November 21, 2023 – Happy Thanksgiving


Economic Commentary

This week we will celebrate Thanksgiving. As is tradition, we will count the ways in which we should be thankful – no matter how challenging the year has been! From a personal perspective, we hope that you all have had a great year. From a business perspective, it is probably easier this year to count the challenges. To that, we will quote the Dalai Lama:

Whenever there is a challenge, there is also an opportunity to face it,
to demonstrate and develop our will and determination.

Never before has such a statement hit the nail so accurately on the head. Yes, there have been challenges this year. There are challenges for homebuyers, mortgage personnel and real estate professionals. But those who are planning for a brighter future are acting today to change the future. For a prospective homeowner, it may be saving for a down payment or getting married with a gift registry to help achieve this goal faster. Mortgage personnel may be helping present homeowners improve their financial situation by using their home equity to consolidate debts or make home improvements. And real estate professionals may be helping present homeowners plan their next move, whether it will be moving up or scaling back.

Today, with this challenging market, professional advice is more important than ever. We can’t predict the future of interest rates. But we can help those who need to develop their plans for the future. And there are plenty of people planning to purchase or sell real estate in the not so distant future. For those who make plans, the future will be brighter. Sounds like another great quote!

Weekly Interest Rate Overview

The Markets. The Freddie Mac Rate Survey continued to show a decline in mortgage rates last week. A combination of good inflation news and weak economic news supported the downtrend, with the markets forecasting less of a chance of a rate increase when the Fed meets in December. For the week ending November 16, 30-year rates fell to 7.44% from 7.50% the week before. In addition, 15-year loans decreased to 6.76%. A year ago, 30-year fixed rates averaged 6.61%, more than 0.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding. The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the 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

Despite mortgage rates topping 7%, Americans persist in their desire to buy a home. According to the latest Housing Trends Report, the share of adults with plans to purchase a home within a year edged up to 17% in the third quarter of 2023, up from 15% a quarter earlier. The share has fluctuated up and down without a clear trend for over a year, likely due to the push-pull between two opposing forces: higher interest rates/home prices and persistent demand stemming from demographic growth. Meanwhile, interest in newly built homes continues to rise as the collapse of existing home inventory leaves new homes as the only option in many areas. In the third quarter of 2023, 27% of prospective buyers were looking to buy new construction, up for a third consecutive quarter after falling to 20% in the final quarter of 2022. At the same time, the Census Bureau’s Housing Vacancy Survey (CPS/HVS) reported the U.S. homeownership rate at 66% in the third quarter of 2023, nearly identical to the previous quarter, despite higher rates and home prices. Source: National Association of Home Builders

Shipments of manufactured homes were up for five months in a row through August, the most recent month for which data is available, according to the Census Bureau. They have risen by 7% to a seasonally adjusted annualized rate of 89,000 from 83,000 in March, the lowest since May 2020. A combination of high mortgage interest rates and high prices for both new and existing properties has put purchasing a home beyond the reach of many prospective buyers. That appears to be boosting demand in the prefabricated housing market, a sector that has lost market share in the past decade. “Interest rates are pushing people who are on the cusp of being able to afford building a new custom home out of the running right now,” said Brian Abramson, CEO of Method Homes, a higher-end modular homes builder. “There’s going to be continued interest in prefabricated homes because it’s a window to building.” Unlike homes built on site, Abramson said factory-built homes don’t require nearly as much on-site labor and don’t face the project cost-escalations common to “stick-built” houses. As of May of this year, the average price of a prefabricated home was $129,900, according to Census data. Even after factoring in the cost of a typical building lot of nearly $110,000, a prefab home comes in about 40% cheaper than new or existing site-built homes. But even with such a large price differential, the prefabricated industry has struggled to regain market share after the 2007-2009 financial crisis due in large part to consumer concerns that the cheaper price point translates to lower quality, said Danushka Nanayakkara, assistant vice president of forecasting at the National Association of Homebuilders (NAHB). “There’s a stigma attached to modular panelized construction because people tend to think of it as mobile homes,” said Nanayakkara. Source: Reuters

The U.S. Department of Housing and Urban Development (HUD) and the Administration have announced important updates that will help support the nation’s housing supply and improve housing affordability. The White House released a guidebook, Commercial to Residential Conversions: A Guidebook to Available Federal Resources, developed in partnership with HUD and other federal agencies, that will help communities and housing providers identify federal resources to finance the conversion of commercial properties to residential uses and mixed-use development. As part of this announcement, HUD released an updated notice on how its Community Development Block Grant (CDBG) funding, $10 billion of which has been allocated during this Administration, can be used to boost housing supply–including acquisition, rehabilitation, and commercial-to-residential conversions. This notice is the latest update on how to use CDBG resources to support the development of affordable housing. States and localities can also access up to five times their annual CDBG allocation in low-cost loan guarantees to fund projects such as the conversion of properties to housing or mixed-use development. “Addressing the affordable housing crisis requires an all-of-the-above approach,” said HUD Secretary Marcia L. Fudge. “The White House guidebook on commercial-to-residential conversions and the updated CDBG notice are just a few of the steps that HUD is taking to help our state and local partners to boost supply.” A new blog released by the Council of Economic Advisers finds that office vacancies have reached a 30-year high from coast-to-coast, placing a strain on commercial real estate and local economies. At the same time, the country has struggled for decades with a shortage of affordable housing units, which is driving up rental costs, and communities are seeking new ways to cut emissions, especially from existing buildings and transportation. “MBA shares the Administration’s commitment to increasing housing supply and appreciates its willingness to engage with us and the industry on ways to incentivize lenders and borrowers to rehab, repurpose, and convert more obsolete commercial properties into affordable rental housing and other usable spaces,” said Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit, CMB. “Housing providers are grappling with higher interest rates and rising labor and construction costs at a time when our nation’s housing supply remains inadequate. The initiatives announced today should help facilitate more commercial-to-residential projects. We encourage state and local governments to ensure zoning laws, tax credits, and subsidies are aligned to take full advantage of these programs.” Source: DS News


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