March 8, 2022 – The Ukraine Factor. It has been quite a busy two years. First, we had the pandemic.


Economic Commentary

The Ukraine Factor. It has been quite a busy two years. First, we had the pandemic. This was followed by a sharp recession. During the recession and recovery, we had shortages of many things, including consumer goods, cars, employees and houses. This caused inflation, which is now prompting rates to rise. The latest jobs report indicated that the recovery is continuing as the unemployment rate fell to a post-pandemic low. And now we have the Ukraine factor. We do know that the fate of Ukraine will affect our economy in several ways.

The problem is, we don’t know exactly how the economy will be affected. We can presume that oil prices will stay at a higher level — and as a matter of fact, energy prices rose in anticipation of the invasion. This increase is on top of the rise in prices we have seen in the past year. Certainly, higher oil prices will put more pressure on inflation. On the other hand, if the economic sanctions levied on Russia cause the economy to slow down, this could have a positive effect upon inflation in the long run.

Most economists are already calling for our economy to slow down somewhat from the torrid expansion pace of 2021 – and higher interest rates are a major factor in that equation. Measures placed on a major world economy as sanctions for aggression could add additional friction. Again, we don’t know how much of a factor this situation will have upon the overall economy. Let’s hope this war is short-lived and diplomacy eventually prevails. Only then could we go back to concentrating on all the other aforementioned factors.

Weekly Interest Rate Overview

The Markets. Mortgage rates fell in the latest survey, but they rose sharply after the survey period expired, as volatility continued.  For the week ending March 4, 30-year rates fell to 3.76% from 3.89% the week before. In addition, 15-year loans decreased to 3.01% and the average for five-year ARMs also decreased to 2.91%. A year ago, 30-year fixed rates averaged 3.02%, 0.74% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Geopolitical tensions caused U.S. Treasury yields to recede this week as investors moved to the safety of bonds, leading to a drop in mortgage rates. While inflationary pressures remain, the cascading impacts of the war in Ukraine have created market uncertainty. Consequently, rates are expected to stay low in the short-term but will likely increase in the coming months.” 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

CoreLogic, Irvine, Calif., said single-family rent prices experienced extensive growth during 2021, increasing an average of 7.8% compared to 2.6% in 2020. The company’s Single-Family Rent Index also reported on a monthly basis, rent prices ended the year with a 12% annual increase in December, up from 3.9% a year ago. Molly Boesel, principal economist with CoreLogic, said affordability challenges and limited supply created barriers to home purchasing for many prospective buyers. She said this factor drove elevated demand for single-family rentals and put increased pressure on the market as vacancy rates also hit historical lows. The report also noted differences in rent growth by property type emerged after the pandemic as renters sought out standalone properties in lower density areas. This trend drove an acceleration in rent growth for detached rentals in 2021 while growth for attached rentals slowed. However, as rental inventory has remained slim, the gap between attached and detached rental growth started to close in the latter part of the year, with gains of 11.3% and 12.1% respectively in December. This is the closest that attached and detached growth rates have been since April 2020. Source: CoreLogic

According to a recent survey of 3,300 renters on RentCafé, as many as 78% said they were interested in living in a community of single-family homes. The survey confirmed the rising interest in single-family rentals that began to take shape last year, where searches for “homes for rent” tripled in 2021 compared to the previous year. For renters looking for lifestyle changes offering more space and privacy, single-family communities and houses built for the purpose of renting have become a more popular trend in housing. While 2021 was a record year for single-family rental home construction, with 6,740 new built-to-rent homes already completed. The trend is growing rapidly, as twice as many homes are now under construction for an average total of 14,000 set to open their doors to renters this year. Described by some experts as “horizontal apartments,” communities of houses built for the sole purpose of renting are becoming an increasing topic in residential living. Although proliferated in the aftermath of the 2008 housing crisis, the pandemic created an unprecedented demand among renters for space and privacy, unlike apartments. The built-to-rent trend combines the financial and leasing flexibility of a rental with the amenities and convenience of a professionally managed property, all while living a single-family home lifestyle. As a result, everyone is interested, according to Shannon Hersker with Walker & Dunlop: “There is a misconception that the majority of renters are Millennials when, in reality, you have everyone including college students, empty nesters, families with kids, pet owners, and those wanting to downsize,” Hersker said. Source: DSNews

According to a report from Redfin, real estate investors bought a record 18.4% of the homes that were sold in the U.S. during Q4 of 2021–worth a total of nearly $50 billion, up from 12.6% a year earlier, and a revised rate of 17.4% in Q3 of 2021. Although investor market share hit a record in Q4, the number of homes bought by investors declined 9.1% from the Q3 peak; however, still up significantly from pre-pandemic levels. Investors bought 80,293 homes in Q4, up 43.9% from a year earlier. The housing-supply shortage constricted home sales for all homebuyers, including investors. Some 75.3% of investor home purchases were paid for with all cash in Q4. “While record-high home prices are problematic for individual homebuyers, they’re one reason why investor demand is stronger than ever,” said Redfin Economist Sheharyar Bokhari. “Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy. The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead. Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.” Source: MReport

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