May 4, 2021 – Are We Expecting Too Much? If you are reading the forecasts being released for this year, the optimism for a strong rebound has hit unprecedented highs.

Economic Commentary

Are We Expecting Too Much? If you are reading the forecasts being released for this year, the optimism for a strong rebound has hit unprecedented highs. There has been plenty of data to support such optimism. This data has included a gain of nearly one million jobs in March. Add plenty of stimulus dollars to the equation, and you can see why the analysts are raising their forecasts.

For example, Fannie Mae sees second quarter growth at an annualized rate of 9.1% — extremely hot — and a growth rate of 6.8% for the fourth quarter of this year. These are very optimistic numbers. They acknowledge there are risks on the downside, such as a variant-fueled surge in COVID cases and the risk of inflation rising and interest rates increasing in response to any surge in inflation. Of course, there are always caveats to every prediction.

Are we being too optimistic? In April, we actually saw interest rates fall and one of the explanations analysts provided indicated that the data was not as strong as expected. In other words, the greater our expectations, the more likely we could be disappointed. Could we really be disappointed by something akin to a 7.0% growth rate in the second quarter? The first measure of economic growth for the first quarter was released last Thursday and the strong 6.4% rate was a bit higher than forecasts. The markets reacted positive initially, with interest rates and the stock market moving higher, with a quick reversal the very next day.

Weekly Interest Rate Overview

The Markets. Rates remained below the 3.0% level last week. For the week ending April 29, Freddie Mac announced that 30-year fixed rates increased slightly to 2.98% from 2.97% the week before. The average for 15-year loans rose to 2.31% and the average for five-year ARMs fell sharply to 2.64%. A year ago, 30-year fixed rates averaged 3.23%, 0.25% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “In light of the rising COVID caseloads globally, U.S. Treasury yields stopped moving up a month ago and have remained within a narrow range as the market digests incoming economic data. The good news is that with rates under three percent, refinancing continues to be attractive for many borrowers who financed before 2020. But, for eager buyers, especially first-time homebuyers, inventory continues to be extremely tight and competition for available homes to purchase remains high.”  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

As part of their Q4 2020 National Housing Survey, Fannie Mae reports that 75% of respondents indicated that homes are a “safe” investment, ranking in safety just slightly below a savings/money market account. Additionally, 73% of consumers felt that investing in a home has “a lot of potential” – by comparison, 63% of consumers believe that stocks have “a lot of potential.” “When comparing homeownership to other investments, consumers may be factoring in the rent they may otherwise have to pay, and for some consumers the tax benefits of owning a home remain meaningful,” the report continues. Fannie Mae said that consumers remain focused on the long-term potential of housing. In fact, 85% of consumers in the survey believe homeownership leads to wealth-building and better financial health, numbers that have been consistent over time. Consumers also value homeownership for non-monetary reasons, with emotional and tangible aspects perhaps contributing to the opinion that owning a home is an investment with “a lot of potential.” Generally speaking, this is something that other investments (e.g., stocks, bonds) or renting may not provide. 90% of consumers say owning a home “gives a sense of privacy and security;” and 89% say it allows for “a good place to raise your family,” compared to renting a home. Owning a home is also considered by most to be part of “the good life,” with survey data showing that 87% of consumers report that owning a home is important for “the good life.” For context, other items ranking higher on “the good life” list included health, financial security, preferred living location, and work/life balance. Source: Scotsman Guide

Bright lights, big city. “And lack of affordable rental housing,” says University of Cincinnati researcher Mike Eriksen, Ph.D. The West Shell Associate Professor of Real Estate from the Carl H. Lindner College of Business recently published a report entitled, “The Location of Affordable and Subsidized Rental Housing Across and Within the Largest Cities in the United States” with the Mortgage Bankers Association’s Research Institute for Housing America. “Across the largest 50 cities, median rent has increased 175% faster than household incomes,” said Eriksen. “For low and middle income populations in these regions, housing is getting more expensive at a faster rate.” For Eriksen, this report scratches the surface on uncovering what equitable housing opportunities could mean—and look like in practice—in cities of any size growing at any rate in the United States. He says more research is needed to help untangle the knotty mess of housing inequality and understanding the economic obstacles for renters and first-time homebuyers alike. Source: Phys.org

Does staging really work? That was among the home buying and selling topics covered in a new survey from the National Association of Realtors® (NAR) and the answer appears to be “yes.” Eight-two percent of buyers’ agents said home staging made it easier for a buyer to visualize the property as a future home. Staging also appears to increase how much buyers were willing to spend for a property. Twenty-three percent of buyers’ agents said that home staging raised the dollar value offered between 1 percent and 5 percent compared to similar homes on the market that hadn’t been staged. The response from sellers’ agents was nearly identical, with 23 percent reporting a 1 percent to 5 percent price increase on offers for staged homes and 18 percent of sellers’ agents putting the increase between 6 percent and 10 percent. None of the agents for sellers reported that home staging had a negative impact on the property’s dollar value and 31 percent said that home staging greatly decreased the amount of time a home spent on the market. “Staging a home helps consumers see the full potential of a given space or property,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. “It features the home in its best light and helps would-be buyers envision its various possibilities.” The changed selling methods necessitated by the pandemic such as video tours may have increased the importance of staging. Eighty-three percent of buyers’ agents said having photographs for their listings was more important since the beginning of the pandemic. Seventy-four percent of buyers’ agents said the same about videos, and 73 percent said having virtual tours available for their listings was more important in the wake of COVID-19. Source: The NAR