Danielle Hale
Apache is functioning normally
The FOMC also said it would continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
During a press conference with reporters on Wednesday, Fed Chair Jerome Powell said that the committee decided to leave their policy interest rate unchanged. However, looking ahead, he did not exclude the possibility of another hike.
In spite of a higher-than-expected CPI reading in August, core inflation readings have been falling every month in 2023. Meanwhile, the pace at which new jobs were added to the economy slowed. Other labor market indicators, such as job openings and the unemployment rate, also point to a cooling economy, Danielle Hale, chief economist at Realtor.com noted.
Today’s decision not to raise rates will likely influence credit markets.
“In the mortgage market, for instance, consumers who have been holding off may begin to be motivated by the announcement to consider making the home purchase they have been waiting on,” Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, said.
In fact, mortgage applications picked up in the week leading up to the Fed meeting, signaling a wave of optimism.
The CME FedWatch Tool showed a 99% chance the Fed would halt its hikes to the 5.25 to 5.5% range on Wednesday morning, according to interest rate traders. However, only 70.9% of these investors bet officials will freeze the rate hike at the November 1st meeting.
On Monday, mortgage rates for 30-year fixed-rate mortgages were at 7.21%, according to HousingWire‘s Mortgage Rates Center. However, at Mortgage News Daily, mortgage rates were higher on Tuesday, at 7.30%.
The effects of tighter policy have already reverberated across the economy. While mortgage rates have steadied just below recent highs, they remain more than 3 percentage points above their pandemic-era lows. In the housing sector, the combined impact of higher rates and higher home prices drove the cost of financing a home up more than $400, or 22.5%, from a year ago.
Overall, the market has been rather optimistic about the rate picture this year. However, a number of experts are concerned that lifting rates too high could send the economy into recession.
Inflation picked up to 3.7% in August, down significantly from where it was a year ago but still higher than the 2% threshold. Core inflation—which excludes food and energy costs—rose 4.3% in August. Raising interest rates is designed to tackle those still-high prices outside of the volatile food and energy sectors.
If shelter was excluded from the CPI calculation, inflation would be about 1% in August, said Bright MLS Chief Economist Lisa Sturtevant last week. In August, the rent index was up 7.2%, rising for the 40th consecutive month. Meanwhile, rent growth slowed considerably and median rents nationally fell year-over-year in August, according to Sturtevant. Additionally, apartment construction is strong, which puts an additional pressure on landlords to avoid vacancy. In the second quarter of 2023, the national vacancy rate was 6.3%, up from 5.6% a year earlier. However, it takes months for those aggregate rent trends to show up in the CPI measures.
What’s next?
Although the Fed decided to hold steady this time, it remains fixated on taming inflation and bringing it back to the 2% target. In light of this goal, Realtor.com’s Hale expects the Fed to keep the option for an additional future rate hike on the table.
During the press conference, Powell remained extremely cautious, insisting on the Fed’s data dependent approach. He reiterated that the decisions that will be made at the two remaining meetings in 2023 will depend on the totality of all the data gathered, including the inflation data, the labor market data, the growth data, the balance of risks, etc. As is custom now, he sidestepped questions from reporters about what would prompt the FOMC to raise rates again before the end of 2023 or hold them steady.
Powell also shared the committee’s economic projections, showing a longer period of elevated rates.
“FOMC participants expect the rebalancing in the labor market to continue, easing upward pressure on inflation,” Powell said. “The median unemployment rate projection in the summary economic projections rises from 3.8% at the end of this year to 4.1% over the next two years.”
Meanwhile, the median projection for total PCE inflation is 3.3% this year, 2.5% next year and to reach 2% in 2026, he added.
Even though inflation remains well above the Fed’s longrunning goal of 2%, he acknowledged that inflation has moderated since the middle of last year.
On the housing market, he noted that activity “picked up somewhat” although it remains well below the levels of a year ago, largely reflecting higher mortgage rates.
