The Fed-Locked 2022 US Housing Market: An Insight from a Wide Range of Regional Variability and Mortgage Rate Effects
Throughout 2022, the Federal Reserve hiked its benchmark interest rate at a record pace to slow the economy and fight high inflation. The most interest rate sensitive sector of the economy was housing. The Fed’s actions had the intended effect, though, with housing affordability deteriorating and demand dwindling, which led to declining sales and slower annual price growth.
Mortgage rates in 25 major cities have gone up on average since last year, meaning house purchases are less affordable.
The National Association of Realtors projects prices will go up less than 1%, reaching a median price of $385,800 by the end of 2023. Even a small shift can mask a lot of regional variability.
“Nationally, we might see a 5% decline from the peak,” Tucker said. “But prices will decline by more in the West and there will be a smaller decline in the Southeast.”
US home prices dropped for the fifth month in a row in November, as rising mortgage rates pushed prospective buyers out of the housing market late last year and prices continued to cool, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index, released Tuesday.
The Lundh Effect: From Real Estate to Homebuying in the New Millennium: The Case for a Great Reinvestment After the Great Recession
At The Conference Board, Lundh is a principal economist. The opinions expressed in this commentary are of his own. CNN has more opinion.
New regulations were put in place after the 2008 financial crisis. Banks are now required to be better capitalized; lending standards are much more rigorous, leading to higher-quality loans; most mortgages are fixed-rate; and financial derivatives, such as asset-backed securities, are better regulated. The financial system is very important to the housing downturn.
Additionally, years of rampant demand spurred builders to overbuild in the early 2000s, flooding the country with a home surplus. The demand to work through the vast housing stock that had been accumulated took years after the Great Recession. This, in turn, crushed the homebuilding industry, causing chronic underbuilding over the subsequent years.
Other helpful trends include the spike in refinancing activity over the last few years associated with ultra-low interest rates. This made it simpler to service the mortgages of many homeowners.
Grant Sykes is a manager at Barfoot & Thompson. “There were chin-dropping moments when agents stand around the room and are gobsmacked at the prices being achieved,” he told CNN Business.
The Real Estate Institute of New Zealand says it takes an average of 10 days to sell a New Zealand property. Sales have plunged nearly 35% and median house prices are down 7.5% over the past year.
That was in May 2021, when sales attracted thousands of bidders who drove prices ever higher. Since then, Barfoot & Thompson’s clearance rate at auction has plummeted, according to Sykes, prolonging sales times and sending prices lower.
The Rise and Fall of Mortgage Rates: The Implications for the Real Estate Market and for the Equilibrium Dynamics of the United States and Europe
Rising interest rates are driving the dramatic change. Rates are not seen in more than a decade and the costs of borrowing have gone up as a result.
US mortgage rates topped 7% last month for the first time since 2002, up from just over 3% a year ago, before pulling back slightly in November as inflation eased. In the European Union and United Kingdom, mortgage rates have more than doubled since last year, chasing would-be buyers from the market.
One key factor determining how low prices go? There is an unemployment rate. A sharp increase in joblessness could lead to forced sales and foreclosures, “where steep discounts are common,” according to Slater.
The economy is not being brought down by housing. Yes, the housing market has been impacted. But mortgage delinquencies are still low,” said Gene Goldman, chief investment officer at Cetera Investment Management.
Most markets are now seeing falling prices as a result of the data lags. “We’re in the early period in quite a clear downturn now and the only real question is how steep and how long it’s going to be.”
China’s property market: a decade in the life of the mortgage-broker market and its impact on employment and job prospects in the UK
China’s property market accounts for about 28-30% of GDP because of these linkages. According to the National association of Home Builders, the United States has an average contribution to GDP for housing of 18 percent.
Sales are sliding elsewhere too, as banks take a more cautious approach to lending and aspiring homebuyers delay purchases in the face of much higher borrowing costs and a deteriorating economic outlook.
According to the National Association of REALTORS, the market is frozen and has fallen for a decade in a row. Since the late 1990s, the group has tracked sales.
A skilled service sector worker can afford between 30% and 100% less housing space than before the pandemic according to the index.
Since 2009, when rates were near zero, more than four million mortgages have been issued to first-time buyers in Britain. Tom Bill is head of UK residential research at broker Knight Frank, he says that a lot of people do not appreciate what their outgoings are like.
