A WEEKLY GLIMPSE OF REAL ESTATE FINANCE NEWS
5/13/24
Job Growth Changes: As unexpected job growth occurred late last year and into 2024, the prospects for the FED to reduce rates dimmed. April’s growth of 175,000 jobs was well below expectations and resulted in pushing the unemployment rate to 3.9%. Although this cooling of the labor market again raised hopes of FED rate reductions in the future, it is unlikely that one good inflation report will be sufficient. The FED will want to see a trend developed.
Tortured Figures: We have mentioned before that the financial data being analyzed is very contradictory. Depending upon who is doing the analysis and how they are “torturing” the figures, the results can vary significantly. The fact that analyzing the data is so individualized makes trying to predict the FED’s actions nearly impossible. But it doesn’t keep us from trying.
Nationwide, Home Values Climb Along with Interest Rates: Contrary to expectations, as interest rates steadily rose home values did not decline. Although home prices modulated slightly and values increased at a slower pace, home appreciation continues between 4 and 8 percent depending upon location. This is not the greatest news for buyers because waiting for a rate reduction advantage can be eroded by home value increases. It is the reason that we are now hearing comments like “interest rate reductions may not affect the market as much a originally anticipated”. The buyer conundrum of when to buy continues.
Local Metrics Differ: We have noted before that “all real estate is local”. Having indicated above the nationwide housing metrics, according to local trend follower, Charles McCann, our local market shows slightly different results. Briefly stated, McCann reports very slight downturns in the 3-month median home prices accompanied by a longer days on market or selling time. This trend is among significant data that McCann tracks and reports to the real estate community monthly.
(Charles McCann is a local real estate broker who has tracked numerous aspects of the real estate market for many years. He is much relied upon by fellow Realtors for reliable trend information.)
Buyer Acclimation: As we reach the mid-point of the Spring buying season buyers appear to have acclimated themselves to the fact that interest rates may not decline as much as first anticipated earlier in the year. Although buyer enthusiasm has grown, inventory weakness continues and buyers in some areas report slim pickings for homes to buy choices. The lack of inventory has obviously contributed to home values being artificially kept higher than expected.
Government Assistance, Maybe: It was just announced that the House of Representatives has put together a bi-partisan coalition called the Real Estate Caucus. Recognizing that housing is a wealth builder, especially for the lower and middle class, Congress wants to enact helpful legislation. The trick is determining the word “helpful”. The announcement indicated the desire to find ways to help both renters and home buyers. Initially, comments centered around old concepts of reducing home building regulations and incentivizing builders and providing some sort of tax credits and/or incentives to all participants in the real estate arena – buyers, sellers, renters and builders. No mention yet of the lending side of the housing picture. We remain hopeful but won’t be holding our breath for results.
Brace & Bolt: California’s earthquake seismic retrofitting program is reaching Humboldt County. Eligibility is available for owner occupied homes that were built prior to 1980. The home ust have a raised foundation or crawl space and be on level (slight slope is ok) ground. The grant recipient’s annual income cannot exceed $72,080. Initial grants are generally $3,000 but can be increased under certain circumstances. All details can be obtained by visiting
Earthquakebracebolt.com/register
(I was informed of this opportunity thanks to Glimpse reader Courtney Blake owner of Blake’s Books in McKinleyville who thought others might be interested)
Until next week, be good to yourself and kind to others.
5/6/24
FED Decision as Expected: The FED decision this past week to keep rates unchanged surprised no one. Pouring over Chairman Powell’s comments provided little guidance to future FED decisions. Here are a few comments:
- While the FED indicates that they “examine the totality of the data in determining our direction” the data appears so contradictory that some data must be prioritized.
- The FED does not anticipate lowering rates until they “have confidence that inflation is moving sustainably downward. It is likely that gaining such greater confidence will take longer than previously expected”.
Powell “suggested” that the FED is not considering rate hikes while totally focused (some might say obsessed) with wrestling inflation down to the FED’s 2% annual rate. Acknowledging that inflation has declined from a high of over 9%, it seems now stuck at the 3.1 to 3.4 percent range. It took little time for the markets’ reaction and pricing in only one expected rate cut this year. This is a far cry from the 4 to 6 cuts anticipated only four months ago.