Indeed, Sturtevant highlighted the resilience of the housing market in the face of rising interest rates. “Over the past year, buyer interest has remained high, home prices continued to rise in most markets, and homebuilding activity has surged,” she said.
However, she underlined that, even with today’s pause, the aggressive rate hikes have had major and somewhat deferred impacts on the housing market.
As demand might decline in the fall, Sturtevant expects home prices to fall in some markets. However, price declines will remain modest as supply will remain low, she added.
“The biggest downfall of the market cooling is that many individuals and families–particularly first-time homebuyers–have been priced out of the market as a result of the Fed’s aggressive rate increase,” she said.
This afternoon’s projections give valuable insight into the amount of improvement in inflation that the Fed would want to see before pausing or ending the current tightening.
“The Federal Reserve is rightly on pause and is looking for more data before determining its next course on interest rates,” NAR Chief Economist Lawrence Yun said. “With fewer job openings, slowing job gains, and softening core consumer price inflation, the Fed must consider the potential economic damage arising from any future rate hikes.”
Source: housingwire.com
Apache is functioning normally
The housing market will remain subdued until the Federal Reserve starts cutting rates next year, according to economists and housing pros following the central bank’s Wednesday announcement to leave the benchmark rate unchanged in the target range of 5.25%-5.5%.
Until interest rates come down, affordability challenges will continue to put first-time buyers on the sidelines, housing industry observers said. Real estate experts reiterated caution against further rate increases.
While Fed Chair Jerome Powell emphasized incoming data will determine whether the central bank will raise its federal funds rate at its next FOMC meeting in November, the “dot-plot” of rate projections showed policymakers foresee one more hike by the year-end. The bulk of central bank officials expect to have interest rates finishing the year at around 5.6%.
In an elevated rate environment, the lack of inventory continues to be the biggest challenge for many potential buyers, the Mortgage Bankers Association said.
“While homebuilder sentiment is clearly impacted by the recent surge in mortgage rates, permits for single-family homes provide a positive outlook for the pace of construction in the year ahead. If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume,” Mike Fratantoni, SVP and chief economist at the MBA.
The MBA expects mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases. MBA’s mortgage finance forecast projected the 30-year fixed mortgage rate to decline to 5.4% in 2024 and 5.1% in 2025.
Powell also noted in a press conference that because people locked in “very low rate mortgages, even if they want to move now, that would be hard because the new mortgage would be so expensive.”
Rates are most likely to stay elevated until 2024, said Danielle Hale, chief economist at Realtor.com, thus putting a damper on the number of home sales transactions.
“Higher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022 to the roughly 4 million unit pace in recent months,” Hale said.
More importantly, higher mortgage rates continue to keep existing homeowners sidelined, with as many as one in seven buyers out of the market because they don’t want to borrow at today’s much higher rates, Hale noted.
Short-term mortgage rate movement
In the short-term, mortgage rates are likely to bounce around a bit as the markets digest upcoming economic data, Melissa Cohn, regional vice president of William Raveis Mortgage, said.
Incoming data of job and CPI reports next month will provide more clarity on how strong the economy is. Reports on jobs and inflation will be released on October 6 and October 12, respectively.
“If the data reveals that inflation remains elevated and employment is still growing, then mortgage rates are likely to move up and we can look for what we hope to be the last rate hike of this cycle,” Cohn said.
The rapid ascent is mostly behind us but it will be a while before the economy sees any sign of a gradual descent, Marty Green, principal at mortgage law firm Polunsky Beitel Green, added.
“In my view, this means the mortgage interest rate environment will continue to bounce sideways through the next several months,” Green said.
Mortgage rates have been on an upward trend this year with rates in August surging to 7.23%—the highest since 2001.
Fed officials expect interest rates to be at 5.1% in 2024, up from the 4.6% projected in June. Officials expect fewer cuts in 2025 with the median estimate for the benchmark rate to be at 3.9%, up from 3.4%.