If the shock is very strong, it can increase the risk of forced sales that can cause prices to fall faster.
The average maturity of fixed-rate mortgages in countries such as New Zealand and the United Kingdom is very short.
“This means much more debt will be subject to higher rates over the next year or so than perhaps first appears to be the case,” said a report last month.
McFee said the chances of a more benign correction were higher if labor markets continued to be strong.
Employment levels in advanced economies have rebounded since the start of the pandemic. But there are early signs that labor markets are starting to cool as weak economic growth hits demand for workers.
After recovering strongly at the beginning of the year, the number of hours worked was 1.5% below pre-pandemic levels in the third quarter, amounting to a deficit of 40 million full-time jobs, according to estimates by the International Labour Organization.
The ILO reported that the outlook for global labour markets had deteriorated in recent months, and that both job vacancies and employment will decline in the last quarter of the year.
The unemployment rate in the United States ticked upwards in October to 3.7%. In the United Kingdom, job vacancies are at their lowest level in a year. The UK Office for Budget Responsibility expects unemployment to rise by 505,000 to a peak of 1.7 million — an unemployment rate of 4.9% -— in the third quarter of 2024.
Oxford Economics predicts that the world’s GDP will expand by just 3% in the next few years, instead of the 1.5% it currently expects.
“An additional negative factor, compared to the [global financial crisis], is that the Chinese housing market is also in a downturn,” according to Slater. “So rather than offsetting the impact on world output of a global housing downturn, as was the case after the GFC, the Chinese housing sector is contributing to the slump.”
Inflationary Rates in the U.S. and Implications for Housing, Rentals, and Transportation during the Second Great Recession
Last month, the overall inflation rate declined, as gasoline and grocery prices moved in opposite directions. November’s Consumer prices were up 7 points from a year ago and 7 points from the month before.
The inflation figures were released Tuesday by the Labor Department, just as the Federal Reserve prepares to raise interest rates for the seventh time in nine months on Wednesday.
Americans have seen their savings and credit card debt go up over the course of a year. A key source of pain was costly gasoline.
But gasoline prices dropped 2% between October and November and gas is now selling for less than it was a year ago, before Russia’s invasion of Ukraine.
As fuel prices fall, however, food prices have been climbing. The price of lettuce went up 7.9% in November, driving the grocery prices up.
A wholesale box of romaine lettuce that typically sells for $25 to $30 on the east coast is costing up to $100, as a result of growing problems in California and high transportation costs.
lettuce production in the Salinas Valley was affected by an insect-borne virus. And while gasoline prices have tumbled, the diesel fuel used to truck vegetables still costs nearly $5 a gallon.
The prices of food and energy tend to change frequently, but the prices for many other goods seem to be stabilizing. Between October and November, used car prices decreased while new car prices did not.
“It is too early to say that goods inflation is over,” Powell said two weeks ago. “But if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months.”
There are signs that the housing inflation has begun to decrease. Rents are still rising much faster than they were before the pandemic, but not at the breakneck pace they were in the spring.
The average cost of renting a single- family home was more than 14% higher in April than a year earlier, according to a data company. The annual increase was down to 10% by September because of softer demand.
A Core Logic economist said that high rents have caused a increase in the number of people moving in with roommates.
Inflationary Pressure and Mortgage Rates: An Overview from Freddie Mac’s Mortgage Rate Survey Over the Last Two Months in the First Three Months
The Fed chairman does not believe in the cost of services, which include everything from haircuts to restaurant meals and is largely driven by labor costs.
However, the Fed announced on Wednesday that it will continue to raise interest rates — albeit by a smaller amount than it has been, while acknowledging that inflation is easing. The rate hike signaled more good news for inflation and was already factored in to where mortgage rates are.
The interest rates have risen since the beginning of the year. Powell warned rates are likely to climb higher and stay up longer, adding that history cautions against easing up on the fight against inflation too soon.
The 30-year fixed-rate mortgage averaged 6.31% in the week ending December 15, down from 6.33% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.12%.
The Bureau of Labor Statistics said inflation cooled considerably in November and was at its lowest level in more than a year.
“Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve’s monetary policy reverberated through the economy,” said Sam Khater, Freddie Mac’s chief economist.
Freddie Mac gets mortgage applications from thousands of lenders across the country, in order to determine the average mortgage rate. The survey includes only borrowers who put 20% down and have excellent credit. Some buyers who put less money down upfront will be charged more than the average rate.
