The Mortgage Corner
The National Association of Realtor’s Chief Economist, Lawrence Yun, commented on the latest and possibly best unemployment report of 2024. We are at the beginning of the next housing recovery. It’s no secret why; interest rates are returning to somewhere near pre-pandemic levels, which will take time.
“There is no national economic recession on the horizon”, said Dr. Yun. “The net payroll job addition in September strengthened to 254,000 after adding much lighter job gains in the previous months. The annual wage gains also accelerated to 4.0% after softening to 3.6% just two months earlier. More jobs mean more real estate demand, from retail spaces to apartment leases. Home buying will also increase, provided the conditions are right, and more inventory choices and lower mortgage rates will help.”
The red line in Calculated Risk’s graph of this year’s single-family for-sale inventory, which is the best indicator of better choices. It is up 34 percent in just one year and 48.3 from the February seasonal bottom, says Calculated Risk.
Inventories were lower in 2021-23 (yellow, purple, blue lines) because of the Fed’s rate hikes but this year’s red line is approaching the 2020 black line, which was the huge sales surge before the Fed began to raise interest rates.
So, what are prospective homebuyers or renters to do who looking for better interest rates? It should not depend on the election outcome, for starters. No party wants to rock the boat on interest rate reductions that the Fed has penciled in for the rest of this and next year.
That could be at least another 2.0 percent rate drop—from the current 8.0 percent to 6.0 percent Bank Loan Prime Rate. Bankrate.com is predicting the 10-year Benchmark Treasury yield that determines fixed mortgage rates will dip to 3.5 percent in a year. It would bring the 30-year fixed conforming mortgage rate to around 5.5 percent from its current 6.3 percent.
That is being conservative. Fixed 30-year mortgage rates averaged between 4-5 percent after the Great Recession (2008-09) when the Fed succeeded in keeping the inflation rate close to 2 percent for almost two decades. This is what buyers have tolerated in the past and kept existing home sales close to the 5-6-million-unit longer-term average it reached before the Great Recession and briefly after the COVID-19 pandemic.
At least one million new housing units built annually are needed as well, just to house the one million new households being formed each year.
One reason why so many homeowners have been reluctant to sell is the record low interest rates in 2020 because the Fed wanted to counter the effects of the pandemic.
That has resulted in the vast majority of outstanding mortgages carrying an interest rate below the current average of 6%, making those mortgage holders reluctant to sell. “In fact, one in five homeowners with a mortgage has a rate of under 3%, according to an analysis by Realtor.com” that was cited by MarketWatch.
How long can home buyers afford to be patient? If this decade will turn out to have record job and wage growth, as I believe, which so much government spending has stimulated, and housing prices are still rising at least 5 percent annually, if not more in coastal enclaves, it doesn’t pay to wait too long.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
No comments:
Post a Comment