The committee raised its projections for growth, and is looking for a better-than-expected labor market as well, with the jobless rate peaking at 4.1%, rather than 4.5%.
Pushback against further rate increases
With two more scheduled FOMC meetings in November and December, housing experts cautioned against further rate increases.
The Fed must consider the potential economic damage arising from any future rate hikes, Lawrence Yun, chief economist at National Association of Realtors, reiterated his position.
“Commercial real estate has come under stress from higher interest rates, which will further negatively impact community banks due to their large exposure to the sector. Therefore, the Fed needs to wait and not raise rates. Possible interest rate cuts then need to be considered once inflation is fully under control,” Yun said.
Overall data point to an accelerating slowdown but continues to be mixed because of some lagging indicators, Green noted.
Unemployment rates and the CPI component lags measures of market rents by around a year.
“With rates elevated into restrictive territory, I expect the Fed to be patient and hold off on any additional increases until it becomes clearer that an additional rate hike is warranted,” Green said.
Source: housingwire.com
Apache is functioning normally
A slight cooling in mortgage rates wasn’t enough to keep mortgage applications from sinking to a 28-year low.
Freddie Mac‘s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year fixed rate averaged 7.12% as of Sept. 7, down from last week’s 7.18%. By contrast, the 30-year fixed-rate mortgage was at 5.89% a year ago at this time.
“The economy remains buoyant, which is encouraging for consumers,” said Sam Khater, Freddie Mac’s chief economist. “Though while inflation has decelerated, firmer economic data have put upward pressure on mortgage rates which, in the face of affordability challenges, are straining potential homebuyers.”
Other indices showed higher mortgage rates this week.
HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 7.20% on Wednesday, compared to 7.07% the previous week. At Mortgage News Daily on Wednesday, the 30-year fixed rate for conventional loans was 7.33%, up from 7.06% the previous week.
Rates should continue to come down from their peaks, as the inflation and the jobs market are cooling, said Bright MLS Chief Economist Lisa Sturtevant.
However, high home prices and growing affordability challenges are the two factors weighing on prospective home buyers, said Sturtevant. She expects a market contraction this fall in the housing sector.
MBA President and CEO Bob Broeksmit is of the same opinion:
“The housing market appears to be stuck heading into autumn, with sales activity likely to stay stagnant until housing inventory increases and mortgage rates decline to more affordable levels,” he said in a statement.
In many markets, renting has become more affordable than owning
The balance between renting and owning in many markets has shifted toward renting as more new apartment construction comes online, noted Sturtevant. Moreover, declining rent prices will likely help move inflation back toward its target in the months ahead, added Realtor.com Chief Economist Danielle Hale.
“Looking ahead, the economy is nearing an inflection point, and mortgage rate volatility may continue until it is clear that the economic landing has actually occurred and we are not seeing a touch-and-go on growth that could reignite inflation,” said Hale.
Source: housingwire.com
Apache is functioning normally
Mirroring the trend for new home sales(+4.4%), pending home sales rose 0.9% in July, according to data released Wednesday by the National Association of Realtors (NAR).
Year over year, pending home sales were down 14%, a smaller decrease than the 15.6% annual drop recorded in June. However, unlike the market for new homes, which has recovered convincingly above last year’s lows (+31.5%), pending home sales continue to lag behind year-ago levels (-14.0%). The NAR’s Pending Home Sales Index climbed to a reading of 77.6 in July. An index of 100 is equal to the level of contract activity in 2001.
