May 28, 2024 – Summer Already?

Economic Commentary

We hope you all had a great Memorial Day weekend. With the weather seemingly getting warmer every year, it seems like summer vibes come earlier every year as well. Of course, we are used to that in the real estate industry because Memorial Day is typically the start of real estate summer. Summer is the time in which the real estate market slows down a bit. Though with mortgage rates peaking this year in late winter and early spring, any sign of lower rates could increase activity throughout the summer.

Certainly, the economic news is not slowing down. We have the jobs report at the end of next week and then a meeting of the Federal Reserve the following week. With the first sign of a slowing job market popping up within the April employment report, it will be interesting to see how May’s numbers look. Would two months of moderate job growth be enough to convince the Fed to lower rates? The market analysts don’t seem to think so.

However, as we have pointed out previously, the Fed does not have to lower their short-term interest rates in order for mortgage rates to fall. They just need to sound more optimistic about lowering rates in the near future. Any surprise in the employment numbers can turn rates higher or lower before the Fed meets and issues their announcement. Thus, next week’s jobs report will be scrutinized even more closely than usual. In the meantime, there will be a slew of data released this week – including measures of personal income and spending and the Fed’s favored measure of inflation – the Personal Consumption Expenditures Price Index.

Weekly Interest Rate Overview

The Markets. Rates continued their downward trend in the past week, though they rose a bit after the release of the minutes of the last Fed meeting.  30-year fixed rates fell to 6.94% from 7.02% the week before. In addition, 15-year loans eased to 6.24%. A year ago, 30-year fixed rates averaged 6.57%, 0.37% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Spring homebuyers received an unexpected windfall this week, as mortgage rates fell below the seven percent threshold for the first time in over a month. Although this week’s data on previously owned home sales showed a decline, total inventory of both new and existing homes is up. Greater supply coupled with the recent downward trend in rates is an encouraging sign for the housing market.”  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

Given the long-term growth of the U.S. population, there’s no way home sales can remain historically low for much longer, National Association of REALTORS® Chief Economist Lawrence Yun said recently. At the Residential Economic Issues & Trends Forum during the REALTORS® Legislative Meetings in Washington, D.C., Yun pointed out that there are 70 million more Americans today than in 1995. Housing needs are only increasing, and that won’t change because of complicated economic factors, he said. Although home sales are at a 30-year low as buyers face higher borrowing costs and stubbornly low inventory, housing options on the market are beginning to increase. To get markets moving, he said, NAR has been advocating for a variety of measures in Congress, such as giving mom-and-pop investors an incentive to sell to first-time buyers and increasing the capital gains exemption on the sale of a primary residence. And while the Federal Reserve has delayed rate cuts that were expected to start this spring, Yun said he anticipates as many as six to eight rate cuts by the end of 2025, possibly beginning as early as September. “If the Fed were to normalize its policy, then maybe mortgage rates could move lower. So, not only are we getting potentially more inventory, but we’ll also get more buyers as rates come down,” he added, “Over the next 10 years, eight of those years will likely see increases in home sales.” In addition, consumers may be adjusting to the feeling of “permanently high inflation” and looking for safe financial bets, Yun said. That will drive more homebuying decisions as consumers recognize real estate as an appreciating asset that has historically provided a good hedge against inflation. Source: Realtor Magazine

The National Association of Home Builders (NAHB) Remodelers released survey results on the most popular remodeling jobs by its members. The results revealed that bathroom and kitchen remodels remain the most popular projects. “Whatever type of home improvement project consumers are looking for, NAHB Remodelers remains committed to professionalism and helping home owners create the home of their dreams,” said NAHB Remodelers Chair Mike Pressgrove, a remodeler from Topeka, Kan. Bathroom remodels were cited as a common job by 65% of remodelers, followed by kitchen remodels (61%). After baths and kitchens, the most popular remodeling categories were:

• Whole house remodels (50%)
• Bathroom additions (23%)
• Windows/doors replacement (22%)
• Decks (20%)
• Enclosed/added porch (20%)

“There are many positive factors right now in the marketplace that are helping to support remodeling demand, including the low inventory of homes on the market, aging housing stock and growing equity that owners have in their homes,” said Pressgrove. “Residential remodeling activity is estimated to hold steady in 2024 compared to 2023.” Source: NAMB

In recent years, there has been a noticeable shift in the real estate sector toward sustainable and eco-conscious practices. One notable trend gaining momentum is the emergence of energy-efficient mortgages (EEM), sometimes referred to as “green” mortgages. These are loan products that enable borrowers to include energy-saving upgrades into their home purchase or refinance loan. Homebuyers are now considering a property’s environmental footprint during the purchase. In a 2022 survey, the number of real estate agents who reported helping clients buy or sell a property with green features jumped to 50%, up from 32% the year before. In the same survey, 63% of real estate agents said energy efficiency promotion in a listing was “very” or “somewhat” valuable. The demand for green homes is rising, leading to an increase in sustainable construction practices and a surge in the availability of eco-friendly properties. Real estate developers are also adapting to this shift by incorporating green building techniques and technologies into their projects. As sustainable housing becomes more mainstream, it not only contributes to the reduction of carbon footprints, but also enhances the overall value and marketability of properties. Source: Scotsman Guide