The New Year Is Off To A Positive Start & The Best Is Yet To Come. Historically, two leading indicators of a real estate market are jobs and mortgage interest rates. The Bureau of Labor Statistics released the January employment report This Week in Real Estate, which showed U.S. job growth accelerated sharply during the first month of the new year, resulting in an unemployment rate of 3.4%, the lowest level since 1969. This week’s decline of the average 30-year fixed-rate mortgage marks four consecutive weeks of decreases and nearly one full point below the peak of 7.09%, last reached in November 2022. According to Freddie Mac, the one-percentage-point reduction in mortgage rates will enable up to 3 million more mortgage-ready consumers to afford a loan for the median home price. Below are a few newsworthy events from the final days of January and the first few days of February that influence our business:
Mortgage Rates Fall For Fourth Week In A Row. Mortgage rates fell slightly this week, as a smaller rate hike by the Federal Reserve signaled promising improvement on inflation. The 30-year fixed-rate mortgage averaged 6.09% in the week ending February 2, down from 6.13% the week before, according to data from Freddie Mac released Thursday. After climbing for most of 2022, spurred by the Fed’s harsh interest rate hikes to tame soaring inflation, mortgage rates have been trending downward since November, alongside data that continues to show inflation may have peaked. Mortgage rates have not been this low since September and are now nearly a full point below last year’s peak of 7.08%, last reached in early November. “This one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price,” said Sam Khater, Freddie Mac’s chief economist. The Fed approved a quarter-point interest rate hike on Wednesday, the smallest since March. The move to slow the pace of increases sends a clear signal that the central bank is seeing progress in its battle with inflation. “The Federal Reserve controls short-term rates, but long-term rates, including 30-year mortgage rates, are a function of market expectations for the path of the economy,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association. “And investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time.” The MBA is forecasting a modest drop in mortgage rates through 2023, ending closer to 5%. Read the full story here.
Builders Prep For More Pain But See Progress In Future. The National Association of Home Builders is warning that the new-home market is in a “housing recession” – but says that brighter days are on the horizon. And a turnaround could come sooner than expected given recent uplifting economic data. Single-family starts declined in 2022 for the first time in 11 years. But a turning point in both the housing market and the overall economy likely will come in the second half of 2023, NAHB economists said during this week’s 2023 International Builders’ Show. The National Association of REALTORS also predicts that existing-home sales will return to more historically normal levels this year. “With interest rates projected to normalize in the second half of 2023 as the Federal Reserve taps the brakes in its fight against inflation, the pace of single-family construction will bottom out in the first half of 2023 and begin to improve in the latter part of the year,” said NAHB Chief Economist Robert Dietz. “This forward momentum will lead to a calendar year gain for single-family starts in 2024.” NAHB forecasts that single-family production will decrease to 744,000 units this year before rebounding to a 925,000 annual pace in 2024. Declines in 2022 and those forecasted for 2023 will be more pronounced because production was running at a “very solid level” above a 1.1 million annualized pace through the first quarter of 2022 before a steep decline that coincided with the sudden rise in mortgage rates, NAHB notes in its forecast. “Single-family home building will need to exceed 1.1 million starts per year in order to reduce a deficit that arose because of underbuilding in the prior decade.” Read the full story here.
A New Year Starts with Strong Gains. Job growth rebounded in January. After declines for five consecutive months, total nonfarm payroll employment increased by 517,000 in the first month of 2023 and the unemployment rate hit a 53-year low at 3.4% as more people entered the labor market. It marks the largest monthly job gain in six months. Construction industry employment (both residential and non-residential) totaled 7.9 million and exceeds its February 2020 level. Residential construction gained 5,500 jobs, while non-residential construction employment gained 19,300 jobs in January. Residential construction employment exceeds its level in February 2020. Read the full story here.
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