“The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers,” said NAR Chief Economist Lawrence Yun. “Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
Month over month, contract signings increased in the South and West but decreased in the Northeast and Midwest
Regionally, on a month-over-month basis, the South (95.3) and the West (61.3) pending home sales climbed and showed the smallest declines from one year ago, according to Realtor.com Chief Economist Danielle Hale. Meanwhile the Northeast (63.2) and the Midwest (77.5) interestingly fell, even though these two regions recently boasted more robust real estate activity and stronger pricing. Compared to a year ago, pending sales activity was down by more than 20% in the Northeast region, the biggest decline in that region over the past year, noted Lisa Sturtevant, Bright MLS chief economist.
“Greater availability of homes for sale in the South and price breaks in the West were likely contributors,” said Hale.
Overall, pending home sales fell in all four U.S. regions compared to one year ago.
Two consecutive months of increases doesn’t necessarily mean that the housing market is moving
The median existing home price crawled north of $400,000 in July while interest rates inched above 7%.
“These significant affordability challenges, as well as a continued dearth of inventory, lower the likelihood that pending sales will continue to grow,” said Kate Wood, home and mortgage expert at NerdWallet.
While it is common for pending sales to decline between June and July, this year’s situation is tougher, said Sturtevant.
“Buyers are being forced to lengthen their home search since there are so few properties available for sale,” she said.
In fact, two out of three Mid-Atlantic buyers who purchased in July had to make an offer on more than one home before they were successful, found a Bright MLS’s recent survey.
Sales activity is expected to remain slow for the rest of the year, as inventory remains low and mortgage rates remain high, noted Sturtevant.
Source: housingwire.com
Apache is functioning normally
The housing market continues to cool amid high mortgage rates, low inventory and rising property insurance rates.
The National Association of Realtors (NAR) suggested a 2.2% month-over-month drop from June, a seasonally adjusted annual rate of 4.07 million, according to its latest report.
Despite a sharp drop in home sales compared to the year-earlier period, the median existing-home sales price rose 1.9% from one year ago to $406,700. It was the fourth time the monthly median sales price exceeded $400,000, according to the NAR.
While all regions saw sales activity decline, the Northeast region saw the biggest drop in home sales, with existing-homes sales down 5.9% month over month and 23.8% compared to July 2022. The median price for a home was $467,500, up 5.5% a year ago. By contrast, the West saw existing-home sales increase 2.7% since June, to an annual rate of 770,000 in July, down 12.5% from the prior year. Median home prices there were roughly unchanged from the same period in 2022.
Elevated mortgage rates and low inventory
As of August 17, mortgage rates surpassed 7% as U.S. bond yields hit their highest level since 2008. Average mortgage rates rose by about a half percentage point in May and June, pricing some buyers out and limiting closed sales in July.
With supply remaining low — with less than three months of supply nationally — some buyers may continue to rent, especially in markets where rents are falling, said Lisa Sturtevant, chief economist at Bright MLS.
Despite market pressures, however, Zillow Senior Economist Jeff Tucker suggested that price trends are “swinging the pendulum of negotiating power back in favor of those buyers who remain in the hunt.”
Others say it will take time for home prices to drop.
Realtor.com Chief Economist Danielle Hale said consumer incomes will need to catch up for the market to recover next year.
“Fortunately, inflation is ebbing, and a further decline in July asking rents will likely help keep that trend on track,” he added.
Homes are sitting on the market somewhat longer. Properties typically remained on the market for 20 days in July, up from 18 days in June and 14 days in July 2022, according to the NAR.
Source: housingwire.com
Apache is functioning normally
Data from the July jobs report released Friday fell roughly in line with expectations. Job gains came in lower than both the 278,000 monthly average for the first half of 2023 and the 399,000 average of 2022. Total nonfarm payroll employment increased by 187,000 jobs, compared to 209,000 in June, according to data released by the Bureau of Labor Statistics.
The unemployment rate changed little at 3.5%, compared to 3.6% in May, with the total number of unemployed persons falling to 5.8 million. The unemployment rate has remained between 3.4% and 3.7% since March 2022.
In June, job openings eased back to 9.6 million, bringing the openings rate to 5.8%. Meanwhile job quits slipped to 3.8 million or 2.4%.
