November 1, 2022 – So, When Did Good Become Bad? This will be another interesting week for the markets.

Economic Commentary

So, When Did Good Become Bad? This will be another interesting week for the markets. The Fed starts their meeting as we publish this newsletter. All month long we have been subject to incendiary rhetoric from the members of the Fed indicating that they will not rest in their fight to subdue inflation. In other words, short-term rates are going up again at this meeting. The only question is – how much? Another .75% would not surprise the markets and anything less could be seen as the first step towards easing off the pedal.

And if the meeting of the Fed is not enough, we have the all-important jobs report to be released on Friday. What the Fed would like to see is fewer than 200,000 jobs created – with lower wage growth. The jobs machine has been cranking out millions of jobs this year and wages have been soaring. These are key ingredients contributing to the rise of inflation. Thus, we need to see fewer jobs with lower pay to convince the Fed that they can back off a bit.

Here are the questions we would like to ask. How can we root for the economy to produce less jobs? And for that matter, how can we root for less raises for our workers? When did bad news become good news for the economy? Since the pandemic hit, this has been a topsy-turvy economy and it appears the strangeness will continue. One more message—don’t forget to vote next week!

Weekly Interest Rate Overview

The Markets. Rates moved up in the past week, but started to ease as the survey period ended.  For the week ending October 27, 30-year rates rose to 7.02% from 6.94% the week before. In addition, 15-year loans increased to 6.36% and the average for five-year ARMs rose to 5.96%. A year ago, 30-year fixed rates averaged 3.14%, more than 3.75% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage broke seven percent for the first time since April 2002, leading to greater stagnation in the housing market. As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month. In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”  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. ***Freddie Mac is making changes to the format of the weekly survey in November***

Real Estate News

The importance of homeownership comes from financial knowledge; it’s what turns renters into homeowners and, potentially, homeowners into real estate investors. Most people in the industry would assume that Gen Z and the younger generations don’t understand the value of homeownership, but studies prove they’re wrong. Most teens (88%) would like to own a home someday, according to a survey conducted by Wakefield Research on behalf of Junior Achievement USA and Fannie Mae. A survey of 1,000 teenagers ages 13 to 17 in the United States found most (85%) believe owning a home is a part of “the good life,” compared to nearly as many adults (87%). But results show they are not quite financially literate enough to understand all the aspects that go into homeownership. Fewer than half (45%) could correctly identify the definition of a home mortgage and 76% said they lacked clear understanding of credit scores. “There’s been this theme that younger Americans aren’t interested in homeownership, but the results of this survey contradict that assumption,” said Jack E. Kosakowski, president and CEO of Junior Achievement USA. “Teens appear interested in owning a home someday but seem to realize they need more information on how to do it.” While nearly all teens (96%) know credit scores play an important role in the ability to purchase a home, approximately 3 in 4 (76%) said they understood credit scores only “somewhat,” “a little,” or “not at all.” Source: National Mortgage Professional

According to data from Pacaso, rising mortgage rates, a weak stock market, and overall economic concerns, particularly regarding the housing market, combined to deter many buyers from purchasing a luxury second home or investment property in the third quarter of 2022, resulting in a 28% quarter-over-quarter decline in mortgage rate locks nationwide. Yet, luxury second home rate locks were 152% higher in Q3 2022 than they were in Q3 2019, the last reading for the same season before the pandemic. “The pandemic unleashed unprecedented, unsustainable demand for luxury second homes,” said Austin Allison, Co-Founder and CEO of Pacaso. “While market conditions deterred many buyers from making purchases in Q3, mortgage rate locks are still flowing at double the pace from before the pandemic. Remote work has become so prevalent that it’s created a new normal for luxury second homes, and we should continue to see elevated demand in historical terms even as market conditions take the froth off.” Each quarter from the third quarter of 2020 through the third quarter of 2022 saw rate locks on luxury second homes clock in at more than double the level in the corresponding quarter of 2019. “Market conditions are temporary, but remote work and the desire to spend time with your people in amazing places are here to stay,” said Allison. “That’s why I remain bullish on second homes in the long-run, especially in the luxury tier and despite the short-term challenges.” Source: DSNews

Nearly 95% of pet-owning home buyers say their pet’s needs play a role in selecting a home. In fact, 68% of pet owners say they would pass on the perfect home if it didn’t meet their pet’s needs, according to a new survey based on more than 2,000 consumer responses released by realtor.com®. Consumers between the ages of 35 and 54 were the most likely to pass on an otherwise perfect home for the sake of their pet. The National Association of Realtors® also released a pet survey last month that showed the crucial role pets play in guiding real estate decisions. Forty-three percent of consumers in the NAR survey said they would be willing to move in order to better accommodate their pet. In the realtor.com® survey, pet owners gave high preference to homes with large yards and outdoor space. Consumers also ranked a garage, dog run, close proximity to outdoor space, and large square footage as important accommodations for their pets. “The results of this survey reinforce that our pets are our family and an important part of what makes a house a home,” says Nate Johnson, chief marketing officer at realtor.com®. Source: NAR