The U.S. Federal Reserve voted This Week in Real Estate to maintain its short-term federal funds interest rate, marking the second consecutive meeting without an increase as the central bank carefully assesses incoming data. The next monetary policy gathering is slated for December. According to the Commerce Department’s report on Wednesday, construction spending in September increased by 0.4% to nearly $2 trillion compared to the previous month. On a year-over-year basis, construction spending surged by 8.7% in September. Spending on single-family construction also saw a rise of 1.3% in September, marking the fifth consecutive monthly increase since April 2023. However, when compared to the previous year, spending on single-family construction was 5.9% lower. Industry experts are now anticipating a positive trend in home prices for the current year. The latest forecasts for year-end 2023 home price appreciation are as follows: Fannie Mae predicts a 6.7% increase, HPES forecasts a 3.3% rise, MBA anticipates a 1.5% growth, and NAR expects a more modest 0.1% uptick, respectively. Additionally, the S&P CoreLogic Case-Shiller National Composite Index experienced a 0.4% rise in August, marking the seventh consecutive monthly gain since prices hit a low point in January 2023. The Composite Index now stands at 2.6% above its level from a year-ago and 6.4% above its January level. Below are a few newsworthy events from the final days of October and the first few days of November that influence our business: HOME EQUITY TRENDS MIXED ACROSS U.S. IN THIRD QUARTER DESPITE CONTINUED PRICE INCREASES. ATTOM released its third-quarter 2023 U.S. Home Equity & Underwater Report Thursday, which shows that 47.4 percent of mortgaged residential properties in the United States were considered equity-rich in the third quarter, meaning that the combined estimated amount of loan balances secured by those properties was no more than half of their estimated market values. The portion of mortgaged homes that was equity-rich in the third quarter of 2023 decreased from 49.2 percent in the second quarter of 2023. The latest figure also was down from 48.5 percent in the third quarter of 2022. Those declines happened despite home values rebounding recently from a fallback that had lasted from the middle of last year to the early part of this year. But while equity-rich levels dropped in the third quarter, the report also shows that the portion of mortgaged homes that were seriously underwater in the U.S. continued to improve. Just 2.5 percent of all residential mortgages, or one in 40, were considered seriously underwater in the third quarter of 2023. That meant they had a combined estimated balance of loans secured by the property of at least 25 percent more than the property’s estimated market value. The seriously underwater level dropped from one in 36 homes in the second quarter and from one in 35 in the third quarter of 2022, to the lowest point in at least four years. “By all measures, homeowner equity around the country remained strong during the third quarter as millions of households kept benefitting from the nation’s extended runup in home values. At the same, though, we saw an unusual downturn at the equity-rich end of the spectrum,” said Rob Barber, chief executive officer for ATTOM. “That could have just been a temporary blip. It also could have reflected an increase in long-time owners who had lots of equity built up selling their homes, or perhaps borrowing against their rising wealth and slipping out of equity rich territory. The fourth quarter data should say more about whether residential equity in the U.S. has indeed topped out.” The median nationwide single-family home price rose 11 percent over the second and third quarters of this year following an 8 percent drop from mid-2022 to early 2023. Values went back up as the job market remained strong, with the national unemployment rate below 4 percent, and consumer-price inflation was down to less than half the level of a year earlier. A strong investment market also put more money in the hands of potential buyers. Read the full story here. MORTGAGE RATES DROP FOR FIRST TIME IN SEVEN WEEKS. Mortgage rates ticked down this week, snapping a seven-week streak of increases. The 30-year fixed-rate mortgage fell to an average of 7.76% in the week ending November 2, down from 7.79% the week before, according to data from Freddie Mac released Thursday. “The Federal Reserve again decided not to raise interest rates but has not ruled out a hike before year-end,” said Sam Khater, Freddie Mac’s chief economist. “Though the committee chose to take a pause from further contractionary policy in this week’s meeting, Chair [Jerome] Powell made the point that the committee will remain open to further policy action to bring inflation down to 2% over time, dependent on incoming data,” said Hannah Jones, economic research analyst at Realtor.com. Although the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow. Rates are expected to stay elevated until it becomes clear the Fed is done hiking rates, according to MBA. “We were pleased to see that the Fed held short-term rates steady yesterday and continue to believe that it should not hike again and not sell its holdings of mortgage-backed securities until and unless the housing finance market has stabilized,” said Bob Broeksmit, MBA president and CEO. “These actions would help to lower mortgage rates and improve homebuyer affordability heading into 2024.” Read the full story here. HOME PRICES HIT ANOTHER RECORD HIGH IN AUGUST. Home prices finished the summer at another record high. The S&P CoreLogic Case-Shiller National Home Price Index increased 0.9% in August month over month and 2.6% annually on a seasonally adjusted basis. The index has risen for seven consecutive months and hit an all-time index high in August. August’s home price increase demonstrates that underlying demand for housing is still outpacing supply even as it becomes more expensive to buy. “One measure of the strength of the housing market is the relationship of current prices to their historical levels,” Craig J. Lazzara, managing director at S&P DJI, said in the press release. “On a year-to-date basis, the National Composite has risen 5.8%, which is well above the median full calendar year increase in more than 35 years of data,” he added. “The year’s increase in mortgage rates has surely suppressed housing demand, but after years of very low rates, it seems to have suppressed supply even more,” Lazzara said. “Unless higher rates or other events lead to general economic weakness, the breadth and strength of this month’s report are consistent with an optimistic view of future results.” “While continued mortgage rate increases challenge affordability across US housing markets, home price growth is in line with typical seasonal averages, reflecting strong demand bolstered by a healthy labor market, strong wage growth, and supporting demographic trends,” Selma Hepp, chief economist for CoreLogic, said. Read the full story here.
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