September 20, 2022 – For more than the past month, the members of the Federal Reserve Board have been talking tough against inflation.

Economic Commentary

Time For Talking to End. For more than the past month, the members of the Federal Reserve Board have been talking tough against inflation. This talk has caused long-term rates to rise in anticipation of Fed activity in the coming months. Statements such as “raising rates and keeping them high as long as it takes until inflation is under control” have caused plenty of consternation in the markets.

But the time for talking is over. Now the Fed needs to take action to back up their statements. And like the previous meetings, the only question is how much they will raise short-term rates. Most bets were on a half-percent increase before the tough talk commenced. Predictions subsequently moved to three-quarters of one percent in the wake of this talk. We also had plenty of economic reports to chew on in the meantime, including employment and inflation data.

Not to worry, though. The Fed will have plenty to say with their announcement after the meeting adjourns tomorrow. And since an increase is a fait accompli, the analysts will be combing the statements for hints regarding where the Fed heads from here. Before the tough talk, many thought that this month would be the last of the big increases. Now everything is on the table. Plus, the next meeting is right before the mid-term elections — and in the past, the Fed has been reticent to take major actions as voters are going to the polls.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to rise in the past week in reaction to recent reports on inflation – and continued rising after the survey was completed. For the week ending September 15, 30-year rates rose to 6.02% from 5.89% the week before. In addition, 15-year loans climbed to 5.21% and the average for five-year ARMs increased to 4.93%. A year ago, 30-year fixed rates averaged 2.86%, more than 3.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding six percent for the first time since late 2008. Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate. This indicates that while home price declines will likely continue, they should not be large.”   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

The President’s plan to eliminate as much as $10K in student debt for many borrowers could improve the financial situation of millions of Americans seeking to enter the homebuying market, creating ripple effects for multifamily properties. The President himself referenced the potential impacts for younger generations of people who have put off buying property because of student loan debt. “All of this means people can start finally to climb out from under that mountain of debt,” the president said in remarks from the White House. “To finally think about buying a home or starting a family or starting a business.” In theory, $10K in debt forgiveness, or $20K for Pell grant recipients, could enable would-be homebuyers to proceed with plans to buy property — and indirectly impact the for-rent market as renters become owners. Student debt can impact a potential buyer’s ability to save for a down payment, the borrower’s debt-to-income ratio and their credit score, a spokesperson for the National Association of Realtors told Bisnow via email, citing the organization’s own research. “We encourage efforts to improve and streamline current lending programs and increase borrower education about the true cost of student loans,” the spokesperson said. Nearly 1 in 8 Americans still has student loan debt, but the impact is generational, with nearly half of all millennials carrying some amount of student loan debt. But saving for a down payment is still a long process, and the for-sale market is a difficult place to navigate in today’s economy. The average student loan is about $30K, with an average monthly payment of $393. One-quarter of student loan borrowers (about 20 million people) have less than $10K in outstanding student debt, the Fed reports, so presumably that debt would cease to be a consideration in planning to buy property. Source: Bisnow

The volatile housing market over the last couple of years has driven more consumers toward using real estate professionals rather than attempting to complete a transaction independently. FSBOs made up only 7% of home sales in 2021—the lowest share since 1981—according to the latest Profile of Home Buyers and Sellers from the National Association of REALTORS®. That’s a stark contrast from 15 years earlier when 12% of sellers went the FSBO route during the 2006 housing boom, the data shows. While sellers also were in the driver’s seat last year as bidding wars exploded and list prices soared, most of them—90%—still found value in working with an agent in 2021 to get their home sold, according to NAR research. This may mean consumers are getting the message that a REALTOR® is an ally in any housing market. The top issues for which sellers are seeking agent guidance, according to NAR data, are pricing a home competitively, marketing to potential buyers and negotiating a deal. Source: NAR

Many new and young adults got dealt a bad hand at the outset of the pandemic, when lockdowns eliminated many of their service-related jobs, drained their savings, and ultimately forced them to move back home. But things over the last two years have gotten better; lockdowns are over, a vaccine is readily available, and jobs have since returned. However, the majority of those that moved back home in the early months of the pandemic have yet to move out again. According to a survey commissioned by LendingTree (and conducted by Qualtrics), 32% of all millennials and Gen Zers moved back home with their parents during the pandemic; two-thirds of those that moved home still remain. Three-in-10 Gen Zers (now aged 18-25) moved home in order to save money the survey found, followed by 18% of younger millennials (now aged 26-34) and 17% of older millennials (ages 35-41). Looking deeper, the younger age groups were found to be the most likely to move back out—14% of younger millennials have moved out, followed by 13% of Gen Zers, and 8% of older millennials. Ten percent indicated that they are still considering moving home to save money. The 35- to 41-year-old group is the most adamant about avoiding a move back under their parents’ roof (67%), followed by those ages 26 to 34 (56%) and those 18 to 25 (49%). Gen Zers and millennials indicated two main reasons for moving home: 51% said it was out of necessity, for the other 49% it was to save money. Source: MReport