May 18, 2021 – The Fed, Jobs, and Growth. There seems to be a consensus that the economy will grow strongly this year, but we are not sure of two things.

Economic Commentary

The Fed, Jobs and Growth. A lot of information has passed through the minds of analysts in the past few weeks. We have had a preliminary measure of economic growth of 6.4% for the first quarter, which would be astounding if it were not seen within the perspective of a rebound from the pandemic and pumped up by stimulus. The jobs report for April showed a gain of 266,000 jobs, usually a solid number, but also seen as disappointing within the perspective of being down eight million jobs since last year.

Finally, the Fed acknowledged that the economy is likely to roar back this year due to the same factors but sees the threat of inflation as “transitory” — a new word for analysts to banter about. The next question is, what does all of this mean? There seems to be a consensus that the economy will grow strongly this year, but we are not sure of two things.

First, will this strong economy cause inflation to rise in the long-run and thereby raise interest rates significantly – leaving historic lows in the rearview mirror? Secondly, will enough American’s get vaccinated in order to let us return to normalcy, giving us a better chance that this recovery will stick around for the long-term? While we see blue skies in the immediate future, it is these long-term questions which will take some time to sort out.

Weekly Interest Rate Overview

The Markets. Rates eased again last week, but did start to increase towards the end of the survey period due to the release of inflation data for last month. For the week ending May 13, Freddie Mac announced that 30-year fixed rates decreased to 2.94% from 2.96% the week before. The average for 15-year loans fell to 2.26% and the average for five-year ARMs decreased to 2.59%. A year ago, 30-year fixed rates averaged 3.28%, more than 0.25% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Since the most recent peak in April, rates on home loans have declined nearly a quarter of a percent and have remained under three percent for the past month. Low rates offer homeowners an opportunity to lower their monthly payment by refinancing and our most recent research shows that many borrowers who could benefit from refinancing still aren’t pursuing the option. Additionally, the low rate environment has been a boon to the housing market but may not last long as consumer inflation has accelerated at its fastest pace in more than twelve years and may lead to higher mortgage rates in the summer.” 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

Americans who’ve struggled to find an affordable starter home may soon get a break, according to a Realtor.com survey that found that many owners wary of listing during the pandemic are getting ready to do so now. The real-estate listings website expects about 10% of the nation’s homes to hit the market this year, up from 8% in a typical year. The survey also found that 58% of the houses that owners plan to sell this year are valued below $350,000. “The fact that we’re seeing such a significant potential in entry level and affordable inventory getting ready to come to market is to me a really encouraging sign,” said George Ratiu, senior economist at Realtor.com. Soaring demand and a limited number of properties available has triggered bidding wars in certain parts of the U.S. in recent months, even for run-of-the-mill houses. Data from Zillow Group Inc., the online real-estate company, also suggests that constraints in inventories are set to ease. Zillow saw a 30% rise in new inventory from late February to late March, a sign that the industry is returning to the traditional pattern of home listings in the spring. Source: Bloomberg

Sixteen percent of American adults are considering the purchase of a home in the next 12 months, according to NAHB’s Housing Trends Report for Q121. That is six points higher than the 10% with similar plans a year earlier. The increase marks the third (and largest) year-over-year gain in the share of prospective buyers in the series history. This steady growth shows the ongoing COVID-19 pandemic continues to fuel Americans’ desire to buy homes. Meanwhile, the share of prospective buyers who would be purchasing a home for the first time stood at 62% in the first quarter of the year, essentially unchanged from a year earlier (61%). Millennials are the generation with the fastest growth in adults planning a home purchase: the share of this group with plans to buy a home in the next 12 months doubled from 16% to 32% in the year ended in Q121, while other generations saw more tepid growth. Source: NAHB

ATTOM Data Solutions, Irvine, Calif., said profits for home sellers nationwide fell slightly in the first quarter but improved year over year—another sign of how the housing market is fending off economic damage caused by the coronavirus pandemic. The company’s quarterly U.S. Home Sales Report said the typical first-quarter home sale in the United States generated a profit of $70,050, down from $75,750 in the fourth quarter but up 26 percent from $55,750 a year ago. That profit represented a 34.2 percent return on investment compared to the original purchase price – down from 37.1 percent in the fourth quarter but higher than the 30.8 percent level recorded a year ago. Todd Teta, chief product officer with ATTOM Data Solutions, said small dips in profits are common in the first quarter as the home-buying season goes into its annual cold-weather lull. But raw profits, as well as the return-on-investments on sales of median-priced homes in the first quarter, still stood at the second-highest points since the U.S. housing market began recovering from the Great Recession in 2012. He said they were among the many signs that the nine-year U.S. housing market boom continues to surge ahead even as the broader economy struggles to rebound from the pandemic’s effects. Source: The Mortgage Bankers Association