March 15, 2022 – The Time Has Come. The long-awaited meeting of the Federal Reserve’s Open Market Committee is upon us.

Economic Commentary

The Time Has Come. The long-awaited meeting of the Federal Reserve’s Open Market Committee is upon us. By Wednesday afternoon we will know how large the Fed’s first move will be. As we have mentioned previously, it appeared that a .50% increase in the Federal Funds and Discount Rates were a chinch just a few weeks ago. However, intervening factors included the release of a jobs report less than two weeks ago and the Russian invasion of Ukraine.

It is an understatement to say that the strong sanctions levied on Russia are expected to have a significant negative impact upon their economy. However, it is likely that the world economy will be affected negatively to a smaller extent. The Fed’s assessment of this negative risk will be weighed against the increased risk of inflation coming from the energy sector. Could this lead to a smaller .25% increase in rates? That is entirely possible. As we have also pointed out, any Fed’s increase in rates will not necessarily translate into higher interest rates for mortgages.

There are two reasons for this. First, mortgage rates have been rising all year in anticipation of the Fed’s move. Secondly, the Fed’s rates are short-term rates and mortgages are longer-term rates. The Fed controls directly overnight borrowing rates, which is very short-term. If the Fed surprised the market with a .50% increase and very strong language, certainly all bets could be off. But many expect the Fed to take a softer approach, especially considering the instability of the world right now. By tomorrow, we will know.

Weekly Interest Rate Overview

The Markets. Mortgage rates rose in the past week, as the war in Ukraine continues to contribute to volatility in the markets.  For the week ending March 10, 30-year rates rose to 3.85% from 3.76% the week before. In addition, 15-year loans increased to 3.09% and the average for five-year ARMs also climbed to 2.97%. A year ago, 30-year fixed rates averaged 3.05%, 0.80% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Following two weeks of declines, mortgage rates rose this week as U.S. Treasury yields increased. Over the long-term, we expect rates to continue to rise as inflation broadens and shortages increasingly impact many segments of the economy. However, uncertainty about the war in Ukraine is driving rate volatility that likely will continue in the short-term.”  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

Rents are up and buying that first starter home was cheaper in most large metro areas. With rental prices increasing, new data from Realtor.com suggests that renters who make the transition to first-time home buying could save on monthly payments. In January, according to the Realtor.com monthly rental report, the cost of buying a starter home was more affordable than renting a similar sized unit in 26 of the 50 largest metro areas. At that time, the median rental price increased by double-digits for the eighth straight month, up 19.8% year-over-year. The monthly cost of buying a home with up to two-bedrooms was up only 11% year-over-year. “While both rental and homebuying costs are rising, a number of factors could tip the affordability scale in favor of first-time buying for many Americans this year. Rents are forecasted to outpace listing price growth in 2022 and are already accelerating across all unit sizes,” Realtor.com® Chief Economist Danielle Hale, said. More than half of the 50 largest U.S. metros favored buying in January and the gap between monthly starter home costs and rents in these areas was higher than last summer. Across the 50 biggest U.S. metros in January the median listing price for a starter home was $295,360. In 26 of the 50 largest markets, the monthly cost of buying a starter home was an average of 20.6% lower than renting. Source: Realtor.com

As the pandemic caused by COVID-19 has continued, more young adults have chosen to move back home with their parents. In 2020, the share of young adults aged 25 to 34 living at home rose to the highest share recorded since 1960: 17.8%, the National Association of REALTORS® reports. That percentage remained high in 2021 at 17%—the second-highest share on record. “Some young adults may have recently moved back home due to the flexibility of remote work trends and to avoid paying high rents,” writes Jessica Lautz, NAR’s vice president of demographics and behavioral insights, on the association’s blog. “Others may be at a family member’s home due to job losses or while virtually attaining higher education goals. Regardless of the reason, living with family may provide a benefit to potential first-time home buyers.” About half of young adults surveyed who became first-time home buyers say they were making rent payments to family as they stayed at home. However, other young adults have been able to live rent-free while they save for homeownership. Living at home could allow them to pay off their debts, improve their debt-to-income ratio, and save for a down payment. “While living at home may not be an ideal or even a long-term scenario for many families, if prospective first-time buyers can move home before purchasing, this might financially help them save to purchase a home,” Lautz says. “The added flexibility of living with family allows a buyer to better navigate the tight housing market.” Source: National Association of REALTORS® Economists’ Outlook blog

Thirty-one percent of all Americans and 41% of 18-to-34-year-olds say they’ve purchased a primary residence with someone they aren’t married to, according to a survey by realtor.com®. Further, 55% of Americans and 68% of 18-to-34-year-olds say they would consider it. “With home prices skyrocketing in recent years, it’s become even more challenging to break into the housing market for first-time buyers,” says Clare Trepasso, deputy news editor at realtor.com®. “Many buyers have needed more than one income to afford a home, especially as rising rents may be eating into their down payment savings. However, the pandemic delayed many weddings. And rising prices forced some couples to choose between saving to become homeowners versus having the big day. This has resulted in many unmarried couples, as well as extended families and friends, pooling their resources so they can afford to become homeowners.” The most common co-buyers are romantic partners who are not engaged or married (15%). But Americans are also open to buying with extended family members or roommates. Source: HousingWire