November 22, 2022 – Giving Thanks. Another Thanksgiving is upon us, and it is time not only to eat turkey and watch football, but to give thanks.

Economic Commentary

Giving Thanks. Another Thanksgiving is upon us, and it is time not only to eat turkey and watch football, but to give thanks. No matter how rough the year is, we always pause to give thanks on this important holiday. Even when the pandemic was peaking in 2020, we gave thanks. Even when we were in the middle of the Great Recession in 2008, we gave thanks.

This has not been an easy year for many. We still are dealing with COVID and a few other significant viruses as well. Interest rates are the highest in decades. The real estate market has slowed down. One of our allies was viciously attacked and they are at war, which has exacerbated inflation on many levels. Thus, there are plenty of challenges that we have to deal with every day.

On the other hand, America is working as the country is near full-employment levels. A record number of Americans have equity in their homes and/or have mortgages with very low rates. Though we are supporting our ally in defending themselves, we are not sending troops to the conflict. And the economy continues to fend off the recession so many are sure is on its way. In short, there is plenty to be thankful for. So, let’s spend this Thursday thinking about the positive aspects of our lives – family and freedom are two we would like to feature.

Weekly Interest Rate Overview

The Markets. Rates came down significantly last week due to positive inflation data.  For the week ending November 17, 30-year rates fell to 6.61% from 7.08% the week before. In addition, 15-year loans decreased to 5.98%. A year ago, 30-year fixed rates averaged 3.10%, more than 3.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked. While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.”   Note: Rates are provided for evidence of trends only. They should not be used for comparison purposes. Freddie Mac debuted new methodology for the survey on November 17. They are no longer reporting points and fees separately, nor reporting ARM rates.

Real Estate News

The federal government is expanding how it collects credit scores, which may allow more Americans to potentially buy homes. The Federal Housing Finance Agency announced at the Mortgage Bankers Association’s annual conference that it had approved two credit score models, the FICO 10T, and the VantageScore 4.0, for use by Fannie Mae and Freddie Mac. “The enterprises have long relied on classic FICO, and it has met their basic needs,” Sandra Thompson, director of the FHFA, said, but “it is time to recognize the significant innovations that have occurred in credit score modeling.” VantageScore President and CEO Silvio Tavares said that the decision to include the company’s credit model “ushers in a new and more equitable era of financial inclusion” and added that the “FHFA’s action will enable millions more credit worthy Americans to have access to mortgages.” Fannie and Freddie were institutions created by Congress, and are federally-backed mortgage institutions. They guarantee most of the mortgages made in the U.S., so many lenders follow the rules set out by Fannie and Freddie when they give mortgages to borrowers. For the last two decades, Fannie Mae and Freddie Mac have relied on scores created by FICO, or Fair Isaac Corp., to understand borrowers’ ability to repay mortgage loans. Credit scores not only affect the underwriting of loans, they also impact the pricing of loans. With FICO 10T and VantageScore 4.0 replacing Classic FICO, the belief is that the credit scores reported will be more accurate and inclusive, the FHFA said. Both FICO 10T VantageScore will look at a broader range of payment history data for borrowers, from cell phone bills to utility and rental payments, to determine credit worthiness. The more accurate credit scores are, the better understanding of risk that the market and investors get. That also potentially expands access to credit for borrowers with “less robust credit histories,” Thompson said. Using credit scores beyond FICO would open up access to credit for roughly 72,000 more households each year, according to a 2015 study by VantageScore. Additionally, 16% more Hispanic and African-American households would have expanded mortgage access. Source: MarketWatch

More than half (58%) of U.S. homeowners have invested in making their homes more resilient to climate threats, based on a survey of roughly 1,000 homeowners commissioned by Redfin in August 2022. Hurricane Ian, which tore across Florida last month, may turn out to be the costliest storm in state history, as CoreLogic estimates found total flood and wind losses will hit between $41 billion and $70 billion. This estimate includes wind loss, re-evaluated insured and uninsured storm surge loss and newly calculated inland flood loss for residential and commercial properties. By risk type, homeowners nationwide are most likely to invest in combating extreme heat, with 26% saying they’ve spent money to make their home more resilient to this risk. Next comes extreme cold (22%), flooding (16%), hurricane/other major tropical storms (14%), poor air quality (13%), and tornadoes (12%). Earthquakes and wildfires both came in at 11%. “Americans are shelling out cash to fortify their homes against natural disasters as they increasingly move to at-risk areas despite intensifying climate change. Unfortunately, their investments aren’t always enough—a reality that came into focus when Hurricane Ian destroyed scores of homes, many of which lacked flood insurance,” said Redfin Chief Economist Daryl Fairweather. “Homeowners should be aware that their property value could drop over time if their area becomes uninsurable and/or uninhabitable due to climate change.” Source: DSNews

The student housing industry continued to see healthy demand and strong fundamentals to another record-breaking performance in Q3 and 2022 overall, according to the new quarterly National Student Housing Report from Yardi Matrix. The fall 2022 preleasing period ended in September with 96.6 percent of bedrooms at Yardi 200 universities leased. Annual rent growth was 4.1% as of September. The pace of preleasing was faster for selective universities with higher enrollment. But positive performance was widespread among university types across the country. Twelve universities had double-digit growth in pre-leasing levels in September compared to 2021. At some popular schools with growing enrollments, available student housing supply hasn’t been sufficient to house the incoming class “While student housing rent growth is starting to decelerate, there is still a significant spread between student housing and multifamily rents, which could support continued growth over the next couple of years,” states the report. “The impact of multifamily rent trends on student housing will be stronger in university areas with a prominent shadow market, given the availability of options within a close radius.” Source: MReport