November 12, 2024 – The Results

Economic Commentary

A lot has happened in the past few weeks. First, we had a slew of data showing that the economy is still on solid footing. The advanced estimate of economic growth (GDP) for the third quarter came in at 2.8% — a solid, but unspectacular number. The October jobs report was obviously affected by the recent hurricane disasters and strikes with an increase of 12,000 jobs. However, the unemployment rate held steady at 4.1%, which was evidence of these temporary factors. Then the Federal Reserve met and made a decision to decrease their benchmark overnight lending rate by 0.25%, which was an action that was expected.

In the middle of it all, we elected a new President. Change always adds volatility to the markets and we saw plenty of that leading up to election day and a few days beyond. In reality, the changeover in government will not take place for almost two months and even though the winner previously had a seat in the White House, it still will take time for them to settle in. In other words, change will not happen overnight. In addition, we also elected a new Congress which will be closely aligned with the new President. This alignment will actually help speed the pace of changes.

We think the average American is probably exhausted after such a grueling election season and therefore the consumer is likely to take a breath before making major financial decisions. Judging by the data released just before the election, the new President is inheriting a fairly strong economy. And we are not far away from the Holiday spending season. Thus, we are not expecting this time out will be all that long. Usually, this time of year, the real estate market takes a pause. The Fed does meet again next month and their actions might help limit the effects of the typical seasonal pause if we get another decrease in short-term rates. 

Weekly Interest Rate Overview

The Markets. According to Freddie Mac, mortgage rates continued to increase in the past week as the election and meeting of the Fed approached. However, rates did moderate after the Fed announcement on Thursday. 30-year fixed rates rose to 6.79% from 6.72% from the week before. In addition, 15-year loans increased to 6.00%. A year ago, 30-year fixed rates averaged 7.50%, more than 0.50% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continued to inch up this week, reaching 6.79 percent. It is clear purchase demand is very sensitive to mortgage rates in the current market environment. As soon as rates began to rise in early October, purchase applications fell and over the last month have declined 10 percent.” 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

Provident Bank recently released the results of its First-Time Home Buyer Survey, finding, despite challenges in the market, first-time buyers are largely finding homes in less than a year. Overall, about three-quarters of those surveyed answered they found their home within the first year of looking. However, some buyers have had to rethink their budgets during their search. About 37% of respondents said they had to decrease their budgets either significantly or slightly; but about 30% said they had to increase their budget slightly or significantly. In terms of reasons given for why respondents adjusted their budgets, high mortgage rates, lack of homes within their original budget and recent job loss or financial setback were the top three responses. Looking specifically at budget adjustments by age group, more than 50% of Gen X have had to significantly adjust their search criteria to stay within budget. In addition, 50% of both millennial and Gen X respondents stated that they’ve settled for an older home that needs renovations to complete the buying process, compared with only 39% of Gen Z respondents. As for how respondents are paying for their homes, more than half of respondents said their savings accounts are their main source of capital. The next most-popular response was access to first-time home buyer program grants. The top three challenges listed by respondents in their home search were rising/high interest rates, rising/high asking prices and lack of homes to choose from. Source: The Mortgage Bankers Association

Twenty-something home buyers are getting started on their journey toward homeownership earlier in life than millennials. The homeownership rate for adult Gen Zers—those between 19 and 26 years old—is higher than it was for millennials and Gen Xers when each of those groups was 24, according to an analysis conducted by Redfin. While Gen Zers between the ages of 18 and 24 only comprise about 3% of home buyers now, they’re still getting attention in the housing market because of their eagerness to purchase a home early despite market challenges. “These young buyers are tiptoeing into the housing market,” says Jessica Lautz, deputy chief economist for the National Association of REALTORS®. Gen Zers view homeownership as a financially smart move: About 87% of them say homeownership is important to building wealth, according to a survey from real estate investment platform Arrived. “If a buyer enters the market early, this long-term wealth gain could mean more stability moving forward,” Lautz says. “These young buyers are unlikely to hold onto their first home for their lifetime and will be able to make housing trades with stronger down payments with the equity they are earning.” Nearly 65% of Gen Zers say they’re eager to jump into homeownership, preferably within the next five years. However, they are concerned about affording the upfront costs, such as the down payment and closing costs, according to a survey of 750 respondents between the ages of 18 to 27 conducted by RE/MAX. Facing record-high home prices, how can twentysomethings, just starting out in their careers, afford homeownership? Further, more than half of Gen Z home buyers are single, which means they’re taking on the costs of homeownership alone.

Here are some ways Gen Zers are becoming homeowners:

• Loan alternatives: They’re turning to FHA loans, which require smaller down payments and lower credit scores to qualify than conventional loans. They’re also seeking first-time home buyer grants and down payment assistance programs.
• Financial gifts: More than one-third of Gen Zers who plan to buy a home expect to receive a cash gift from family members to help fund their down payment, according to a separate study from Redfin. About 16% intend to use inheritance money for their down payment.
• Compromises: More than half of Gen Zers surveyed by RE/MAX this year say they’re willing to make compromises on their home purchase to more easily afford homeownership, such as on the home’s price, location and size.
• Affordable markets: Gen Zers are seeking out more affordable markets to call home.
• Co-ownership: They’re turning to creative ways to enter into homeownership, such as co-buying with friends or moving in with family members. Seventy percent of Gen Zers say they’d be willing to co-buy a home with a friend, according to a survey conducted this year by JW Surety Bonds. Source: Realtor Magazine