Positive Market News
It seems that some things, once started, are nearly impossible to stop. You know, sort of like your teenage daughter’s inability to set Tik Tok aside until she’s mastered the Renegade Viral Dance Challenge. Or, this past month’s meteoric rise in mortgage rates. On the sixth of July, after rocketing upward in the preceding thirty days, 30-Year residential financing surged to 7.22%. During the months of May and June, the persistent, white hot economy was showing no
signs of abating and, as a result, brokers, bankers, and agents grew fearful that the cost of borrowing money was going to continue its ascent, possibly breaching eight percent. Thankfully, the Bureau of Labor Statistics issued not one but two reports in the past ten days- both indicating that Jerome Powell’s year-long war on inflation may be yielding some solid results.
On July 7th, unemployment numbers came in at 209,000. Five days later, it was reported that the Consumer Price Index fell dramatically from 4.0% to 3.0%. Both of these indices dropped more than expected and it looks as if we’re finally drawing closer to the Fed’s elusive (and, from my perspective, arbitrary) goal of two percent inflation. What’s stunning is that all of this seems to be happening without the loss of jobs. In other words, if you want to cool inflation/slow down the economy, it usually means that job growth is going to have to suffer. Fewer new jobs mean fewer consumers shelling out $4,000 to buy tickets to see Taylor Swift in concert. As a result, inflation starts to come down. Well, inflation is coming down but without the expected loss of employment opportunities. Suddenly, economists are suggesting that JPowell might pull a Sully and engineer the soft landing of the economy that has been discussed, discarded, and reintroduced as a possible ending to the financial drama that has played out on Wall Street and American pocketbooks for the past two years.
The Impact on Residential Real Estate
OK- Great. But how does this impact the real estate market? Well, for starters, the bond market liked what it saw. This is important because mortgage rates follow the 10-Year Treasury. Counterintuitively, bond traders know that a cooling economy is actually a stronger economy and they are betting on the fact that, after the July meeting of the Federal Open Market Committee, further rate hikes may no longer be warranted. As a result, bond prices have tumbled and, with them, mortgage rates which are now pegged at 6.86%. This is still too high for the majority of prospective homebuyers but things are now moving in the right direction. Could this be the beginning of the end of the real estate recession? Perhaps, but underlying problems will still persist.
Unfortunately, inventory continues to be an enormous problem. Today, there are only 444 existing, single family homes available for sale in Monroe County. It’s a paltry number and I see no immediate relief because two significant obstacles stand in the way of anxious buyers and more buying opportunities.
- The majority of US homeowners have mortgages hovering around 3%. Understandably, they’re not anxious to sell their existing residence and buy a new home which would then be tied to an interest rate more than double that which they currently enjoy. Only with the passing of time- as homeowners relocate, divorce, suffer illness or death- will the enduring strength of these golden handcuffs loosen.
- Meanwhile, homebuilders are slowly starting to dig basements, but not quickly enough. Moreover, that which is being constructed is of little consolation for first time buyers or those looking to purchase a more modest home. Seventy-four of the four hundred-plus homes currently available for sale in our community are to-be-built and, of these, seventy-one of them are priced $350,000 or higher. I’ll say it again – we need government intervention to make it easier and more profitable for builders to increase the number of new roofs sheltering tax-paying families.
In short, although we won’t have resolved all of the problems facing the housing industry, it does seem as if we are on track, once again, toward some recovery. We knew that it wasn’t going to be a linear journey, but the reality of a sub-six-percent mortgage climate may actually be a reality come year-end.
Gratitude
Finally, I’d like to conclude this newsletter, as I often do, with a message of gratitude. As you’ve heard, read, and experienced, it’s been a difficult market and, year to date, local sales have fallen 15% to 20%. Remarkably, during the first half of this year, my team and I saw our sales increase and we concluded the first six months of the year as the number one team in the region. This success wouldn’t be possible without your continued support and your willingness to refer your family and friends. Thank you! Wishing you all the best for the remainder of this amazing summer!