is certainly escalating right now, but rates have not risen, and the Federal Reserve’s Open Market Committee is not interested in raising short-term rates any time soon. Why? Because they feel this inflation is transitory.

We have never had an economy shut down over night. Now that it is opening, there are shortages all over the place. We have a housing shortage, a lumber shortage, a chip shortage and more. The Fed, as well as many market analysts, feel that once the economy opens, the shortages will ease and inflation will settle back down. Are they right? We will see. The employment report comes this week, and it will be interesting to see how labor fits into this picture. We are still down millions of jobs, but there seems to be labor shortages popping up in certain industries.

Weekly Interest Rate Overview

The Markets. Rates rose in reaction to the Fed statement two weeks ago; however, they began to ease towards the end of the survey period. For the week ending June 24, Freddie Mac announced that 30-year fixed rates increased to 3.02% from 2.93% the week before. The average for 15-year loans rose to 2.34% and the average for five-year ARMs moved up one tick to 2.53%. A year ago, 30-year fixed rates averaged 3.13%, .11% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Mortgage rates have risen above three percent for the first time in ten weeks. As the economy progresses and inflation remains elevated, we expect that rates will continue to gradually rise in the second half of the year. For those homeowners who have not yet refinanced – and there remain many borrowers who could benefit from doing so – now is the time.” 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

About two-thirds of consumers who bought a larger home in a different city over the last year have the same or lower housing costs than before their move, according to a new Redfin survey. Seventy-eight percent of respondents say they have the same amount of disposable income or more, and 64% say they moved into a home that is the same size or larger than their previous property. Eighty percent say they are happier since they moved. Many buyers moved to metro areas that offer more affordable housing. More than a quarter of survey respondents say affordability motivated their move; 22% say lower taxes also was a motivating factor. “For most people, relocating to a different metro area probably wasn’t a knee-jerk reaction to the pandemic,” said Taylor Marr, Redfin’s lead economist. “A lot of Americans had already been considering relocating, but they were blocked from actually making the move because they had to stay close to their office or wanted to live near friends or their child’s school. “The pandemic and resulting work-from-home culture has removed some of those barriers, allowing many people to choose where they live based on factors like affordability, proximity to family, and weather. And the loosening of social ties that come with remote work, remote schooling, and a lack of in-person events made it somewhat easier for families to leave their comfort zone and try somewhere new. Those people are likely to be satisfied with their moves because the circumstances of the pandemic have allowed them to chase their dreams,” said Marrs. Source: Redfin

A report from HouseCanary, Inc., a provider of residential real estate data and home valuations, revealed that the growing housing shortage is causing homes to spend 47.7% fewer days on the market, compared to 2020. As a result, the housing market is heavily in favor of sellers at the moment. The Market Pulse report from HouseCanary found that since April 2020, there have been 3,045,485 net new listings placed on the market, which is an 8.8% increase versus the same period in 2019. Additionally, the monthly new listing volume was up 19.1% compared to April 2020. Meanwhile, over the last 52 weeks, 3,460,246 properties have gone into contract, representing a 14.1% increase relative to the same period in 2019. “Last spring, the real estate market was rocked as a result of COVID-19 lockdowns, but what ensued was a housing boom marked by residential home prices hitting all-time highs, record-low mortgage rates, and extremely limited inventory coupled with unwavering demand from buyers,” said Jeremy Sicklick, co-founder and CEO of HouseCanary. “One year later, we are finally starting to see some positive developments on the supply side for the first time since the pandemic began. New listings are up 19.1% year-over-year, however, the number of listings under contract continues to outpace the increase in new listings, which leads us to believe that the supply shortage will hold strong in the short-term.” Source: National Mortgage Professional

Throughout the past year, Americans have begun to rethink what they want in a home now that they are flexible enough to work remotely. One of the main reasons for relocating was their desire for more space. Nearly 6 out of 10 pandemic homebuyers relocated to a less populated city in the same state, according to a survey released by Knock, a real estate technology company. In a survey of more than 2,000 homeowners, younger generations were shown to be more likely to move during the pandemic. Millennials and Gen Z made up 58% of the homeowners who moved — a trend that is expected to continue even after the pandemic. However, most did not relocate across the country but opted for a less populated suburban or rural area in their existing state. Knock co-founder and CEO, Sean Black, said, “Almost overnight, our homes took on a whole new meaning. In addition to where we live, they became where we work, go to school, work out and everything in between. It prompted us to re-evaluate what we want and need our home to be.” Nearly three-quarters (72%) of homebuyers moved to a new area, and 59% moved to a different city in the same state. Nearly 4 in every 10 homebuyers (39%) moved to a town with fewer than 10,000 people. What these homebuyers desire is a larger home (40%), quiet neighborhood (39%) and outdoor space (37%). Nearly one-quarter (24%) of homeowners plan to move within the next year, and nearly half of them (49%) are millennials or Gen Z. Source: Knock