“The incoming economic data continue to convey conflicting signals about the strength of the economy. Indicators of manufacturing and service sector health remain lackluster, measures of inflation have moved lower, while GDP growth in the second quarter was stronger than expected and consumer spending remains resilient,” said Mortgage Bankers Association VP and Deputy Chief Economist Joel Kan.
While job growth is weakening, and wage growth is holding steady, both metrics are still above the pace that would be consistent with the Federal Reserve’s inflation target, noted Kan.
“However, we expect that the FOMC will hold the federal funds target at its current level given the declining trend in inflation,” he added.
The lion’s share of the job growth in June came from gains in health care (+63,000), social assistance (+24,000), financial activities (+19,000), and wholesale trade (+18,000), according to the report.
Employment in the construction industry continued to trend up in July, adding 19,000 jobs, especially in the residential construction space. The ongoing shortage of housing inventory helped spur an increase in home building and home improvement activity, Kan said.
On average, the industry added 16,000 jobs per month in the second quarter of the year, after employment was essentially flat in the first quarter. Over the month, a job gain in real estate and rental and leasing (+12,000) partially compensated for a loss in commercial banking (-3,000).
Furthermore, residential building construction employment was flat year-over-year in July, while non-residential was up by 5.9%, according to First American Economist Ksenia Potapov. Compared with pre-pandemic levels, residential building employment is up 10%, while non-residential building is up 3%.
“Like June, the fastest monthly growth came from residential specialty trade contractors. This sub-sector comprises establishments whose primary activity is performing specific activities, such as pouring concrete, site preparation, plumbing, painting and electrical work,” said Potapov.
Employment in the professional and business services sector and in the leisure and hospitality sector changed little in July.
What’s next ?
At the July Fed meeting, the FOMC hiked the benchmark rate by a quarter percentage point, as widely expected. During the press conference that followed the meeting, Fed Chair Jerome Powell said that another rate hike in September is “certainly possible,” but so is a pause.
According to Realtor.com‘s chief economist Danielle Hale, today’s report is unlikely to sway the Fed.
“Today’s jobs report is unlikely to change those odds significantly as it is one of several pieces of additional data that the Fed will have to consider before the next decision. The Fed will see not only an additional jobs report, but also two more readings each on consumer prices and producer prices along with several other indicators before its September 19-20 meeting and decision,” said Hale.
On the housing market, she said that conditions are still favorable for households, supporting housing demand. However, climbing mortgage rates remain a substantial obstacle for homebuyers. Hale expects more “coping strategies” on the buyer’s end, such as moving further away to find affordability. Another outcome will be that affordable markets, such as those in the Midwest, will continue to see an outsized level of housing activity for both homeowners and renters, she said.
As existing homeowners remain rate-locked into their homes with no financial incentive to move, homeowners are likely to increasingly turn to renovating their homes to suit their evolving needs, added Potapov.
Source: housingwire.com
Apache is functioning normally
After dropping slightly month over month in May, pending home sales ticked back up in June, rising 0.3%, according to data released Thursday by the National Association of Realtors (NAR). It contrasts with new home sales, which moderated in the same period (-2.5%).
Year over year, pending home sales were down 15.6%, a smaller decrease than the 22.2% annual drop recorded in May. Taking a step back, pending home sales remain at a relatively low level, and despite this month’s setback, new home sales have climbed convincingly (+22.5%) above last summer’s lows.
The NAR’s Pending Home Sales Index climbed to a reading of 76.8 in June. An index of 100 is equal to the level of contract activity in 2001.
“The recovery has not taken place, but the housing recession is over,” said NAR Chief Economist Lawrence Yun. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers.”
The trade association forecasts the 30-year fixed mortgage rate to close at 6.4% this year and then decline to 6.0% in 2024. Meanwhile, the unemployment rate will rise slightly to 3.7% in 2023 before increasing to 4.1% in 2024, according to NAR’s forecast.