The Fed doesn’t set interest rates for borrowers, but it can affect them. Mortgage rates are influenced by yield on 10-year US Treasury bonds. When that rate goes up, the 30-year fixed-rate mortgage typically goes up, too. Mortgage rates go down if the Treasury rate goes down.
An Outlook for Real Estate and Mortgage Applications in the Next 2023: Recent Data from Lennar (LEN), a Leading Home Builder in the US
“With a Federal Reserve committed to bringing inflation down, investors expect business investments and consumer spending to pull back,” said Ratiu. “However, with most Americans still employed and seeing modest pay gains, the pullback in spending has yet to meaningfully materialize.”
Forecasters, again, predict a wide range of where rates will go in 2023. Currently the 30-year fixed-rate loan is priced at between 5.6% and 6.0%, depending on the lender, which is below the predictions of Realtor.com.
Mortgage applications increased last week as buyers looked to take advantage of a few weeks of slightly lower rates according to the Mortgage Bankers Association.
“Overall, applications increased, driven by increases in purchase and refinance activity,” said Joel Kan, MBA’s vice president and deputy chief economist. “However, with rates more than three percentage points higher than a year ago, both purchase and refinance applications are still well behind last year’s pace.”
A long list of housing data is on tap. On Tuesday the US Census Bureau will report housing starts and building permits figures for November, followed by Friday’s release of new home sales data for the same month. In between that will be the November existing home sales numbers from the National Association of Realtors on Wednesday, as well as weekly data on mortgage rates and applications on Thursday.
Still, there are some promising signs that the worst could soon be over. Shares of Lennar
(LEN), one of the largest homebuilders in the US, rallied after reporting earnings last week. It was above average revenue and the number of homes it expects to deliver next year were higher than analysts expected.
Lennar investors “may be looking ahead to 2023, perhaps crossing the valley from recession to potential recovery,” according to CFRA Research analyst Kenneth Leon.
It’s also worth noting that the job market is still strong and wages are growing. Many people have good excess savings because of the governmentStimulus.
The good news is that most existing homeowners are still making their monthly payments on time even though housing sales may remain weak due to high home prices and elevated mortgage rates.
Again, that’s a stark contrast from 2008 when many people with subprime loans or borrowers with poor credit histories were unable to keep up with their mortgage payments.
What Happened When General Mills and Other Companies Announced Their First Earnings Report on Tuesday? A Reflection from Wall Street, Wall Street and Wall Street
A lot of companies won’t report their latest earnings this week. More information about the financial health of consumers and corporate spending could be obtained from only a few.
General Mills will release its earnings on Tuesday. Analysts predict a slight increase in sales and profit. The consumer is growing increasingly wary of inflation and the broader economy, but they still eat their Wheaties. Shares of General Mills
(GIS) have soared nearly 30% this year.
Analysts are less optimistic about the outlooks for sneaker king and Dow component Nike
(NKE), used car retailer CarMax
(KMX) and memory chip maker Micron
(MU), whose semiconductors are used in devices ranging from cell phones and computers to cars.
The investors are going to be paying close attention to what companies say in their earnings reports. The analysts are predicting 5.3% earnings growth for the next three years. That could be too optimistic… especially if companies start cutting their own forecasts due to worries about the broader economy.
“Odds of a recession are pretty high,” said Vincent Reinhart, chief economist and macro strategist at Dreyfus & Mellon. “That will have a knock-on effect for corporate earnings. Higher rates and less earnings suggest more pain for the stock market.
Personal income and spending, PCE inflation, new home sales, and US Durable goods orders were all reported on Friday.
Real Estate in the Fourth Quarter of the Pandemic Era: New Trends in Prices of New Condos, Condos and Co-ops in Manhattan
“We just kind of got to that place in our lives where we were financially very stable, we wanted to start having kids and we wanted to just kind of settle down,” says Paul, 34.
“At first, we started lowering our expectations, looking for even smaller houses and even less ideal locations,” says Paul, who eventually realized that the high mortgage rates were pricing his family out again.
“Then there would be two dozen other offers and they would be $100,000 over asking,” says Paul. “Any any time we tried to wait until the weekend for an open house, it was gone before we could even look at it.”
