September 5, 2023 – Is it Fall Already?

Economic Commentary

Is it Fall Already? If Memorial Day weekend is the conceptual start of summer even though it is almost a month earlier than the official start of summer, then Labor Day weekend is the similar conceptual start of the fall season. Vacation season is over, and the kids are going back to school. Speaking of vacations, did it seem to you that the entire nation went on vacation this summer? After a few years of sitting at home during the pandemic, everyone seemed ready to get the heck out of Dodge. This phenomenon affected businesses in July and August – some positively and some had a negative influence.

For one, in a normal year the real estate market slows down in July and August but picks up after Labor Day. It has been so long since we have seen a “normal” year, it will be interesting if we see a general pickup in activity. Of course, it would help if mortgage rates would come down a bit which could help fuel some action. Speaking of rates, the Federal Reserve is back in action again. After not meeting in August, they will meet in two weeks. And one of the most important economic indicators they will be analyzing will be this week’s jobs report – which is followed by inflation data next week.

We have seen signs of a cooling job market, though the gains are still healthy. Friday’s release showed that August was no exception with a gain of 187,000 jobs and an unemployment rate of 3.8%. Wage gains were slightly below expectations, but still higher than the Fed’s target year-over-year. We have seen inflation cooling down in general, but it is not near enough to the Fed’s target of 2.0%. It is hard to root for less creation of jobs and smaller raises for American workers, but without these factors in place, it is not likely that the Fed will take their collective feet off the pedal. Still, an increase in short-term rates is not a given during this month’s meeting.

Weekly Interest Rate Overview

The Markets. Slightly softer economic news caused mortgage rates to reverse course last week after increasing for several weeks. For the week ending August 31, 30-year rates eased to 7.18% from 7.23% the week before. In addition, 15-year loans held steady at 6.55%. A year ago, 30-year fixed rates averaged 5.66%, approximately 1.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates leveled off this week but remain elevated. Despite continued high rates, low inventory is keeping house prices steady. Recent volatility makes it difficult to forecast where rates will go next, but it might be easier to gauge as the Federal Reserve determines their next steps regarding interest rate hikes in September.”  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

Prior to the pandemic, Yue and Chris Parsons were, like many Millennials, reluctant renters moving from one apartment to another, wondering when they would be able to buy a home of their own. But the pandemic turned out to be an opportunity — not just for the Parsonses, who are 34 and 36 years old, respectively, but for lots of other young people. From 2016 to 2022, homeownership rates rose most for those under 44, according to recent analysis from the US Census, and much of that came during the pandemic period. The Parsonses, who live in New York City, saw their prospects of buying a home improve during the pandemic as several factors came together: people left the city; the demand to buy a home dropped, cutting their competition; sellers were very motivated to get rid of apartments they could no longer afford; and mortgage rates dropped to historic lows. The homeownership rate grew overall during the pandemic, but it was fueled by younger people like the Parsonses buying a home, according to the Census Bureau. Younger households are typically more likely to rent than own their home. But between 2016 to 2022, homeownership rates went up among adults under age 55, but stayed the same among those over 55. By 2022, the US homeownership rate was 65.8%, up from 64.6% in 2019. That rebound was driven largely by buyers who were aged 44 and younger, according to the Census Bureau’s Current Population Survey/Housing Vacancy Survey, released in July. Homeownership rates dipped as low as 63.4% following the foreclosure crisis that began in 2004 and the Great Recession that began in 2008. Source: CNN

The administration announced further steps to lower housing costs and boost supply. The administration is taking a “comprehensive federal approach,” White House domestic policy adviser Neera Tanden told reporters, toward improving affordability for both homeowners and renters. The newly announced plan will leverage three separate areas toward achieving this goal: Easing land use and zoning rules, expanding financing and promoting the conversion of commercial to residential space. As office space needs have shifted in the aftermath of the pandemic, the administration is incentivizing efforts to convert commercial properties to residential homes. “Our work will involve identifying areas and methods where federal funding, including climate-focused federal resources, can be used to support these conversions,” Biden economic adviser Daniel Hornung said, pointing to funding from the Inflation Reduction Act’s Greenhouse Gas Reduction Fund as one such funding mechanism. Additionally, he said, “The General Services Administration, which manages much of the federal footprint of buildings, will launch an effort to identify and market surplus federal properties that represent the best opportunities for commercial to residential conversions.” To address restrictive land use and zoning policies – including those that prohibit multifamily housing development, among other issues, the administration is looking to incentivize municipalities to lift some of those restrictions by “incorporating land use and zoning into the grant criteria for the historic Reconnecting Communities and Neighborhoods program and also into the Economic Development Administration’s grant programs,” said Hornung. Also, the Department of Housing and Urban Development (HUD) is announcing a new program, the Pathways to Removing Obstacles to Housing program, which will provide communities with $85 million in funding to “identify and remove barriers to affordable housing production and preservation.” Source: Forbes

Gravy Analytics released its State of U.S. Population Movement Report, which examines the impact of various factors on population movement trends nationwide. The report looks at how the population of the United States has changed between Q1 2020 and Q1 2023. It uses mobile device signals observed in every county across the country to assess population distribution. When the vast majority of a device’s associated signals are present in that state or county, it is recorded in that location. The report covers unique devices discovered during a three-year period beginning in January 1, 2020, and ending March 31, 2023. Notably, Gravy Analytics collects more than 60 billion location signals from consumer mobile devices every day. Upon analyzing the top ten counties that experienced the highest population growth and contrasting them with the ten counties that encountered the largest population decline, distinct trends emerge. It becomes evident that consumers preferred smaller markets with lower average housing costs. The median house value in counties experiencing population growth was $279K, which is approximately 38% lower than the median house value in counties experiencing population loss. Meanwhile, the median household income in these growing counties was only 9% lower, demonstrating that people chose to relocate to locations where they could work while maximizing the value of their wages. Key findings include the fact that, what once was considered a vacation destination, is now where consumers are calling home. In addition, consumers still enjoy the feel of a city, but on a smaller scale. As a result of this shift in population, local economies can expect to see a much-needed boost in business. Source: Gravy Analytics