October 18, 2022 – A Major Reminder. Inflation is not an American problem, it is a world problem.

Economic Commentary

A Major Reminder. All this focus on the jobs report, the Federal Reserve raising rates and other economic reports, sometimes has us putting blinders on. Then something happens that makes us realize that we are not alone in the world. Perhaps it is the pandemic or the war in Ukraine. The bottom line is that inflation is not an American problem, it is a world problem.

When Russia attacked its neighbor, that raised the price of energy across the globe. And it happened at a time when global energy consumption was rising because of the recovery from another world-wide problem – the pandemic. It did not just raise the cost of gas in our country. Therefore, the fight against inflation is not on the Federal Reserve, it is on every central bank and country in the world.

Which is why, when one country such as the United Kingdom chose to move to stimulate their economy because it was slowing, their currency fell precipitously, and interest rates rose steeply. Of course, that bled into our markets. And when the Bank of England stepped up their purchases to stabilize that situation, our interest rates reversed course—all in a matter of a few days. Back to the bottom line – we can’t just analyze our own economy in order to predict our future. The previous days of Brexit demonstrated that maxim to us. 

Weekly Interest Rate Overview

The Markets. Rates moved up again in the past week, moving even further up after the survey period ended due to the hot inflation report.  For the week ending October 13, 30-year rates rose to 6.92% from 6.66% the week before. In addition, 15-year loans increased to 6.09% and the average for five-year ARMs climbed to 5.81%. A year ago, 30-year fixed rates averaged 3.05%, more than 3.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Rates resumed their record-setting climb this week, with the 30-year fixed-rate mortgage reaching its highest level since April of 2002. We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously. The next several months will undoubtedly be important for the economy and 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

With buyers seeking smaller mortgages, and “house hacking” (generating income from you home) quickly becoming the new norm, Pairadime conducted a survey of 1000 millennials in the US around their outlook on home buying, with the results revealing more millennials are looking for smart solutions to achieve their home ownership dreams. The average purchase mortgage request has shrunk by 10% since March, —to $413,500— as demand has picked up for FHA, VA, and USDA purchase loans favored by many entry-level buyers. Co-Buying has also gained popularity in the past few years, but with housing prices at an all-time high, and a recession looming, the profile of today’s average homebuyer has drastically changed. Historically, people who purchased homes were married couples and single people. Meanwhile, with marriage rates declining, home prices out of reach, and interest rates increasing, there hasn’t been a solution to address the new norm as homebuyer sentiment continues to change. According to Pairadime recent study, the survey only 4% of millennials say they are waiting to buy until they get married to purchase. According to Pairadime’s findings, 36% would be willing to surrender their independence and move home to save money for their dream home. And those who did buy a home with an unmarried romantic partner and then broke up, realized they had no legal recourse and went through a “Millennial Divorce.” While recent reports suggest that financial help from parents or close relatives has been the only source of saving grace for many when it comes to buying a home, Pairadime’s study revealed that 2.5x more millennials said they would prefer to receive financial assistance from their parents as a co-investment rather than a gift —51% versus 21%. While many Millennials aren’t looking for a handout from their parents, 45% said they are looking for a real estate agent who is experienced in co-buying to help them through the process, while 36% say they would co-buy with someone they weren’t married to if it meant they could get a bigger mortgage. When it comes to who Millennials are willing to live with, 60% say they would prefer to co-buy with a family member, friend, or a person they matched with from an open marketplace, —compared to only 25% who said they would prefer to work with a corporation who took equity in exchange for financial assistance. Source: MReport

ATTOM released its second-quarter U.S. Home Flipping Report, showing 115,198 single-family houses and condominiums in the United States flipped in the second quarter. Those transactions represented 8.2 percent of all home sales in the second quarter, or one in 12 transactions, down from 9.7 percent, or one in every 10 home sales, in the nation during the first quarter, but still up from 5.3 percent, or one in 19 sales, a year ago. Despite the decline, the home-flipping rate during the second quarter of this year still stood at the third-highest level since 2000, below the high point registered in the first quarter of 2022. “The second quarter was another strong showing for fix-and-flip investors,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The total number of properties flipped was the second-highest total we’ve recorded in the past 22 years, and the median sales price of a flipped property – $328,000 – was the highest ever. The big question is whether the fix-and-flip market will begin to lose steam as overall home sales have declined dramatically over the past few months, and the cost of financing has virtually doubled over the past year.” Among all flips nationwide, the gross profit on typical transactions (the difference between the median purchase price paid by investors and the median resale price) hit $73,700 in the second quarter, up 10 percent from $67,000 in the first quarter and up 10.1 percent from $66,944 a year ago. Typical profit margins, meanwhile, rose during the second quarter after six straight periods when they had fallen or virtually stayed the same. The typical gross-flipping profit of $73,700 in the second quarter translated into a 29 percent return on investment compared to the original acquisition price. While that remained down from 33 percent a year earlier – and far below the peak of 53.1 percent this century, which hit in 2016 – the latest margin was up from 25.8 percent in the first quarter of 2022. Source: The Mortgage Bankers Association

Super-fast 5G connection speeds could become a future selling point for homes. Eighty-seven percent of consumers say that a home with access to fifth-generation cellular internet speeds and networks makes the property more valuable, according to a new survey of 1,000 U.S. adults commissioned by Verizon. What’s more, 62% of real estate agents believe that the next year or two will bring more opportunities to advertise home access to a 5G network. 5G is said to be up to 100 times faster than current 4G networks and promises to remove latency issues—that is, the delay in response time when transferring data. Fast cell service and home internet has become a greater priority for home buyers to stay connected socially and professionally during the coronavirus pandemic. Nine in 10 home buyers say fast, reliable cell service and home internet is a must-have for their new home, prioritizing it higher than good schools (64%), commute time (66%), modern appliances (86%), and nearby attractions and amenities (85%), according to the survey. Sixty-nine percent of real estate professionals say their clients have sought information about access to broadband for homes they’re considering more frequently over the past year than they did prior to the pandemic. The majority of agents also report clients inquiring more on information about the home’s cellular service connections. Source: Verizon Morning Consult