Home prices have remained mostly high despite the slump in sales activity because inventory has remained low. The inventory of unsold existing homes fell for a fourth consecutive month in November to 1.14 million.
At an open house for a charming starter home in Hollywood one recent weekend, agent Elijah Shin didn’t see many people swing through like he did a year ago.
The median price of all apartments in Manhattan in the fourth quarter was $1,100,500, down 5.5% from the prior year, according to a report from brokerage firm Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants. The year-over-year price for the first time in the pandemic era has dropped. The median cost of an apartment was above pre-pandemic prices.
The largest share of condos sold were one-bedrooms with a median price of over $1 million. The price for two-bedroom condo was $2,450,000. The co-ops median price was lower at $710,000 for one-bedroom and $1,325,000 for a two-bedroom.
Market Metrics in the Fourth Quarter of the Manhattan Real Estate Market Including a Lower Mortgage Rate for the First-Term Rental Buyers
As a result, there were 6,523 listings in Manhattan at the end of the fourth quarter. The fourth quarter is 5% higher compared to the previous year and 18.7% less than the third quarter.
The market metrics for prices, sales and inventory are rising from their pre-pandemic levels at a modest pace.
Should mortgage rates go down, there could be more movement in the market as the tight inventory picture and strong unmet demand to buy a home suggest.
“The would-be buyers that stepped back from the market in late 2022 can’t and won’t stay away forever, especially given the competing demands from first-time buyers looking to get into the market and retirees looking to move or downsize,” Steinberg said.
Mortgage rates ended 2022 holding fairly steady as markets reacted to the ongoing economic uncertainty, said George Ratiu, Realtor.com’s manager of economic research. He was of the opinion that there were mounting expectations of a recession. On the other hand, the incoming data shows continued resilience.
He said more inventory would then become available from the locked-in homeowners clinging to their ultra-low mortgage rates from the past couple of years.
Many people are searching for affordability in order to buy a home, which leads them to lower-priced metro areas that can fit within their budgets, according to George Ratiu.
Some markets, such as Manchester, New Hampshire, or Columbus, Ohio, are still seeing homes change hands, which is due to the fact that buyers from more expensive locations are lured by solid local economies.
A Mirror Image of 2022 for the Real Estate Market: Expected Seasonality and Buyer Perturbation in the 21st Century
In 2023, we may see a mirror image of 2022 — a somewhat trying first half that gives way to a surprisingly strong back half of the year for buyers, said Leonard Steinberg, corporate broker at Compass in New York.
There is likely to be a return to the traditional seasonality of the real estate market, in which inventory tends to rise in February and carry through the summer. Meanwhile, prices often peak in May or June and prices and sales tend to slowly decline until the end of the year.
She said that the spring housing market is expected to be robust and the overall mood in the market is more positive than a month ago.
“The big surprise for a lot of people might be that the market has a really boring year,” said Tucker. “It would be a great change of pace. A boring year in the housing market is a great surprise.
With more than 10 million open jobs and not enough applicants to fill them, the labor market would have to experience a significant drop in spending to make a difference. If corporate executives decide to cut payrolls, it would create a self-fulfilling downward spiral.
But traditional seasonal norms are expected to kick in come March as more inventory becomes available and more buyers starting to look at what’s available — as long as buyers can stomach the current rates and sellers are willing to give up the ultra-low rates they enjoyed in the past couple years.
Last July marked the first month-over-month decrease for the national index since February 2012 and that continued through November, with seasonally adjusted prices falling 0.3% month over month.
The cities in the 20 city index reported declines before the seasonal adjustments. After seasonal adjustments, 19 cities still reported declines, with only Detroit increasing 0.1%.
The S&P CoreLogic Case-Shiller Northeastern US National Home Price Index (HpIA) released Tuesday, November 29, 2022
Home prices rose 7.7% in November from the year before, a smaller jump than the 9.2% growth seen in October, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index, released Tuesday.
Cities in the South led price appreciation, with Miami; Atlanta; and Tampa, Florida, all reporting the highest year-over-year gains among the cities in the 20-city index in November. Miami had a price increase of 18.4% from the year before, followed by Atlanta at 16.4% and Tampa at 14.4%. All 20 cities reported lower price increases in the year ending November 2022 compared to the year ending October 2022.
Bright MLS chief economist Lisa Sturtevant said the November report provides evidence of the slowing Housing market, but it may not show the worst yet.