May 16, 2023 – Does It Feel Like a Recession? Fannie Mae’s economists say a recession is coming. So does the Mortgage Bankers Association.

Economic Commentary

Does It Feel Like a Recession? Fannie Mae’s economists say a recession is coming. So does the Mortgage Bankers Association. As a matter of fact, 58% of economists are predicting a recession coming in the near future. Some even are predicting that the recession has started in the second quarter, but most are now expecting the start to be during the second half of the year. So, our question is – does it feel like a recession? The answer may depend upon where you are sitting right now.

If you are in the real estate industry, it may feel like a recession because sales have slowed so much since the beginning of last year. On the other hand, 2021 was so strong, perhaps it just feels like a recession because of the change of pace. Homes that are listed are selling quite well, which is not typical of a recession. There just are not enough homes listed for sale. That is also not typical of a recession. In a typical recession there are too many homes for sale.

If you are looking for a job, it may not feel like a recession. In the first quarter, there were an average of around ten million jobs open in the United States – and the unemployment rate was less than 4.0%. We also added one million jobs in the first quarter. Those are not recessionary numbers. Of course, that does not mean there is a job for everyone. If you are out of work, that feels like a recession. One personal observation – in the Washington DC area, observing restaurants, it does not feel like a recession, because you can barely get a table. That may not be the case in all areas of the country. This commentary does not mean a recession is not coming. But it may be why even most of those predicting a recession are calling for a “mild” one.

Weekly Interest Rate Overview

The Markets. Rates continued to ease slightly in the past week, with less day-to-day volatility. For the week ending May 11, 30-year rates fell to 6.35% from 6.39% the week before. In addition, 15-year loans decreased to 5.75%. A year ago, 30-year fixed rates averaged 5.30%, approximately 1.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year. While inflation remains elevated, its rate of growth has moderated and is expected to decelerate over the remainder of 2023. This should bode well for the trajectory of mortgage rates over the long-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

Most owners have earned more than $100,000 in equity over the last decade, according to new NAR data. Property appreciation has surged along with home prices in the last decade, giving most homeowners more than $100,000 in equity over that time period and lending further evidence that homeownership is an important avenue to build household wealth. Middle-income homeowners have seen their properties appreciate by 68% since 2012, accumulating $122,100 in wealth, according to a new report from the National Association of REALTORS® released during the 2023 REALTOR® Broker Summit. Low-income homeowners who earn less than 80% of their area’s median income saw $98,900 in equity gains in the same time period, while upper-income households who earn more than 200% of their area’s median income accrued $150,800 in equity, according to NAR’s report, “Wealth Gains by Income and Racial/Ethnic Group.” “This analysis shows how homeownership is a catalyst for building wealth for people from all walks of life,” says NAR Chief Economist Lawrence Yun. “A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.” Along with these wealth gains, homeowners also saw their debt drop by 21% over the last decade, the report shows. In recent years, many homeowners were able to refinance their mortgages and secure an interest rate below 4%. And because of those smaller monthly payments, many homeowners have paid off an even larger amount of their mortgage, the report notes. Source: REALTOR® Magazine

Property taxes on single-family homes grew 3.6% last year, more than double 2021’s 1.6% growth rate. The ATTOM 2022 Property Tax Analysis said $339.8 billion in property taxes were levied on single-family homes last year, up from $328 billion in 2021. Though more than double the 1.6 percent growth in 2021, the final figure was significantly smaller than the 5.4 percent increase seen in 2020. “Property taxes continued their never-ending climb last year, with wide disparities continuing from one area of the country to another, connected to varying costs, services and tax bases,” said ATTOM CEO Rob Barber. “But, on balance, the latest increase nationwide again was modest.” Barber noted local governments and school systems will face even greater challenges keeping taxes in check this year given rising inflation rates and a growing number of commercial properties that could be eligible for tax reductions after suffering a surge of vacancies during the pandemic. ATTOM found an effective tax rate nationwide of 0.83 percent, down slightly from 0.86 percent in 2021 and the lowest point since at least 2016. “In 2022, effective rates continued to decline even as total taxes rose because home values went up faster than taxes yet again around the country last year,” the report said. “Despite a stall in the nation’s decade-long housing market boom in 2022, the average single-family home estimated value still rose 7.9 percent over the year. That surpassed the average tax increase, resulting in the small dip in effective rates.” But that downward trend in effective rates could easily reverse if a drop in home values that began in the second half of last year continues, ATTOM said. Prices have started to decline amid mortgage rates that have doubled, high consumer price inflation and other forces that have cut into what home seekers can afford. Source: The Mortgage Bankers Association

While the for-sale housing market teeters and multifamily rental growth hits a wall, the single-family rental business is doing just fine. That’s according to a new report from real estate data firm Attom. In fact, it’s doing better than last year. The overheated housing market and higher mortgage rates have pushed would-be homeowners to continue renting in the majority of U.S. markets, even as housing prices are flatlining, according to research from rating firm S&P Global. That mismatch is proving a boon to institutional single-family landlords, while causing institutional single-family flippers a good deal of pain. “Sharp mortgage rate increases have worsened housing affordability over the past year and ended a home-buying boom that relied on low interest rates,” the report stated. “Mortgage costs have nearly doubled, forcing more consumers to rent or to continue renting for longer.” The gross rental yield on three-bedroom homes in the 212 counties that Attom analyzes is projected to be 7.5 percent over the course of 2023, up from 6.7 percent in 2022. And SFR rents are growing in over 90 percent of the counties analyzed — the same share of counties saw rents rise faster than home prices, ranging between a 5 percent and 20 percent growth rate across markets. “Rents for single-family homes are growing while prices have flattened out, which has helped boost yields for landlords for the first time in at least several years,” said Rob Barber, chief executive officer at Attom. Source: The Commercial Observer