September 26, 2023 – Three Quarters of the Way Home

Economic Commentary

Three Quarters of the Way Home. We are almost through three-quarters of the year. And if we had a word to describe this year, it would be persistence. As a matter of fact, persistence could describe the past 15 years. Yes, it has been 15 years since the Great Recession. And the effects of the Great Recession persisted for much longer than we expected. The housing market slowly recovered for years before real estate turned hot again. Then the pandemic hit and again the pandemic persisted longer than we expected. Those who expected COVID to fade away quickly were deeply disappointed.

Now we have the same persistence applied to the current interest rate environment. When the Federal Reserve started raising rates about 18 months ago, many thought that we are just going back to normal after the pandemic. But the increases in rates have persisted for much longer than expected and now rates are expected to stay higher for a longer period of time. Why? For one, inflation has persisted for longer than expected. Secondly, the economy has continued to expand for longer than expected. Thus 2023 is all about persistence. But that does not mean that higher rates and inflation are here to stay. Like the recession recovery, the tide will change.

We are already seeing evidence of this change. Inflation has slowed down significantly. Jobs growth is subsiding, which will open the way for the economy to slow down. These trends open the door for rates to stabilize and hopefully fall somewhat in the future. Will this happen in the fourth quarter of this year? Or will we have to wait a bit longer? Another inflation indicator is due this week and next week we will see the jobs report for September. This data will help us answer these questions. If there is good news on the “moderation front” – remember that market rates such as mortgages can move before the Fed acts – especially if we hear positive statements from Fed members in their many speeches around the country.

Weekly Interest Rate Overview

The Markets. Rates were stable last week and then rose moderately after the Fed meeting which was after the survey period ended. For the week ending September 21, 30-year rates rose one tick to 7.19% from 7.18% the week before. In addition, 15-year loans increased to 6.54%. A year ago, 30-year fixed rates averaged 6.29%, less than 1.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continue to linger above seven percent as the Federal Reserve paused their interest rate hikes. Given these high rates, housing demand is cooling off and now homebuilders are feeling the effect. Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply.” 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

As businesses call employees back to the office, more home buyers are moving closer to city centers, according to a new analysis. More home buyers are once again factoring commute times into their homebuying decisions and are moving closer to city centers. Remote work in recent years prompted many to move to more affordable exurbs. Now companies are demanding that workers return to the office, which is driving growth back to the city, according to a report from realtor.com®. “As many companies continue to call employees back to the office, we’re seeing a surge in home shoppers who are seeking a desirable combination of cost and convenience within commuting distance of major metropolitan areas,” says Danielle Hale, realtor.com®’s chief economist. “In addition to affordable markets, this year’s list also features some higher-priced areas close to large urban cores, which will likely appeal to buyers who are concerned with finding the right mix of size and amenities within reach of a nearby city center.” The renewed interest in cities marks the first time in five years that the suburbs of major metro areas have made it onto realtor.com®’s list of “hottest ZIP codes.” The list reflects market demand as determined by views of listings on realtor.com®, as well as the number of days listings remain active in an area. Realtor.com® researchers note that its 2023 list reflects growing demand for areas near metro areas that also offer greater affordability. Source: Realtor® Magazine

More single women swipe right on homeownership than single men. Owners of 1 in 8 homes in the U.S., it’s a group that can’t be ignored. Women may earn 83 cents to every dollar a man makes, but they’re dominating the housing market. A LendingTree study using data from the U.S. Census Bureau found that single women are more likely than single men to own a home in 48 of 50 states. In 2022, single women made up 17% of recent buyers, compared to 9% of men. For the past decade, these numbers have been fairly stable; single women have maintained between 15% and 19% of the buyer pool, and single men have maintained between 7% and 9%. Single women own about 10.76 million homes, while single men own about 8.12 million. Put another way, single women own an average of 12.9% of the owner-occupied homes in the U.S. Prior to 1974, it was not legal for women to secure a mortgage without a male cosigner. Once that barrier was broken, women have outpaced single males as homebuyers since the National Association of Realtors (NAR) started tracking this data in 1981. “We’ve seen this need for independence throughout the ‘80s generation into today,” said Jessica Lautz, NAR’s deputy chief economist and vice president of research. “Single women have really made it their mission to not be at the mercy of a landlord. They want their own spaces, and homeownership seems more important to their demographic.” Lautz remarked also that single women are continuing to “surpass odds” in the housing market, still managing to hold onto their purchase power even though housing affordability hit a three-decade low in August last year. Lautz says that there is a laundry list of factors as to why single women are dominating: they live longer than men, marriage rates are declining, women are more likely to move closer to family and friends, they express a desire for stable homes to raise a family in potentially, and they make more sacrifices when it comes to their house wish lists. Source: National Mortgage Professional

Higher interest rates have led millions of existing homeowners with mortgages under 4% to postpone plans to list their homes for sale, and for many prospective buyers, that supply vacuum has left newly built homes as the only game in town. That is the backdrop behind the strengthening of interest for new homes. According to the latest Housing Trends Report, between the final quarter of 2022 and the second quarter of 2023, the share of buyers looking to buy new construction rose from 20% to 25%. In contrast, the share interested in existing homes dropped from 39% to 36%, while the share with no particular preference fell from 41% to 39%. Interest for new homes is widespread. Between the final quarter of 2022 and the second of 2023, all regions saw the share of buyers interested in new homes increase. Source: NAMB