The Fed Skips and Homeownership Trends Higher - 6.21.2023

by Sr. Insight Analyst Ryan Schoen

Quick Hit Summary for Loan Officers

Last week the Fed finally took a break from raising interest rates, but in doing so they also sent a strong signal that they aren’t done quite yet. Their June statement of economic projections tells us that at a minimum two more quarter-point rate hikes are to be expected over the remaining four meetings to close out the year which would bring the terminal fed funds rate to a range of 5.5-5.75%. This should continue to put pressure and volatility on mortgage rates.

Key Points and Stats

1. Comparing the FOMC’s March projections to that of June, shows a more resilient jobs market than originally anticipated leading to stronger economic growth which will likely lead to core inflation remaining sticky despite the slowing headline inflation numbers.
2. Despite persistent housing affordability and supply challenges the homeownership rate among all race and ethnicity groups continues to trend higher.

Federal Open Market Committee Economic Projections

After raising the federal funds' target rate at an unprecedented pace, the Fed finally took a break skipping an increase after 10 consecutive rate hikes. However, the FOMC’s projections sent a clear signal that officials are increasingly worried about inflation’s staying power and that they believe they will need to do more to cool growth and bring prices under control.

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The latest decision by the Fed to moderate their rate hikes as we get closer to our destination is a prudent one as we wait to see how the campaign to raise rates trickles further through the economy. Comparing the FOMC’s March projections to that of June shows a more resilient jobs market than originally anticipated leading to stronger economic growth which will likely lead to core inflation remaining sticky despite the slowing headline inflation numbers.

Looking ahead nearly all Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time with most officials estimating the federal funds rate will top out at a range of 5.625 – 5.875% in 2023. This means that at a minimum FOMC participants see two more quarter-point rate increases over the Fed’s four remaining meetings this year as being necessary.

Housing Homeownership and Vacancies

The month of June is almost in the rearview mirror and with it the end of National Homeownership Month, but before we flip the calendar to July let’s review some of the latest trends in homeownership.

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As of 1Q2023, there were 144.3 million housing units to accommodate 129.4 million households with the 15 million spread attributed to vacant housing units. As our country’s population continues to diversify, so too does the composition of households that the housing market must serve. Looking at the composition by race and ethnicity reveals a shift away from white households toward more minority households with the strongest growth found among Hispanic households.

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In 1Q2023 the stats are:

• White households: 82.96 million (57.5% of the market)
• Black households: 16.80 million (11.6% of the market)
• Hispanic households: 19.10 million (13.2% of the market)
• Other race households: 8.51 million (5.9% of the market)
• Two or more races households: 1.85 million (1.3% of the market)
• Vacant: 15.05 million (10.4% of the market)??

Diving further into the ownership status of these households by race and ethnicity tells us that each group is enjoying increasing rates of homeownership despite persistent housing affordability and supply challenges.

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As of 1Q2023, the stats are:

• Total Households: 82.24 million were owners and 43.99 million were renters (66.0% homeownership rate)
• White households: 61.71 million were owners and 21.25 million were renters (74.4% homeownership rate)
• Black households: 7.82 million were owners and 8.97 million were renters (46.6% homeownership rate)
• Hispanic households: 9.48 million were owners and 9.61 million were renters (49.7% homeownership rate)
• Other race households: 5.24 million were owners and 3.28 million were renters (61.5% homeownership rate)
• Two or more races households: 0.98 million were owners and 0.87 million were renters (52.9% homeownership rate)

Looking at the homeownership rate of minority households to that of white households tells us that more work needs to be done to close the gap.

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As of 1Q2023 the homeownership gap to white households:

• Black households: -27.8% gap (8.7% of all owners and 21.9% of all renters)
• Hispanic households: -24.7% gap (11.1% of all owners and 11.1% of all renters)
• Other race households: -12.9% gap (5.9% of all owners and 7.5% of all renters)
• Two or more races households: -21.5% gap (1.2% of all owners and 2.0% of all renters)

Resources:

1. FOMC Projections?

2. Housing Homeownership and Vacancies