May 10, 2022 – So, What Did We Expect? Starwest Mortgage Economic, Interest Rate, and Real Estate Report

May 10, 2022 @ 5:46 pm Posted by starwest 0 [hupso]

Economic Commentary

So, What Did We Expect? The Federal Reserve Board met last week and raised the Federal Funds and Discount Rates by 0.5%. This action was expected and the markets extremely volatile in the last few months in anticipation of such a move. After the meeting, the markets resumed their volatility, especially with the jobs report coming two days after the Fed announcement. Job growth continued to be robust in April, also not a surprise.   

The markets had already “baked in” this increase and the next few rate increases by the Fed. Thus, the markets were more focused upon what the Fed would say in their statement after the meeting. We could have written the statement before the meeting as well. We expected that the Fed intimate that this would not be the last rate increase because they are going to be diligent against inflation.

We wonder how the message might change if the economy slows down this year as many have predicted. The preliminary reading on economic growth for the first quarter came in at a negative 1.4%, well below the readings from last year. Could the fear of a recession slow the Fed’s efforts against inflation? Theoretically, a slower economy is likely to slow inflation as well. Of course, the war in Ukraine could exacerbate inflationary pressures even as the economy slows down. This already has been an interesting year and it is about to get even more interesting.

Weekly Interest Rate Overview

The Markets. Mortgage rates rose in the past week as the Fed meeting approached. For the week ending May 5, 30-year rates rose to 5.27% from 5.10% the week before. In addition, 15-year loans increased to 4.52% and the average for five-year ARMs also climbed to 3.96%. A year ago, 30-year fixed rates averaged 2.96%, over 2.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates resumed their climb this week as the 30-year fixed reached its highest point since 2009. While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate 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

Higher mortgage rates may soften demand this spring as worsening affordability prices more buyers out of the market. With mortgage applications down 6% from a year ago, sellers may need to be more realistic about how much they can ask for their property. An increasing number of listings are experiencing price reductions, climbing at the fastest pace since at least 2015, according to a new Redfin survey. Still, only 3.2% of homes on the market are seeing price drops. “There really is a limit to homebuyer demand, even though the market over the past few years has made it seem endless,” says Daryl Fairweather, Redfin’s chief economist. “The sharp increase in mortgage rates is pushing more home buyers out of the market, but it also appears to be discouraging some homeowners from selling. With demand and supply both slipping, the market isn’t likely to flip from a seller’s market to a buyer’s market any time soon.” The National Association of REALTORS® has forecast home sales to slip 10% in 2022, mostly due to rising mortgage rates that are pricing out more would-be buyers. However, NAR still predicts home prices to rise by 5% this year. For first-time home buyers, the cost of buying the same home this year compared to just one year ago has jumped by 40%—a combined impact of higher home prices and mortgage rates. “There will be an inevitable slowdown in home sales,” Lawrence Yun, NAR’s chief economist, recently said in a statement. “Keep an eye on days-on-market and a decrease in multiple offers. Home sellers should not expect big, easy profit gains.” Even with some early signs of cooling, the housing market remains elevated. Homes are selling at some of the fastest speeds ever, and price escalations on asking prices are still common, Redfin reports. Source: Redfin

First American Financial Corporation released First American’s proprietary Potential Home Sales Model (PHSM) for March 2022, showing that potential existing-home sales decreased to a 5.97 million seasonally adjusted annualized rate (SAAR) — a 3.2% month-over-month decrease. The market potential for existing-home sales decreased 3.9% compared to 2021, — a loss of 240,100 (SAAR) sales, while potential existing-home sales is 823,800 (SAAR), or 12.1% below the pre-recession peak of market potential. “Since the start of the global pandemic in March 2020, we have weathered unprecedented pandemic-induced changes and the housing market has been no exception,” said Mark Fleming, Chief Economist at First American. “The typically hot spring home-buying season in 2020 was initially frozen by the pandemic’s impacts and shelter-in-place orders. As potential home buyers emerged from the stay-at-home orders, the housing market began to heat up. The rising tide of pent-up demand aligned with historically low mortgage rates and hesitant sellers constraining the supply of homes for sale, creating a perfect storm for rapid house price growth.” “The ability to work-from-home further increased demand, as potential home buyers realized they had more geographic flexibility in their home searches. The result? The most competitive housing market in recent history,” said Fleming. “While housing market potential entering the 2022 spring home-buying season may be easing down from recent peaks, potential home sales remain strong and above pre-pandemic levels.” Source: DSNews

Another month, another record set. According to CoreLogic rent prices for single-family homes continued their double-digit gains in February as prices rose 13.1% from one year earlier on a national scale. But prices did not increase the same everywhere. According to CoreLogic’s Single-Family Rental Index, rents in warmer, coastal areas led the way. This record-breaking increase has mainly been fueled by a shortage of available rental units, a low national unemployment rate, and “robust” home prices increases which themselves have increased 20%. The high cost of housing is likely also contributing for people’s needs to rent over buy, further increasing rental demand. “Single-family rents rose at more than three times the rate from a year earlier and more than four times the pre-pandemic rate,” said Molly Boesel, principal economist at CoreLogic. “Strong employment and low supply have pushed single-family rental vacancy rates to low levels and have contributed to the high growth in rents.” Source: CoreLogic

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