November 23, 2021 – Is the Economy Ready to Roar? Starwest Mortgage Economic, Interest Rate, and Real Estate Report
Is the Economy Ready to Roar? We had a strong October jobs report and the Delta variant is fading. Theoretically, this gives us a better chance that the economy’s fourth quarter growth rate will ramp up from the tepid 2.0% performance of the third quarter. But before we declare all systems go for accelerating growth, we do see potential roadblocks standing in our way. One significant obstacle is the shortages we see throughout the economy.
As CNN/Business has pointed out recently, no shortage right now is more important than the scarcity of available workers. The unemployment rate now hovers in the mid-4.0% range, which is 1.0% higher than the pre-pandemic low. There are plenty of job openings, but not enough applicants. This is because of two factors — many baby boomers went into retirement early because of the pandemic, plus many women with children fell out of the workforce at the same time.
Thus, the question is—when will these groups return to the workforce? As the pandemic eases, more will be willing to work and as the economy opens up, many more jobs will become available as well. There is no doubt that this shortage, like others within the economy, will not be solved all at once. This will provide a drag on economic growth, thus prolonging the recovery. Because of this factor, the economy may not roar back, but we are likely to see more moderate growth. Meanwhile, full employment is likely to be a moving target.
Weekly Interest Rate Overview
The Markets. Mortgage rates rose back above 3.00% in the past week. For the week ending November 18, 30-year rates increased to 3.10% from 2.98% the week before. In addition, 15-year loans rose to 2.39% and the average for five-year ARMs eased to 2.49%. A year ago, 30-year fixed rates averaged 2.78%, more than .25% high than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “The combination of rising inflation and consumer spending is driving mortgage rates higher. Shoppers looking to buy a home are fueling strong demand while ongoing inventory shortages are not improving in the presence of higher home prices. This reality illustrates the challenging situation facing the housing 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
Expanding wealth and growing families are prompting more millennials to become homeowners. Ultra-low mortgage rates are continuing to attract them as well. Young adults ranging from 26 to 41 years old comprise about 22% of the U.S. population. It’s why the housing market has been watching this age segment so closely for so long. More millennials have become homeowners since the pandemic. Millennials have accounted for the largest share of home buyers over the past year—37%, reports Barron’s. The pandemic is motivating purchases. The number of households headed by adults aged 30 to 44 years old jumped by 1.3 million during the pandemic. Married couples ages 31 to 40 were more likely than any other age group to purchase homes, according to the National Association of REALTORS®. Also, the largest group of unmarried couples who purchased homes were adults between the ages of 22 to 30. Millennials are approaching their peak earning years. “Over the next couple of decades, a quarter of the U.S. population is going to reach peak earning years, fueling continued housing demand—especially for inexpensive starter homes, which nationally had a beginning price of $304,200 in the second quarter of 2021,” Barron’s reports. Remote work will only further housing demand, reports suggest. Millennials were the most likely generation to say that the reason for owning a home was to have a space of their own in a larger home, according to NAR’s data. Low interest rates, strong employment, and the growing perceptions over the importance of a home will likely continue to fuel a millennial housing boom, writes Dana Peterson for Barron’s. Source: Barrons
During a time when many people are looking for permanently remote jobs in light of the ongoing pandemic, internal data from Redfin shows that 30.2% of Redfin users looked to move to a different metropolitan area in the third quarter of this year. The number of people looking to move to another metropolitan area has fallen for the last two quarters—from 31.5% at the start of the year to 31.1% in Q2—which has coincided with the annual seasonal cooling the market typically sees this time of year. On an annual basis, this number is still higher than last year when it stood at 29.2% and 26% in 2019 before the pandemic. The migration analysis is based on 3.3 million Redfin users who searched for homes in the top 125 metro areas in the third quarter. In order to qualify for this dataset, users must have searched for at least 10 houses outside of their home metro area, and those searches must have made up at least 80% of their total search history for the quarter. According to Taylor Marr, Redfin’s Deputy Chief Economist, while the migration rate has slipped in recently, it is unlikely to slip below pre-pandemic numbers anytime soon. “We expect Americans to continue relocating at a higher rate than they did before the coronavirus pandemic,” Marr said. “As employers fight to retain talent during the ongoing labor shortage, they’ll face mounting pressure to introduce permanent flexible-work policies that will give more workers the option to move where they want. We’re also starting to see a resurgence in demand for vacation homes, which could help sustain the relatively high rate of house hunters searching outside their home metro.” Source: DS News
Buying a home is typically the largest purchase one makes in their lifetime and new data shows that the locations and feelings of family are a huge factor for first-time buyers looking to get into the market. According to BofA’s 2021 Homebuyer Insight report—which puts first-generation homeowners in the spotlight—it was discovered that families play a key role in homeownership by helping with finances or offering advice, and that 43% of surveyed respondents purchased a home because their parents expected it of them. “For many first-generation homeowners and their families, homeownership has a unique importance, given the collective efforts to overcome financial challenges that can often span generations,” said AJ Barkley, Head of Neighborhood and Community Lending. “Achieving this goal can create a sense of pride and accomplishment that resonates both for the buyer and those closest to them, including their parents and future generations.” The survey found that the parents of first-generation homeowners instilled more than the benefits of homeownership into them at an early age as well—75% of respondents said they were taught about healthy financial practices and the benefits of good credit while 37% of respondents said their parents financially helped them with their first purchase. Source: MReport