May 2, 2023 – The middle point of a busy two weeks is being occupied by a two-day meeting of the Federal Reserve’s Open Market Committee.

Economic Commentary

Decision Time For The Fed. The middle point of a busy two weeks is being occupied by a two-day meeting of the Federal Reserve’s Open Market Committee. At this juncture, the bets are on another .25% increase in short-term interest rates, but there is some hope that the Fed finally passes on increases for the first time in ten meetings. Cumulatively, the Fed has raised short-term rates 4.75%, which is significant, but one must remember that short-term rates were brought down close to zero during the pandemic.

Meanwhile, the Fed has plenty of data to work with in making their decision. Most recently, the first measure of economic growth (GDP) for the first quarter was released. The 1.1% growth rate was seen as weaker than expected.  Plus, last week we saw the data on personal spending, which came in flat as expected after a strong start to the year.  Accompanying this report was the Personal Consumption Expenditures Price Index (PCE Price Index), which continued to moderate from last year’s torrid pace. This is a number the Fed watches closely, along with the Consumer and Producer Price Indices released earlier last month. 

Regardless of these numbers, there are still concerns about the banking sector. Despite assurances from the Secretary of the Treasury and the members of the Fed that the banking sector is sound, each increase in rates puts more pressure on these financial institutions. This situation is supporting the sentiment for no rate increase at this meeting, despite the data. And speaking of data, to close out the busy two weeks, we will have the jobs numbers on Friday. No doubt the Fed will be looking for a continued moderation in employment growth.

Weekly Interest Rate Overview

The Markets. Rates moved up slightly again this past week with the next Fed meeting approaching. For the week ending April 27, 30-year rates rose to 6.43% from 6.39% the week before. In addition, 15-year loans decreased to 5.71%. Ad year ago, 30-year fixed rates averaged 5.10%, more than 1.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage increased modestly for the second straight week, but with the rate of inflation decelerating rates should gently decline over the course of 2023. Incoming data suggest the housing market has stabilized from a sales and house price perspective. The prospect of lower mortgage rates for the remainder of the year should be welcome news to borrowers who are looking to purchase a home.”  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

If you follow the rule of thumb that households should spend no more than 30% of their gross income on rent, then most U.S. cities are unaffordable. A monthly NerdWallet rent-to-income ratio analysis of 225 cities in the U.S. finds that, based on the most recent data, 65% of rents on the market are equal to or above the recommended 30% ratio in February. In January, the ratio was 64%. That means market rents are moderately to severely burdensome for residents in 57% of U.S. cities measured. Market rent comes from data on the real estate website Zillow, based on February data, and median income used for this analysis is from 2021 U.S. Census Bureau data. The data doesn’t differentiate between incomes for residents who own rather than rent in those cities. By federal standards, spending 30% to 49% of income on rent means a household is “moderately rent burdened,” and spending 50% or more means a household is “severely rent burdened,” according to the NYU Furman Center, which conducts research about housing and urban policy. From January to February, the price of advertised rents increased by 0.3%, according to Zillow’s rental report for February 2023. Typical asking rents increased 6.3% compared with the same time last year. Source: 69WFMZ

ATTOM released its year-end 2022 U.S. Home Flipping Report, which shows that 407,417 single-family homes and condos in the United States were flipped in 2022. That was up 14 percent from 357,666 in 2021, and up 58 percent from 2020, to the highest point since at least 2005. The report reveals that the number of homes flipped by investors last year represented 8.4 percent of all home sales, also the largest figure since at least 2005. The latest portion was up from 5.9 percent in 2021 and 5.8 percent in 2020. But even as quick buy-renovate-and-resell turnarounds by investors shot up, gross profit margins on home flips in 2022 sank to their lowest level since 2008 — the second major drop in two years. Homes flipped in 2022 typically generated a gross profit of $67,900 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was down 3 percent from $70,000 in 2021 and translated into a 26.9 percent return on investment compared to the original acquisition price. The latest nationwide ROI (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) was down from 32.6 percent in 2021 and from 41.9 percent in 2020. Investors saw their profit margins drop for the fifth time in the past six years as the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties – 12 percent versus 17 percent. The decline in home-flipping profits in 2022 continued to cast a negative light on a niche of the U.S. housing market that is growing but also struggling to figure out how to profit from changing price trends. Source: ATTOM

Women have returned to the workforce in near pre-pandemic numbers, but homeownership remains elusive for those who are single, reported Zillow. Single men have long been more likely than single women to own a home, but that gap narrowed sharply in recent years and nearly closed in 2021. But 2022 wiped out that progress. “The first year of the pandemic saw an outsize share of women leave their jobs to take on caregiving responsibilities as child-care and eldercare options were in flux,” Zillow said in a new analysis. Women also continue to earn significantly less than men on average, so young single women have fewer options when it comes to affordable home listings than young single men, the report noted. “Single women had made great strides in narrowing the homeownership gap, but the pandemic reminded us that progress is not always linear,” said Skylar Olsen, Chief Economist with Zillow. “Despite women showing remarkable resilience in returning to the workforce, single women’s homeownership rate took a heavy hit in 2022. With rising and volatile mortgage rates furthering affordability challenges, the road to affordable homeownership remains an uphill battle, and it may take creative solutions or even doubling up in a home to achieve that dream.” After growing to 28.6% by 2021, the homeownership rate for single women dropped to 24.5% last year, wiping out almost half the gains made since 2016, when single women’s homeownership reached a record-low 19.4%, Zillow reported. At the same time, the homeownership rate for single men increased 2.7 percentage points in 2022 to 33.1%. Source: The Mortgage Bankers Association