September 6, 2022 – Inflation cooled a bit last month and some – but not all – economic reports have been indicating that the economy is slowing down.

Economic Commentary

So, How Was Labor Day? We certainly hope that the holiday weekend was relaxing and enjoyed by all. As we pointed out last week, the early release of the August employment data made this past weekend a Labor Day event in more ways than one. While many of us relaxed and enjoyed the last “unofficial” weekend of summer, market analysts were pouring over the data. How did we do?

The addition of 315,000 jobs in August was seen as another solid number, especially after the gain of over 500,000 jobs initially reported in July — a number that was revised slightly downward. The headline unemployment rate rose to 3.7%, which was also seen as a positive because more unemployed workers are reentering the workforce, increasing the labor participation rate. Wages continue to increase, but slightly below expectations.

This brings us to the next question. How will these numbers affect the Fed’s decision on rates when they meet as fall arrives in September? Inflation cooled a bit last month and some – but not all – economic reports have been indicating that the economy is slowing down. This had led to predictions that the September increase would be more modest, though the Fed continues to espouse a hardline approach in their pronouncements. There will be plenty of data released between now and then, including fresh inflation numbers – but the jobs report will certainly be an important factor.

Weekly Interest Rate Overview

The Markets. Mortgage rates rose again in the past week and continued to rise after the survey was released. For the week ending September 1, 30-year rates rose to 5.66% from 5.55% the week before. In addition, 15-year loans climbed to 4.98% and the average for five-year ARMs increased to 4.51%. A year ago, 30-year fixed rates averaged 2.87%, more than 2.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The market’s renewed perception of a more aggressive monetary policy stance has driven mortgage rates up to almost double what they were a year ago. The increase in mortgage rates is coming at a particularly vulnerable time for the housing market as sellers are recalibrating their pricing due to lower purchase demand, likely resulting in continued price growth deceleration.” 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

Nearly 60% of renters saw a rent increase during the past year, while just 38% said they saw their income increase, according to a study from Freddie Mac. And renters were less likely than all employed respondents to have gotten a raise. As a result, nearly 1 in 5 who experienced a rent increase said they are now “extremely likely” to miss a payment. “The surge in rents that took place over the last 12 months has created even greater housing uncertainty for the most vulnerable renters,” said Kevin Palmer, head of Freddie Mac Multifamily. “Our survey shows that the national housing affordability crisis is worsening, and that inflation is a key driver.” Of those who saw a rent increase, 15% said it was a hike of more than 10%. Conducted in early June among a representative sample of 2,000 American consumers, the survey found that nearly all surveyed households were affected by higher prices during the prior year. Increases in the cost of groceries and household items impacted 66% of people in the survey. Among the other most cited areas for cost increases were transportation, eating out and utilities. Source: CNN – Do you know what is the most effective protection against inflation? Owning a home!

Buying a fixer-upper remains a viable option for many buyers trying to stretch their dollar in the current environment of still-rising home prices, bidding wars, low inventory and rising interest rates. While these properties do require buyers to put in a significant investment in physical work—not to mention time—they are a real solution for cost sensitive buyers. Asking the question “which cities are best to find a fixer-upper” StorageCafe conducted deep research into 61,200 active listings on Point2 by breaking those properties down into price, number of other fixer-upper listings in the area, home size and lot size. The study also took into account local storage costs as properties that are listed as fixer-uppers are generally smaller (1,400 square feet compared to an average of 1,900) and it’s more likely that owners will need to store a portion of their possessions as work is completed. All-in-all, the research found that in the 50 largest metropolitan areas, properties that were listed as a fixer-upper were 32% cheaper on average than standard homes coming in at $307,000 and $448,000, respectively. This comes to an average savings of $155,000 for the average buyer; price differences can be even higher in high-cost cities such as San Francisco and Los Angeles, where savings can top $400,000 to other hotspots like Atlanta, Dallas and Houston where you could still find savings of $250,000. Source: MReport

A study has found that the simple fact of requiring prospective homebuyers to pay real estate agents directly out of pocket significantly suppresses the home buying opportunities for large segments of the population. The research, entitled “Be Careful What You Wish For: The Economic Impact of Changing the Structure of Real Estate Agent Fees,” lays out how changes to fee structures would most significantly impact minorities including first-time and low- to middle-income buyers. This study was conducted in part by HomeServices of America’s ongoing efforts to support equity in home buying. It aims to create an economic model that proves the detrimental outcome for consumers and the broader economy that would likely result from changes to how agent fees are currently paid. “Changing the current compensation structure could affect potential buyers’ ability to qualify for a mortgage and purchase a home,” said the report’s lead author Ann Schnare. “Requiring buyers to pay their agent’s fee directly would result in reduced homeownership opportunities for cash-constrained families and lower net proceeds for many sellers. These outcomes would create negative ripple effects across the entire housing market.” Key study findings regarding decoupling commissions include that the greatest harm would be to first-time, low-income, middle-income and racially underrepresented buyers. A significant segment of the housing market would likely be negatively affected by decoupling commissions. Overall U.S. homeownership rates, particularly among non-white buyers, would decline. Assets required to purchase a $250,000 home would increase from roughly $16,250 to $23,015. Source: DSNews