“With consumer price inflation calming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Yun added. “Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.”
NAR expects existing-home sales to decrease 12.9% in 2023, settling at 4.38 million, before ticking up 15.5%, to 5.06 million in 2024. In the meantime, national median existing-home prices will remain steady, according to NAR’s forecasts. Compared to last year, existing home-prices are poised to recede 0.4%, to $384,900, before rebounding by 2.6% next year, to $395,000.
“It is critical to expand supply as much as possible to widen access to homebuying for more Americans,” Yun said. “Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth.”
On the flip side, newly constructed home sales are forecast to increase 12.3% in 2023, to 720,000. The trade group expects they will increase by another 13.9% in 2024, to 820,000. Hence, the national median new home price will decrease by 1.9% this year, to $449,100, and then improve by 4.2% next year, to $468,000.
Regionally, on a month-over-month basis, the Midwest (77.6) and the Northeast (67.1) pending home sales climbed while the South (93.3) and West (57.7) fell. All four U.S. regions saw year-over-year declines in transactions, with the Midwest (77.6) posting the largest annual drop at 17.1%.
According to NAR, prices in the West – the country’s most expensive region – are expected to falter while the more affordable Midwest region will likely see a small, positive increase. (Several of the country’s top emerging housing markets are in Indiana.)
Meanwhile, housing starts are forecast drop 5.3% from 2022 to 2023, to 1.47 million, before increasing to 1.55 million, or 5.4%, in 2024.
“Today’s data signal that although mortgage rates remained high in June, their relative steadiness in the month might have been a difference-maker for home shoppers trying to juggle high costs and stretched budgets. Nevertheless, inventory shortages and living alternatives are likely to keep a lid on existing home sales this year. We’re expecting the smallest annual sales tally in over a decade,” said Realtor.com Chief Economist Danielle Hale.
Source: housingwire.com
Apache is functioning normally
After a year’s worth of warnings about a recession, Federal Reserve chair Jerome Powell said Wednesday that the central bank’s staff no longer forecasts a nationwide economic downturn. It’s welcome news for the economy to achieve a soft landing, a scenario in which inflation falls, unemployment remains relatively low and a recession is avoided.
Housing activity, however, will be limited as the impact of tighter policy continues to reverberate through the economy, housing experts and economists projected following the Fed’s decision to raise interest rates by 25 basis points on Wednesday.
Mortgage rates are expected to remain elevated until inflation moves to a level more consistent with the Fed’s mandate. High mortgage rates have triggered a rate lock-in effect across the country – disincentivizing homeowners to move and finance their new home with higher rates.
“High mortgage rates triggered by the Fed’s policy have caused more sellers to sit on the sidelines given the large differential between the rate they enjoy on their current home compared to the possible interest rate on any home they may purchase today,” said Marty Green, principal at Polunsky Beitel Green, a law firm for residential mortgage lenders.
Data from Redfin showed that about 92% of homeowners have a rate below 6% and a record 60% of mortgage holders have lived in their home for four years or less – further contributing to the supply shortage.
“Higher mortgage rates change the trade-up calculation for existing homeowners and are keeping as many as 1 in 7 out of the market because they don’t want to give up their existing low rate,” Danielle Hale, chief economist at Realtor.com noted.
Existing home sales dropped to a seasonally adjusted annual rate of 4.16 million in June from the previous month. Year-over-year, sales dipped 18.90% from 5.13 million in June 2022.
Hale expects the number of home homes for sale to decline this year, and continue to be a damper on home sales.
“A large swath of outstanding mortgages has below-market rates, and this has led to a restriction in the supply of existing homes for sale,” Ruben Gonzalez, chief economist at Keller Williams, said.
During his press conference with reporters, Powell acknowledged that the housing market has cooled due to high rates, but also said it “has a ways to go” before home prices fall.
