March 28, 2023 – And The Hits Keep Coming. Last week was another eventful week for the markets.

Economic Commentary

And The Hits Keep Coming. Last week was another eventful week for the markets. There was a lot of anticipation regarding the meeting of the Federal Reserve, especially after Chairman Powell testified before Congress just a few weeks ago. In this testimony, he continued to pledge to keep up the pressure on inflation. On the other hand, the banking sector continued to take hits with multiple banks either closed or having to be bailed out. The increase of .25% in short-term rates was not a surprise considering these more recent events.

As we pointed out last week, the language concerning future increases would be what grabs the headlines. The Fed’s statement that they will stay the course against inflation but remain cognizant of the pressures within the banking sector, was interpreted as meaning that we are close to the end of this series of rate increases. After rising earlier this month rates had eased in reaction to the banking issues and the statement continued the trend — at least initially. Could rates move up from here? Of course, but it would most likely take additional strong economic news and/or another uptick in inflation for that to happen.

This is why we can never predict the future — who foresaw the banking sector being in the headlines at this juncture? Could interest rates move down from here? We have already seen rates dip at the beginning of the year, and we are currently testing those lows. While we are emphasizing the current state of uncertainty, keep in mind that there always could be another surprise which can pop up. Surprises such as another surge in the pandemic or the war in Ukraine could mean all bets are off. Obviously, we are hoping any surprise is a good one—such as perhaps the end of the war. We like that scenario best of all.

Weekly Interest Rate Overview

The Markets. Rates continued to ease in the past week as the bank sector issues constrained the Fed’s actions and statement — as the markets expected. For the week ending March 23, 30-year rates fell to 6.42% from 6.60% the week before. In addition, 15-year loans decreased to 5.68%. A year ago, 30-year fixed rates averaged 4.42%, exactly 2.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continued to slide down as financial market concerns came to the fore over the last two weeks. However, on the homebuyer front, the news is more positive with improved purchase demand and stabilizing home prices. If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season.”  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

Redfin reported the typical U.S. homeowner has spent 12.3 years in their home, down from the peak of 13.4 years hit in 2020 and 12.9 years in 2021. But the typical American is still living in their home much longer than before, with median homeowner tenure sitting at 10 years in 2012 and 6.5 years in 2005. The report said older people aging in place are driving the general trend toward longer homeowner tenure. Most Americans 65 and older have owned their home for at least 23 years, and most Americans aged 35 to 64 have owned theirs for at least eight years. Compare that with homeowners under 35: Nearly half (49%) have owned their home for three years or less, and another 37% have owned theirs for four to seven years. Redfin said overall homeowner tenure has ticked down from its peak largely because so many people moved from one home to another in 2021 and the first half of 2022. Record-low mortgage rates during that period motivated many Americans to buy homes, either becoming homeowners for the first time or selling their home to move to a better one. Pandemic-fueled remote work prompted many Americans to relocate to a different part of the country, too. But Americans are staying put much longer now than in the past couple decades. There are several reasons why that’s true, said Redfin Senior Economist Sheharyar Bokhari, and why homeowner tenure is likely to stay elevated in the coming decade. “Even though the length of time Americans are staying in their homes has ticked down from the peak it reached in 2020, it’s likely to head back up again in the next few years,” Bokhari said. “Today’s mortgage rates are more than double the lows reached during the pandemic homebuying frenzy, which means people have extra incentive to hang onto their homes. Even if rates dip down to 4% or 5%, that’s still significantly higher than the sub-3% rates many homeowners have now. That lock-in effect, combined with older Americans’ desire to stay put in their homes, points to lengthening tenure in the future.” Source: The Mortgage Bankers Association https://www.redfin.com/

According to Abbe Will, Senior Research Associate & Associate Project Director of Remodeling Futures at the Joint Center for Housing Studies at Harvard University, after several years of double-digit housing market growth, the amount of money consumers are expected to spend on home repairs and improvements will only grow modestly in 2023. According to the latest Leading Indicator of Remodeling Activity (LIRA), it now projects a deceleration in annual gains of home renovations and maintenance spending from 16.3% at the close of 2022 and to just 2.6% by the end of 2023. “Slowdowns in existing home sales, house price appreciation, and mortgage refinancing activity coupled with growing concerns for a broader economic recession will cool home remodeling activity this year,” Will said. “Homeowners are likely to pull back on high-end discretionary projects and instead focus their spending on necessary replacements and smaller projects in the immediate future.” Still, taking into account new data from the American Housing Survey essentially recalibrated the over market size. During the height of the pandemic, the decisions homeowners made resulted in remodeling and repair spending topping 23.8% over these two years compared with the originally estimated 12.5%. While the pace of expenditures is expected to slow substantially this year, the LIRA raised its projections for the remodeling market size in 2023 by about $45 billion, or 10.2%, to $485 billion. Source: DSNews

The post-pandemic apartment market has seen significant fluctuations from one year to another, according to a new report from RentCafe, including oscillations in the size of new apartments. As more homebuyers continue their home search amid rising interest rates and the fluctuating market, new data finds the rising demand for rentals is affecting the size of newly built apartments. In 2022, the average apartment size was 887 square feet. That’s 54 square feet less than 10 years ago, when rentals measured 941 square feet, on average. Meanwhile, the sharpest drop in one year was in 2022, when the average size went from 917 to 887 — a difference of roughly 30 square feet. Among other factors, the drop in size can be attributed to more studios and one-bedroom apartments entering the market in 2022, reaching a historic share of 57%. Last year’s decrease comes after the two pandemic years, 2020 and 2021, when the average size of new apartments actually increased. Once again, this confirmed the developers’ quick response to the need for more space during the pandemic, as they adjusted floorplans in order to accommodate large enough configurations to fit a home office. Source: MReport