November 5, 2024 – It’s Election Day

Economic Commentary

Today is the day we elect the next President of the United States – along with many Senators and a complete slate within the House of Representatives. Whatever side you are on, it is important that you go out and vote, though nowadays many Americans have voted early. A recent Gallup pole has indicated that as many as 40% of voters had planned to vote before election day.

No matter who is elected as President or in Congress, they will have to address the present housing situation. Recently, Fannie Mae CEO Priscilla Almodovar had this to say about the housing sector when interviewed by MarketWatch — “It’s a highly unaffordable market right now. We are monitoring and following all these trends, things that we’ve never seen before.” This was the key portion of her longer statement — “Things we have never seen before.” 

Personally, I have been in the industry for over 40 years. That means I have seen many, many housing cycles and I can’t tell you how many times I have heard that statement or some semblance thereof. The subprime and savings and loan crises were examples. The element we have in this very unique era is the lack of inventory which is pushing housing prices up even when sales are down. In the other “slow sales” situations, there were too many homes for sale. Thus, the new government team needs to address this very serious dilemma. Good luck to whomever takes over!

Weekly Interest Rate Overview

The Markets. The increase in mortgage rates continued last week with the jobs report, election and Fed meeting approaching. 30-year fixed rates rose to 6.72% from 6.54% from the week before. In addition, 15-year loans increased to 5.99%. A year ago, 30-year fixed rates averaged 7.76%, more than 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Increasing for the fifth consecutive week, mortgage rates reached their highest level since the beginning of August. With several potential inflection points happening over the next week, including the jobs report, the 2024 election, and the Federal Reserve interest rate decision, we can expect mortgage rates to remain volatile. Although uncertainty will remain, it does appear mortgage rates are cresting and are not expected to reach the highs seen earlier this year.”  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

While 35% of homeowners expressed interest in moving last year, that number has jumped to 72% today. Nearly three-fourths of homeowners are hoping to move, but due to the current market conditions, many are putting their plans on hold, creating a backlog of buyers. Despite many wanting to move, the majority aren’t packing boxes just yet due to the challenges in the market, according to a study from Point. This has caused housing gridlock. Even with market hurdles, many homeowners are eager to move due to concerns over their home’s size and location. Around 40% of homeowners cited their home’s size as the primary reason for wanting to relocate, whether they need a bigger space (25%) or are looking to downsize (16%). Another 36% pointed to location-related reasons. Only 11% of homeowners are looking to access home equity, and 8% feel their current home is too expensive. Renovations could offer a solution to homeowners stuck in place due to size concerns. 66% of homeowners plan to undertake home improvements in the next 12-18 months, with 39% planning to use cash for their projects. Source: Point

Homeowners across the U.S. may be locked in, but they can still cash out. With home values soaring over the last few years, homeowners who have built up equity are turning to home-equity loans to cash in on their gains. In the first half of this year, home-equity lending has soared to the highest level since 2008, real-estate data-analytics firm CoreLogic said in a report. Over that period, lenders originated more than 333,000 new home-equity loans totaling about $23.6 billion, the company said. Home-equity loans are different from home-equity lines of credit, or HELOCs. When a homeowner takes out a home-equity loan, they get a lump sum up front, have a rate that is fixed and make payments on a schedule until the loan is paid off. A HELOC, on the other hand, is a type of revolving credit that allows a homeowner to borrow against the equity in their home. Borrowers can spend up to their credit limit during the draw period, which can be up to 10 years, after which they enter a repayment period, according to the Consumer Financial Protection Bureau. Rates on HELOCs are variable and are tied to Federal Reserve policy rates. HELOC activity surged in the first half of 2022, but that demand has since waned. Over the first half of 2024, lenders originated 671,00 new HELOCs totaling about $105 billion, CoreLogic said, which was down from the same period last year. Homeowners are tapping into their home equity to cover expenses such as home renovations or to consolidate debt. They’re taking on a second mortgage rather than refinancing because they want to avoid giving up the relatively low rate on their primary mortgage. Nearly nine in 10 homeowners with a mortgage have a rate below 6%, many of them far lower than the prevailing 30-year rate. Source: Market Watch

A few miles outside Washington, D.C., a large dirt and gravel lot dotted with construction equipment was the site of a recent celebration. Local housing officials lined up in hardhats, each holding a shovel decorated with a brightly colored bow. “Beautiful, beautiful,” a photographer said as he clicked away. It marked the kickoff for construction of Hillandale Gateway: 463 new mixed-income apartments that will be majority owned by Maryland’s Montgomery County. It’s public housing. Although this is a far different model than traditional, federally funded housing for only the very poor. And as the U.S. grapples with a massive housing shortage and sky-high prices, other states and cities are picking up on this idea, hoping to create more places where people can afford to live. Montgomery County is a wealthy community, and it’s long focused on housing for lower-earning families. Still, it hasn’t built nearly enough to keep up with demand, and the gap is growing. So, a few years ago, it took an unusual step: It created a $100 million revolving fund to dramatically ramp up construction. That means it can develop and finance its own projects “instead of waiting for Congress to give us a whole bunch more money,” says Zachary Marks, the senior vice president for real estate with the county’s Housing Opportunities Commission. The public agency owns the controlling stake in these apartments. But the mixed-income model is what makes this all work in the long run. The market rate rents “come to us instead of flowing out to the private sector,” says Marks, allowing other tenants to pay less. “The people who will be living here are my seniors, my kids, my middle-aged adults, the workforce,” says Chelsea Andrews, HOC’s president and executive director. “This is a community that will be inclusive on all economic levels but also in terms of our diverse communities. So this is going to be a wonderful place to call home.” Source: NPR