The FED has a tough task ahead. Lower rates would reduce borrowing costs for consumers, potentially triggering an increase in economic activity and inflation. Until we see a reduction in consumer spending habits, possibly coupled with some observed weakening in the labor market, higher for longer rates are likely to be maintained.
My personal “guess” is that rates will reduce this year, likely at least twice, but it will not stimulate the housing market to the extent that we had hoped.
New Jobs Creation Falls: Along with the FED announcement that they are not considering any rate hikes, Wall Street received more good news when it was reported that only 175,000 new jobs were created in April. Below the 235,000 expectation and far below the 315,000 jobs added in March, if this is a sustained trend it should provide the FED the sense that inflation may be coming under control, at last. While good news for Wall Street, not so good for Main Street – it is hard to know what to wish for.
Buyers Tired of Waiting: As we approach the Spring home buying season, buyer interest is growing. There appears to be an acceptance that rates are not going to reduce as much as expected and therefore also an acceptance that they should consider purchasing at today’s high rates. For those that can afford it, this may be a good decision but it does leave many would-be buyers still in an affordable pinch. Those buyers that proceed should do so with the concept that they may live with those high rates for a good while. Do not accept the higher rate with the anticipation that a refinance can be done in the near future when rates do decline. If a refinance figures into the plan, discuss this option thoroughly with your mortgage provider.
A Quick comment on Gross Domestic Product (GDP): As a favored FED measurement of economic health, GDP is generally identified as the market value of the goods and services nationwide, usually reported quarterly. The Commerce Department measurement of GDP was 1.6% vs an expected 2.4 rate of increase in the first quarter of 2024. This lower rate followed a growth rate of 3.4% in the fourth quarter of last year. This is an important measurement for recession watchers as indicated below.
Stagflation & Recession: Expect these two words to begin to appear in media comment in days ahead. Stagflation is identified as a decelerating economy accompanied by stubbornly high inflation and growing unemployment. The dilemma is that actions enacted to lower inflation can exacerbate unemployment and maintain a stagnant atmosphere. Recession is characterized as a declining economy, including increasing unemployment, and often identified via a reduction in Gross Domestic Production (GDP) for two successive quarters (see first quarter decline noted in above comment). The FED has been successful so far in avoiding both stagflation and recession but seem to have reached an impasse in lowering inflation to their desired 2% per year goal. When specifically asked about these risks, the FED Chairman was quick to indicate that they saw no danger ahead for either Stagflation or Recession. This is unlikely to keep the media from sounding the alarm, regardless of the low possibility of either to occur.
Renting vs Buying: This conundrum is revisited often, especially when interest rates and home values are both high. The media was awash with the latest news that it is cheaper to rent than to buy in 50 of the nation’s largest cities. Although the immediate savings in today’s market suggests such activity, it misses the whole point of ownership. Owning one’s home has been identified over and over again as the quickest way for most people to build wealth via the appreciation factor. Using a fixed rate mortgage fixes in place the monthly principal and interest payment while rent is almost destined to increase year after year, often overtaking that initial higher payment accompanying ownership. In addition to the wealth building aspect of ownership, the emotional aspect of home ownership is such that it is seldom captured in any other endeavor. Don’t be seduced by just the numbers. I know it sounds like just so much real estate hype, but there is a lot to promote ownership rather than renting.
Buyer Real Estate Commission Changes: I noted last week that the National Association of Realtors’ (NAR) lawsuit was initially approved by the court. In a nutshell, this means that the buyer’s agent commission can no longer automatically be set via the listing agreement with the seller. Instead, the buyer must determine if or how their real estate representative will be compensated. Following the immediate “panic” of how buyers will be able to afford such expense, especially in light of current affordability issues, contract options are possible and still being identified. The issues are multiple and too complicated to include in this brief glimpse. A more comprehensive review of the buyer paid commission impact is posted on our website at www.humboldthomeloans.com. Go to the tip sheet section and scroll down to “Real Estate Buyer Paid omission review”. If you have additional questions, we are only a phone call or email away.
Until next week, be good to yourself and kind to others.
We at Humboldt Home Loans are always available to answer any of your real estate finance questions.
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