October 25, 2022 – The Federal Reserve Moving Too Fast? After determining that inflation was not transitory, the Fed declared war.

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Economic Commentary

The Federal Reserve Moving Too Fast? After determining that inflation was not transitory, the Fed declared war. And they have backed up their words with a historic pace of rate increases, as they matched their actions with strong words concerning their determination to do what it takes to reign in cost increases. They have even intimated that their actions may cause a recession and they are okay with that course of action to get the job done.

But a growing number of analysts are worried that the Fed is moving too far at too fast of a pace. The reasoning for these concerns is that rate increases take time to trickle down to the economy. Some say it takes a few months, others say it takes even longer. Thus far this year the Fed has raised short-term rates by 3.0%, with the pace of increases accelerating as the year has gone on. Thus, they are leaving no time for the economy to react.

This week and next week will be very busy. This week we have the first measure of economic growth for the third quarter of the year. Next week the Fed will meet again with the markets predicting another rate increase. At the end of next week, we will see the October jobs report. That is a lot of happenings that will go a long way in determining the future course of the Fed. And just in case you think that things will quiet down in November, the following week is Election Day!

Weekly Interest Rate Overview

The Markets. Rates moved up more slowly in the past week, but again moved up even further after the survey period ended. For the week ending October 20, 30-year rates rose to 6.94% from 6.92% the week before. In addition, 15-year loans increased to 6.23% and the average for five-year ARMs eased to 5.11%. A year ago, 30-year fixed rates averaged 3.09%, more than 3.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage continues to remain just shy of seven percent and is adversely impacting the housing market in the form of declining demand. Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down.” 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. ***Freddie Mac is making changes to the format of the weekly survey in November***

Real Estate News

As national population growth sits at a record low, domestic migration was the key component of population change at state and local levels in 2021, according to demographic findings of Harvard University’s State of the Nation’s Housing report released this summer. Population grew in most states with net domestic inflows—meaning more people moving into the state than out, not including immigrants— while population typically shrank in states with net domestic outflows. In most states, domestic migration outpaced net international immigration and natural population change, both of which were declining in recent years before falling sharply in the first year of the pandemic. With prices continuing to rise along with interest rates, this has raised the financial hurdles for first-time and middle-income buyers. The report illustrates regional preferences for the Sunbelt and southeast in particular. County-level changes provide more nuance, however, showing some counties gaining migrants even in states with net outflows, and vice versa. Smaller metropolitan area counties generally gained migrants, as did non-metropolitan counties. In total, 511 counties —or 70%— in metro areas with fewer than 1 million people had net inflows in 2021, as did 1,235 counties —or 63 percent— outside of metropolitan areas. These both differ from pre-pandemic levels. In 2019, a slight majority —or 55%— of smaller metro counties had net inflows, much lower than the number and share in 2021. Source: MReport

Urban Institute has studied the changing state of homeownership in the U.S., and DS News reported on a standout stat from said study—the soaring expected rate of homeownership among the Hispanic population. More recently, research associates Lauri Goodman and Jun Zhu reported that, while the overall number of new homeowners will increase by 6.9 million from 2020 to 2040 and that nearly all of that increase will come from households of color, the way these demographics will look by state will vary widely. Goodman and Zhu expand on the recent study, breaking down their data into three sets of state-level rankings, they say, “to show what homeownership will look like in the future and the implications it could have for the housing market.” The overall number of new homeowners will increase by 6.9 million from 2020 to 2040, “with significant variation across states,” they reported — “Unsurprisingly, the states with the lowest homeownership rates had the most expensive housing. The average cost of a home in the five states with the lowest homeownership rates in 2020 was $525,973 versus $282,290 in the five states with the highest homeownership rates.” As for homeowners of color, a demographic that will dominate the overall growth rate (especially Hispanic buyers, as previously reported), the authors ranked the 10 states with the highest homeowner-household increase among people of color. “Though all states will show considerable growth in the number of homeowners of color, suggesting the need for more affordable housing, states with large increases in the total number of homeowners will face particularly acute housing supply shortages,” they concluded. “Those states will need to ensure zoning, permitting, and land-use processing will enable sufficient affordable housing production to meet the forthcoming demand.” Source: DSNews

In the current market, many homeowners are opting to renovate their spaces rather than move, even if it meant spending more than they planned, a recent study by House Method said. The study surveyed 1,000 homeowners and said that 93% of them found renovations to be worth the time, money and any temporary discomfort that was caused. The number one reason homeowners said they decided to renovate was to enjoy their living spaces more, and more than 75% said they intended to stay in their homes after the project’s completion. Roughly three quarters (76%) of respondents also said they planned on tackling another home renovation, whether in their current home or a new one in the future. House Method’s study also said that 32% of homeowners planned to spend $5,000-$10,000 for their renovation project. However, nearly 80% reported spending more than their original budget, with 68% going over by $5,000 or more. The most-costly factors during the renovation process were materials and timeline delays. “Although homeowners face challenges when renovating, they have not been deterred from the renovation process,” House Method said. Source: Fox Business

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