The Comeback Kid: Featuring the Housing Market

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The Federal Reserve reduced the federal funds interest rate by 25 basis points This Week in Real Estate as part of its policy approach over the past three quarters to keep mortgage interest rates low. Below are a few highlights from the final week of July that influence our business:

The Comeback Kid: The U.S. Housing Market’s Evolution During The Current Economic Expansion? Homeownership is considered a crucial step to wealth accumulation. However, the Great Recession tested this long-held belief. From the start of the Great Recession in April 2006 to the first signs of economic revival in March 2011, the CoreLogic Home Price Index (HPITM) declined 33%. Thanks to stable job growth, mortgage funding and underwriting, the housing market has recovered from its historic crash. By the first quarter of 2019, total home equity had reached a record of $15.8 trillion, compared to just $6.1 trillion 10 years prior. The recession led to an influx in renters as homeowners grappled with home value loss. From the third quarter of 2009 to the fourth quarter of 2012, the homeowner population plummeted, while 12.9 million households joined the rental market. Fast forward to the end of the first quarter of 2019, and the tables have turned with 1.1 million new homeowners and only 458,000 new renters. Most signs point to continued good news for the housing market. The CoreLogic HPI Forecast predicts a moderate but healthy 5.6% acceleration in annual home price growth from June 2019 to June 2020.

Freddie Mac: Mortgage Rates Remain Near 3-Year Low. This week, the 30-year, fixed-rate mortgage averaged 3.75%, matching last week. A year ago, the rate averaged 4.60%, according to the Freddie Mac Primary Mortgage Market Survey. “Mortgage rates have essentially stabilized over the last two months, which reflects the recovery and improvement in the economy from the malaise earlier in the year,” Freddie Mac Chief Economist Sam Khater said. “Going forward, the combination of low mortgage rates, tight labor market, and high consumer confidence should set up the housing market for continued improvement in home sales heading into the late summer and early fall.” Are you ready to see what you qualify for? Talk to our Oregon or Washington mortgage lenders today!

Federal Reserve Reduces Rates in July. Perhaps as the most telegraphed interest rate cut of recent decades, the Federal Reserve reduced the key, short-term federal funds rate by 25 basis points to a top rate of 2.25%. This policy change is good for housing and home building, which continue to face housing affordability headwinds in spite of favorable demographics. With respect to the overall economy, the Fed characterized the labor market as “strong,” with economic activity rising at a “moderate” rate. This mirrors the home building economic perspective of a slowing overall economy, ongoing labor shortages, and late-cycle concerns over housing affordability. The evolution of Federal Reserve policy over the last three quarters is an important reason why mortgage interest rates have declined from late-2018 cycle highs. Given that the housing market faced a 10-year low for housing affordability last Fall, the Fed’s approach is a net positive for future housing demand and home construction, while offering an offset (but only a partial one) for rising construction costs. These costs are limiting housing inventory, particularly at the entry-level market. Moreover, higher production costs have caused housing affordability to decline in recent years and are the primary driver for NAHB’s estimate for generally flat conditions for new home sales and starts in 2019. 

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