March 1, 2022 – The Fed Guessing Game – Ukraine Version. Guess what the Federal Reserve Board will do at their next meeting in a few weeks.


Economic Commentary

The Fed Guessing Game – Ukraine Version. We think there are about a thousand game shows on television. Now we can add our own economic game show – guess what the Federal Reserve Board will do at their next meeting in a few weeks. The answers seem to be coming from all over the place. Toward the latter half of last year, we were betting on when they will raise rates for the first time. Some were betting on the second half of 2022.

As the year came to a close, the bets landed on the March meeting. A quarter of one-percent increase was the most popular bet. It looked like we could have two to four increases this year. Then two things happened. First, we had a very strong jobs report for January. This report included a major revision of the previous two months of data. Secondly, inflation has kept accelerating. The January numbers were the highest in the past 40 years. The predictions soared from there. These included a .50% rate increase in March and up to seven increases in 2022.

And just to make things more complicated, we have now interjected the invasion of Ukraine into the equation. Some feel that the Fed is less likely to act aggressively and jeopardize the economic recovery while the conflict is transpiring. Plus, we have one more employment report and one more inflation report to be released before the Fed meets. These could change the playing field. The jobs report is due to be released this Friday. Thus, there is still time for you to play the only game in town—guess the Fed!

Weekly Interest Rate Overview

The Markets. Mortgage rates fell slightly in the past week, but moved up towards the end of the survey period. For the week ending February 24, 30-year rates fell to 3.89% from 3.92% the week before. In addition, 15-year loans decreased one tick to 3.14% and the average for five-year ARMs remained at 2.98%. A year ago, 30-year fixed rates averaged 2.97%, almost 1.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Even with this week’s decline, mortgage rates have increased more than a full percent over the last six months. Overall economic growth remains strong, but rising inflation is already impacting consumer sentiment, which has markedly declined in recent months. As we enter the spring homebuying season with higher mortgage rates and continued low inventory, we expect home price growth to remain firm before cooling off later this year.” 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

Saving pandemic-related stimulus money is the second-most common way to accumulate money for a down payment. Nearly one-quarter (24%) of first-time homebuyers are using stimulus money for their down payment, according to a recent Redfin survey. Stimulus money is the second-most common way of accumulating money for a down payment, after saving directly from paychecks. That’s according to a Redfin-commissioned survey of 1,500 U.S. residents planning to buy or sell a home in the next 12 months. Using stimulus money for down payments is a new phenomenon, as Americans started receiving financial help from the government after the coronavirus pandemic hit the U.S. The average American family with children received $6,660 in stimulus money in 2021 in the form of stimulus checks and the expanded child tax credit, both part of COVID-19 relief policies. While this survey identified a cohort of first-time homebuyers who said stimulus money contributed to their down payment, most stimulus recipients used the bulk of the money for everyday essentials. Stimulus money can make a big dent in a down payment. The typical U.S. home sells for $382,900 and the median down payment is roughly 10% of the purchase price, which equals about $38,000 for the median-priced home. Some buyers put down as little as 3%, which would equal an $11,500 down payment. “There was a fair amount of economic uncertainty at the beginning of the pandemic and many people initially lost their jobs due to widespread lockdowns. But plenty of Americans, particularly those who are in a position to buy a home, are now in a better financial position than before,” said Redfin Chief Economist Daryl Fairweather. “Stimulus payments provided a lot of Americans not only with necessary relief, but extra money in their pockets. Some people were also able to save more money than usual because they spent less on things like traveling, eating out and paying back student loans, which were paused during the pandemic.” Source: Redfin

The size of new homes is increasing as the pandemic continues and home shoppers look for more space to spread out. The average size of a new home has risen to 2,524 square feet, the National Association of Home Builders reports. Also, the percentage of new homes with four or more bedrooms and three or more full bathrooms rose to 46% and 34% respectively, according to the NAHB’s newly released report, What Home Buyers Really Want. Consumers say their home preferences have changed due to the pandemic. Millennials and Generation X, in particular, say they are looking for homes designed to accommodate multiple generations. In a separate study, conducted by the National Association of REALTORS® in 2021, the rising demand for multigenerational homes also became apparent: The number of home shoppers buying a multigenerational home since the pandemic began rose to a nine-year high of 15%. Overall, new-home buyers also are showing a greater desire for exercise rooms, home offices, and patios. The percentage of single-family homes with patios climbed to 63%. Americans are showing more desire to expand their outdoor spaces, researchers note. Millennials also indicated particular interest in homes with front porches, according to the NAHB’s report. “I love the fact that styles are cyclical, and that front porches are becoming popular again,” Allison Paul, principal at Lessard Design, said while presenting the NAHB data. “People want to be outdoors. Source: The National Association of Home Builders

One in 10 home buyers and home sellers cite climate-related risks—hurricanes, flooding, wildfires, extreme temperatures and/or rising sea levels—as the primary reason for their move. The Redfin study found that 39% of those polled found these risks as contributing factors for their move. Natural disasters and climate-related events have increased over the last several decades. The national focus on climate change and natural disasters has made it difficult for many homebuyers and homeowners to ignore the risks associated with certain areas. “As natural disasters become more unavoidable, climate change is top of mind for homeowners in a way it wasn’t 10 years ago or even two years ago,” said Redfin Chief Economist Daryl Fairweather. “Moving to homes in neighborhoods with lower risk and away from places with higher risk is a trend that will pick up speed in the next decade as people feel the impact of disasters like fires, floods and extreme heat both financially and emotionally. It’s expensive to protect your home or to fix water or fire damage, and many homeowners in high-risk areas like parts of California and coastal Texas, are exhausted from worrying about the next wildfire or hurricane.” A report on migration by Redfin in August found that U.S. counties that are susceptible to natural disasters gained residents over the four-year span from 2016 to 2020. Meanwhile, counties with relatively low risk lost residents, due in part because areas with high climate risk are relatively affordable, with lower property taxes and more housing options. Source: MReport

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