The National Association of Realtors released their most recent Pending Home Sales Index This Week in Real Estate, reporting an increase of 8.1% in January, marking two consecutive months of growth and the largest month-over-month increase since June 2020. Pending home sales beat analyst expectations according to a Wall Street Journal report that forecasted the index to rise by 0.9%. Economists view it as an indicator of the direction of existing-home sales in subsequent months. Strong economic data and stubbornly high inflation pushed mortgage rates up for the fourth consecutive week, with the 30-year fixed rate averaging 6.65% for the week, per Freddie Mac. Below are a few newsworthy events from the final days of February and the first few days of March that influence our business:
Pending Home Sales Improved for Second Straight Month, Up 8.1% in January, Largest Increase Since June 2020. Pending home sales improved in January for the second consecutive month, according to the National Association of REALTORS®. “Buyers responded to better affordability from falling mortgage rates in December and January,” said NAR Chief Economist Lawrence Yun. NAR anticipates the economy will continue to add jobs throughout 2023 and 2024, with the 30-year fixed mortgage rate steadily dropping to an average of 6.1% in 2023 and 5.4% in 2024. With an improving interest rate environment and job gains, Yun still expects annual existing-home sales to drop 11.1% in 2023 to a total of 4.47 million units before jumping 17.7% in 2024 (5.26 million units). NAR projects new-home sales will fall 3.7% year-over-year in 2023 before growing 19.4% in 2024. “Home sales activity looks to be bottoming out in the first quarter of this year before incremental improvements will occur,” Yun said. “But an annual gain in home sales will not occur until 2024. Meanwhile, home prices will be steady in most parts of the country. Read the full story here.
Rates Move Nicely Lower Heading Into The Weekend. It’s not a decisive victory, but rather, a nice way to end a week that had previously seen rates pushed over 7% for the first time in months. Strong economic data and stubbornly high inflation pushed mortgage rates up for the fourth consecutive week. The 30-year fixed-rate loan averaged 6.65% this week, according to Freddie Mac. The bond market (which accounts for most of the day-to-day momentum in rates) started the day on a strong note (strong = lower rates implied). The strength turned to a weakness for an hour or so after the day’s hotly anticipated economic data. Thankfully, the data wasn’t tremendously strong (strong data = higher rates) and bonds were able to get back on a stronger track throughout the afternoon. It’s also worth keeping in mind that the market is nimble and willing to react in a big way to important data on the horizon. We expect next week to be volatile for several reasons with the biggest move coming on Friday after the jobs report. There’s no way to know if that move will push rates higher or lower, only that it could be very big. Read the full story here.
The Underlying Fundamentals of Real Estate Are Quite Strong. On the surface, it seems like the real estate industry is struggling. But appearances can be misleading: the real estate business is a lot stronger in reality. The real estate market saw mixed reviews throughout 2022. In the first half of the year, homeowners benefitted from the highest level of growth recorded in twenty years – U.S. year-over-year home price growth reached a tad above 20% in April 2022, according to CoreLogic’s Monthly Home Price Index. But activity slowed by some measures as mortgage rates increased. In November 2022, home prices nationwide, grew 8.6% year-over-year compared with November 2021. “The first half of the market for the private real estate sector performed very strongly, whereas the second half of the year, we saw the market capitulate to what was occurring with the Fed’s movements of interest rates.” The real estate market ultimately remains strong. Rental vacancies finished last year at 5.3%, the lowest vacancy rate on record since 1988. Better yet, the rental industry saw 7.5% income growth in 2022, the highest historically except for during the recovery from COVID. Another positive development is an increase in millennial homeownership, which will continue to bolster housing market activity. From 2016 to 2021, nearly every U.S. state saw an increase in the number of young adults aged 25 – 44 forming new households. The market has seen a precipitous increase in cash buyers. Americans bought one of every three single-family homes and condos with cash in 2022, according to data analytics firm ATTOM. “It stands to reason that if you think that mortgage rates are up temporarily, that if you can afford to buy a home un-leveraged, you would buy a home unleveraged, and then leverage it at a later date at the point in time when financing costs are significantly less.” Read the full story here.
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