September 27, 2022 – They Did Not Stop Talking. The Federal Reserve raised short-term rates by 0.75%.

Economic Commentary

They Did Not Stop Talking. Well, the Federal Reserve raised short-term rates by 0.75%. This was not a surprise, as predictions for a 0.75% increase had been circulating for more than a month. And there were so many speeches and statements by Fed members delivering tough talk about how they were going to stay the course against inflation – even if this meant slowing down the economy significantly.

And even though last week we indicated that the time for talk was over, we really did not expect the Fed to stop talking after taking this action. As a matter of fact, since the action was not a surprise, the statement delivered after the meeting was of more interest to market analysts than the activity. Of course, the Fed delivered by confirming that inflation will stay in their cross hairs for the foreseeable future. To this end, we have an important question.

What happens when we see solid evidence of a slowdown? The real estate sector has already seen a significant slowdown, but this was following a period in which the market was red-hot. The inflation readings of the past two months have shown inflation is moderating, but not as much as expected. The job market and consumer spending have continued to bolster growth. But what happens if these indicators also turn? Will the Fed keep the pressure on? By raising rates so quickly, this gives the Fed breathing room to provide stimulus in the future if it is needed. Meanwhile, the jobs report next week should give us a clue regarding how the last hot sector of the economy is holding up.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued their upward climb last week as the meeting of the Federal Reserve approached. For the week ending September 22, 30-year rates rose to 6.29% from 6.02% the week before. In addition, 15-year loans climbed to 5.44% and the average for five-year ARMs increased to 4.97%. A year ago, 30-year fixed rates averaged 2.88%, more than 3.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield’s jump to its highest level since 2011. Impacted by higher rates, house prices are softening, and home sales have decreased. However, the number of homes for sale remains well below normal levels.” 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

New survey data reveals that the vast majority (87 percent) of US adults believes climate change poses a risk to the world. The findings come as the effects of climate change are becoming ever more visible around the world. The new report from Anytime Estimate — an online real estate education platform owned by Clever Real Estate — surveyed 1,000 US adults and found that only 6 percent don’t believe climate change exists. Eighty percent of respondents who have accepted our collective role in exacerbating climate change indicated that they would be willing to make personal sacrifices to help combat it — such as using less electricity (59 percent) or fewer plastic products (61 percent), reducing the amount of water they use (48 percent), eating less meat (40 percent) and driving less (35 percent). Getting down to what was likely the real reason for the survey, 93 percent of respondents believe that climate change will impact the already-volatile real estate market. About half expect homes and home insurance to become more expensive due to the impact of natural disasters. In fact, the likelihood of disasters has played a role for 3 in 5 people in deciding where to move. Despite this, the study found that cost of living and housing prices still win out as top priorities during a housing search: The majority (63 percent) of respondents remain open to buying a home in a more at-risk area if the short-term financial costs remain low. Regardless, respondents anticipate climate change will have impacts far beyond real estate — 1 in 3 US adults believes that our attempts at climate action now will be too little, too late — with more than half (57 percent) believing that Earth will become uninhabitable within 500 years. Source: Sustainable Brands

The U.S. housing stock is getting older. That likely means the aging housing stock will likely continue to lead to a robust remodeling market as older structures often need repair. “Rising home prices also encourage homeowners to spend more on home improvement,” the National Association of Home Builders notes on its Eye on Housing blog. The median age of an owner-occupied home is 39 years old, up from a median age of 31 in 2005, according to the NAHB’s analysis of census data. More than half of owner-occupied homes were built prior to 1980. About 38% were built before 1970, according to the data. Owner-occupied homes constructed between 2000 and 2009 comprise 15% of the housing stock. Source: The National Association of Home Builders’ Eye on Housing blog

Based on a Policygenius study of 8,698 active home insurance policies quoted for renewal between May 2021 and May 2022, home insurance prices are rising at a faster rate than inflation, as costs are up nationwide since last year. According to Policygenius, insurance prices continue to climb in part due to inflation and a sizable increase in natural disasters, as premiums are up 12.1% over last year. During the survey period from May 2021 to May 22, data indicated that 90% of homeowners saw their quoted annual premium increase compared to the previous year, which comes to about $134 per home. “From May 2021 to May 2022, the price of goods and services increased by 8.6% in the U.S.—the largest 12-month increase in over 40 years, according to the Bureau of Labor Statistics,” the study said. “In the same time period, home insurance costs in all but one of the states we analyzed have either kept pace with or increased faster than inflation, with 13 states seeing an average rate increase over 50% higher than the current inflation rate and 3 states seeing increases more than double the rate of inflation.” Source: DS News