Powell also said more supply was coming. Though housing starts boomed in May and fell slightly to a seasonally adjusted 1.43 million units last month, supply is mostly coming from multifamily rental construction. Permitting data suggests future multifamily supply is slowing and developers of such projects are highly sensitive to high interest rates.
For now, first-time homebuyers are the most impacted group as higher mortgage rates cut into their purchasing power.
High rates have made affordability exceedingly challenging, and low inventory in return increased competition, especially at lower price points.
The combined impact of higher rates and higher home prices has driven the cost of financing the typical listed home up more than $250 or 12.4% from a year ago; and up more than $1,100 or 96.5% from June 2020, nearly doubling the cost in three years, Hale noted.
It’s not just the buyers that are getting sidelined.
Renters are expected to get hit with higher rental rates, according to Justin Barry, partner at Morris, Manning & Martin.
While the Fed is attempting to stave off inflation by raising interest rates, it could actually have the opposite effect on rents, according to Barry.
“With each round of rate hikes, the Fed puts increasing pressure on multifamily properties with floating-rate loans or maturing fixed-rate loans. Many owners are attempting to pass along the increased financial burdens to tenants by increasing rental rates, provided that demand in a particular submarket supports higher rental rates,” Barry said.
With affordability challenges to persist, demand for new housing construction will follow.
“The onus is on homebuilders, as well as municipal, state and federal authorities, to take steps that will increase construction activity of owner-occupied single-family and multifamily housing to ease the affordability burden on would-be homeowners,” Kyle Enright, president of lending at Achieve, said.
Last hike of the year? The housing industry hopes so
While Powell emphasized any future policy decisions would be made on a meeting-by-meeting basis and that in the current environment, there is expectation that the central bank will pause its rate hike for this year.
“The Fed sounded surprised that we have disinflation factors without a hit to the labor market, which is positive because they might believe now they don’t need a job loss recession to help inflation data improve,” Logan Mohtashami, lead analyst at HousingWire said.
During a press conference with reporters on Wednesday, Powell said the Fed has “seen the beginnings of disinflation without any real costs in the labor market.”
Although inflation dropped to 3% in June, it is still above the Fed’s goal of 2%. Hiring still remains strong and the unemployment rate is hovering at very low levels.
If jobless claims get better, they might hike one more time, but they’re sounding more confident than they’re restrictive now, Mohtashami said.
“It could be the last one for a while,” Melissa Cohn, regional vice president of William Raveis Mortgage, said.
Although the Fed previously signaled it was looking at one or two more increases this year, “we’re starting to see other weaknesses in the economy” and that may put the Fed on a pause after this month’s rate hike, Cohn noted.
Goldman Sachs projected that the FOMC will ultimately remain on hold at the September meeting as the committee leadership has advocated for a “careful pace” of tightening.
“If the Fed isn’t careful, this critical industry may once again slow to crawl in the fall and winter,” Green said.
Source: housingwire.com
Apache is functioning normally
urbazon / Getty Images
Following a short breather with a pause last month and after 10 consecutive rate hikes, the Federal Reserve instated its eleventh increase since March 2022. The decision was announced after its two-day Federal Open Market Committee (FOMC) meeting.
Fed officials, in a unanimous — and much expected — July 26 decision raised interest rates by 25 basis points, taking the benchmark borrowing costs to their highest level in more than 22 years, as CNBC reported.
“Inflation remains elevated,” the Fed declared in a statement. “The Committee will continue to assess additional information and its implications for monetary policy.”
This new hike will have several consequences for consumers, many of whom have been facing financial pressure on several fronts.
One such consequence is a likely effect on mortgage rates, as questions arise as to what this new development means for homebuyers.
Home Prices Are Rising, Purchasing Power Is Declining
The combined impact of higher rates and higher home prices has driven the cost of financing the typical listed home up more than $250 (or 12.4%) from a year ago. Further, the cost of financing that home is up more than $1,100 from June 2020, nearly doubling the cost in three years, per Realtor.com chief economist Danielle Hale.
