September 3, 2024 – It is Labor Week

Economic Commentary

We are in the middle of bookend labor events this week. We started out with Labor Day on Monday, a time for celebrating the American workers who have made our country a world leader. We will then close the week with the employment report for the month of August. Both events are very significant. Even though Labor Day is not the true end of summer, it represents the end of summer for many, as the kids are back in school and summer vacations are typically over. It is also the start of the fall real estate season, a season which has the potential to become busier in light of lower mortgage rates.

The employment report will also be an important event, especially considering the weaker than expected July jobs report and the upcoming meeting of the Federal Reserve in two weeks. The markets seem to be counting on the first move by the Fed to lower short-term interest rates at this meeting. Along with the job market slowing down, we have also seen considerable progress against inflation – including a moderate reading for the personal consumption expenditures price index (PCE) released last week.

We will see one more round of inflation data next week before the Fed meets in September. Continued good news on inflation, together with a moderation in hiring would just about clinch the Fed making a move at their next meeting. The markets have become very uneasy about the prospects of the economy moving forward and a bit of a push from the Fed could be just what the doctor ordered with regard to providing a cushion for an economic soft landing.

Weekly Interest Rate Overview

Freddie Mac reported that mortgage rates moved lower again in the past week. Expectations continue to build toward a rate decrease by the Federal Reserve at their September meeting. 30-year fixed rates fell to 6.35% from 6.46% the week before. In addition, 15-year loans decreased to 5.51%. A year ago, 30-year fixed rates averaged 7.18%, over 0.75% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates fell again this week due to expectations of a Fed rate cut. Rates are expected to continue their decline and while potential homebuyers are watching closely, a rebound in purchase activity remains elusive until further declines are seen.” 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

Young adults residing with family for financial reasons, middle-aged homeowners caring for ailing parents or aging grandparents, or close-knit kin cohabiting because they enjoy one another’s company—the reasons vary, but, per Pew Research Center, more than 59 million Americans today live in multigenerational households. That’s about four times what it was in the 1970s. Such domestic configurations almost doubled during the past five decades, while other types of household formations grew by far less. Driven by financial considerations, elder care needs, and the desire for stronger family connections, multigenerational living has become more commonplace in the United States,” said researchers with Lombardo Homes, who conducted a study, hoping to better understand the dynamics of, and American levels of interest in, living in a house with parents, grandparents, grandchildren, adult children, or any combination of adult family members. “As economic pressures continue to rise, multigenerational households are likely to become an even more practical solution for many American families,” the study’s authors found. Researchers for the new home construction company determined that, of the 55% of U.S. residents living in multigenerational households, some 61% belong to the 44-59 age group known as Generation X. Generation Z, adults age 18-27, make up about 59% of multigenerational homesteads. Respectively, 56% of Millennials, ages 28-43, and 33% of Baby Boomers, ages 60-78, belong to multigenerational households. A collective 95% of those in multigenerational domestic situations say their households function successfully. While 65% cited finances as the chief motivator, finances improved for at least one resident in 85% of these households. And in 63%, at least one member was able to continue their education thanks to the arrangement. Following financial reasons, top explanations for multigenerational living include maintaining close family ties, according to 39%, sharing responsibilities, said 28%, need for eldercare, said 23%, and desire for companionship, noted 22% of respondents from multigenerational homes. Source: Mortgage Point

A decline in mortgage rates and a drop in house prices is giving buyers a potential avenue to securing a path to homeownership after months where the cost of home loans and expensive houses made purchasing property beyond the reach of a lot of Americans. Mortgage rates have fallen to their lowest state in more than a year, according to Freddie Mac. Meanwhile, prices came down by $6,000 from their July high to a median sale cost of close to $390,000, real estate platform Redfin revealed.” While that’s a typical seasonal decline, the year-over-year increase of 3.2 [percent] is the smallest in nine months, indicating that price growth has eased slightly,” Redfin’s Dana Anderson pointed out. The shift has encouraged an uptick in mortgage applications. Requests for home loans went up in August amid decelerating rates, according to the Mortgage Bankers Association (MBA). index that tracks buyer demand is improving too, the platform said. “Redfin’s Homebuyer Demand Index–a measure of requests for tours and other buying services from Redfin agents–is down 13 [percent] year over year, but that’s the smallest decline in three months,” Anderson noted. Source: Newsweek

Real estate investment marketplace, New Western, announced its latest report on local market data and investor sentiment from a survey of 1,300 independent investors focused on single-family real estate across the United States. The report indicated that 91% of investors surveyed expect their businesses to grow despite market conditions and 80% plan to flip one to five homes throughout 2024. Kurt Carlton, president and co-founder at New Western stated that “This ‘Great Renovation’ shows that builders and the government alone can’t fix our housing infrastructure issues. Everyday local small businesses are making a real difference by flipping homes. With a shortfall of 4.5 million homes and millions of vacant and aging homes ready for renovation, these investors are just getting started in meeting community needs.” A majority of female investors report being in business for less than three years compared to a majority of men for over three years. Male investors usually allocate between $50,000 and $200,000 for rehab budgets, while female investors often spend less. Despite this, female investors achieve higher sales prices and quicker sales, highlighting their investment skills and market savvy. The importance of this sector is indicated in this quote from Robert Dietz, chief economist and senior vice president for economics and housing policy for NAHB — “The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing. Local investors are also a part of the housing ecosystem to work towards finding an equilibrium between supply and demand. As we enter the second half of 2024, higher costs and rates remain obstacles.” The survey and report, titled “The Flip Side: Residential Real Estate Investing Trends Mid-Year 2024,” is an analysis from insight based on opinion polling from April to May 2024 from 1,300 real estate investors ages 18+ who have previously purchased property through New Western or plan to in the future. In conjunction, the local market data was gathered based on New Western’s 2023 and 2024 transactions. New construction data from 2023 is from Zillow and vacant home data is from the U.S. Census. Source: New Western