What’s To Come As We Approach The Markets Busiest Time Of Year. After nearly two months into the new year, the housing market continues to navigate an environment where demand far outweighs supply. The U.S. Department of Housing and Urban Development reported This Week in Real Estate that sales of newly built, single-family homes increased 7.2% in January over the prior month. There were 439,000 new homes for sale at the end of January, marking the fewest number available since May. Compounding the impact related to the shortage of inventory is the fact that according to the Federal Housing Finance Agency (FHFA) 65.2% of homeowners with mortgages have an interest rate of 4% or less. Below are a few newsworthy events from the fourth week of February that influence our business:
Mortgage Rates Rise on Signs of Strong Economic Growth. Mortgage rates are inching up, with the 30-year fixed-rate loan increasing to a 6.5% average this week, Freddie Mac reports. “The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation,” says Sam Khater, Freddie Mac’s chief economist. Real estate professionals have clung to a certain phrase when reacting to higher mortgage rates: “Marry the house, date the rate.” Further, mortgage rates are projected to stabilize below 6% in the second half of the year, says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS. That could prompt more Americans to become homeowners. But despite higher mortgage rates, there were about 1.6 million more homeowners nationwide in 2022 than the previous year, Evangelou adds, citing the latest data. “Even though many buyers were priced out due to historic low affordability, more Americans were able to become homeowners,” she says. She says she expects that as rates fall over the coming months, the homeownership rate could see another boost this year. Read the full story here.
New Home Sales Jump More Than Expected in January to 10-Month High. Sales of new U.S. homes rose for the fourth straight month in January to the highest level in nearly a year as buyers took advantage of a decline in mortgage rates. New single-family home purchases rose 7.2% to a seasonally adjusted annual rate of 670,000 units, the Commerce Department reported Friday. There were about 439,000 new homes for sale at the end of January, the lowest since May. That equates to about an eight-month supply at the current sales rate. “This time of the year is typically when purchasing activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” said Joel Kan, MBA’s vice president, and deputy chief economist. Read the full story here.
Looking For Silver Linings for Rates and Housing. Home prices surged post-covid as demand greatly outpaced supply and low rates increased buying power. High home prices (and rents) then contributed significantly to decades-high inflation numbers. Decades-high inflation is the single biggest reason for the fastest rate spike since the 1980s. Newly high rates made buyers increasingly reluctant to shop for homes and homeowners increasingly reluctant to give up the super-low rates obtained over the previous 2 years. In January, it looked like there might be some reprieve for high rates and slumping sales. But then February happened. A series of economic reports caused an immediate renewal of fear over the inflation outlook, and again, inflation is the key input for rates right now. The silver lining here is that mortgage rates were more cautious at the end of January than they were in August. This time around the rate spike – while no doubt unpleasant – hasn’t had the same sort of frantic quality. It has occurred in measured steps and each step has come in response to economic data that legitimately make a case for higher rates. This means that rates should remain receptive when the data eventually shifts. When that happens, there are signs that the housing market will also be receptive. Present-day lending is infinitely more sound and sustainable than it was before the Financial Crisis. The inventory contrast is even clearer. Simply put: there is none! The takeaway is that a sensible moderation in interest rates (the kind we’ll see whenever economic data suggests inflation is calming down and the labor market is losing some steam) can pave the way for an uptick in inventory, affordability, and demand. That’s a fairly ideal recipe for stronger sales. Read the full story here.
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