Hale said that higher mortgage rates cut into homebuyer purchasing power and have been an important brake on existing home sales, falling from a more than 6.5 million unit pace in early 2022 to the 4.2 million unit pace in recent months.
“Perhaps more importantly, higher mortgage rates change the trade-up calculation for existing homeowners and are keeping as many as one in seven out of the market because they don’t want to give up their existing low rate,” said Hale.
“As a result, I expect the number of homes for sale to decline this year, and continue to be a damper on home sales. Limited inventory is also keeping prices high even though housing affordability has deteriorated significantly in the past three years.”
Soaring Mortgage Rates Lock Would-be Sellers in, Triggering Increased Short Supply
Mortgage rates are double from where they stood a couple years ago. As of July 26, the current average 30-year fixed mortgage interest rate is 7.12%, according to The Mortgage Reports’ daily rate survey.
As Ted Rossman, senior industry analyst at Creditcards.com, said, at the end of 2021, that figure was just 3.27%. Further, during this rate-hiking cycle, mortgage rates have eclipsed 7% a few times, something we hadn’t seen since 2002 — akin to a 33% rise in home prices.
“And speaking of home prices, they have remained stubbornly high in large part because of low inventory. A lot of people aren’t moving because of the ‘golden handcuffs’ of a 3% or 4% mortgage rate they secured a few years ago,” said Rossman.
Rossman added that mortgage rates probably need to go below 5%, if not even lower, to stimulate a meaningful change. He noted, however, that there is also an element of “be careful what you wish for,” since a rapid drop in mortgage rates would probably only be caused by an economic downturn.
“The housing market will likely need to adjust to a ‘new normal’ of rates in the 6-7% range for a while, gradually coming down to 5-6%,” he concluded.
This analysis comes amid an already difficult market for homebuyers. Earlier this month, a Redfin report found that just 1% of the nation’s homes have changed hands this year — translating into prospective homebuyers having 28% fewer homes to choose from than they did before the pandemic upended the U.S. housing market.
When Will the Real Estate Market Turbulence Change Course?
Dottie Herman, vice chair and former CEO of Douglas Elliman, echoed the above sentiments. She said homeowners are not going to move and pay the current mortgage rate, which is around 7%, when they locked in at a much lower rate during the pandemic. Yet, Herman believed there will be some movement in 2024 as rates come down and people start to buy again.
“Millennials in particular believe in home ownership and are just waiting for a more favorable time to buy. Since the pandemic existing home prices have gone up 40% but recent homebuilder confidence has boosted new construction 20% since last year,” said Herman.
All in all, the rise in mortgage interest rates will continue to put pressure on affordability for would-be homebuyers.
However, given the lack of housing inventory, many will either adjust their budgets, search for lower-priced homes or remain renters, said Haseeb Rahman, portfolio manager at Palisades.
“Some homebuyers will have to decide whether to buy their dream home today and absorb the higher interest rates in hope of refinancing if rates decline in the future (i.e., ‘marry the house and date the rate’) or wait out the current market environment for lower rates and, perhaps, higher prices,” added Rahman.
A Silver Lining?
According to Michele Raneri — vice president and head of U.S. research and consulting at TransUnion — while the mortgage market may continue to be slow, it remains to be seen whether cooling inflation may help motivate consumers who had been holding off due to increasing cost of living.
“This remains an unpredictable market when it comes to mortgages,” said Raneri.
“Mortgage rates are, in fact, high, but at the same time, we have continued to see an improvement in other metrics such as unemployment, which lends to optimism. Ultimately, even as mortgage rates remain higher than we have seen in recent history, consumers may well become impatient as they wait on buying their first, or their next, home, and may re-engage with the market sooner than later.”
More From GOBankingRates
Source: gobankingrates.com