Weekly Economic Update

Economic News:

Happy Holidays

The Federal Reserve met for the final time of 2021.

Thanksgiving and Chanukah are over. Now Christmas, Kwanzaa and the New Year is upon us. The celebration of holidays has certainly changed during the past two years. But the meaning of these holidays have not changed, and before we get into the economics of the day, we wanted to wish our readers Happy Holidays.

Now for some market news. The Federal Reserve met last week for the final time of 2021. With inflation roaring and the economy rebounding, statements made before the meeting were definitely more hawkish. Chairman Powell actually suggested that we stop using the word “transitory” when describing today’s inflation.

On the other hand, before they met, the November jobs report was disappointing with regard to the number of jobs created and the experts are still trying to determine whether the effects of the new COVID variant will be severe. In the end, the Fed’s announcement indicated that they are fully prepared to fight inflation by increasing the pace of their tapering of purchases of mortgages and bonds and adding a prediction of “multiple” interest rate hikes in 2022.

A Competitive Seller’s Market is Likely to Stick Around in 2022

One in five homeowners looking to sell and move no longer need to live near their office.

Home sales and home prices likely will moderate from recent highs in the new year, but economists expect the hot housing market to continue nonetheless. A competitive seller’s market is likely to stick around in 2022, but economists believe buyers may see better opportunities. Still, housing affordability challenges will persist, they say. “Americans are poised for a whirlwind year of home buying in 2022,” says Danielle Hale, realtor.com?’s chief economist. “With more sellers expected to enter the market as buyer competition remains fierce, we anticipate strong home sales growth. Affordability will increasingly be a challenge as interest rates and prices rise, but remote work may expand search areas and enable younger buyers to find their first homes sooner than they might have otherwise.” Realtor.com? released its 2022 housing forecast, including noting some of the following trends expected for the new year:

1. Suburbs are still the place to be: The pandemic continues to modify what Americans look for in a home. One in five homeowners looking to sell and move no longer need to live near their office. That is giving them the flexibility to move further out, allowing them to target the suburbs.
2. Millennials are eager to finally move: Forty-five million millennials are in a “homebuyer sweet spot,” realtor.com??says. That many of them will fall within the prime first-time homebuying age range of 26 to 35 in 2022.
3. Hispanic home buyers rise: Hispanics comprise a larger share of the market, accounting for more than one out of 10 recent home buyers. “With a growing share of the population and the potential for a rising homeownership rate, this demographic group is expected to play a growing role in the home buying market,” Hale says.
4. Affordability challenges remain: Home prices, rents, and mortgage rates are all expected to be on the rise in 2022. The 30-year fixed-rate mortgage is expected to average between 3.5% to 3.6% by the end of 2022. However, Lawrence Yun, chief economist of the National Association of REALTORS?, also recently said that home prices likely will increase at a “gentler pace” over the next several months as mortgage rates increase.
5. More homes come on the market: Realtor.com? predicts a 6.6% increase in housing inventory in 2022, a welcome sign to buyers who have complained of few listings over the past year. An increasing share of homeowners this fall reported planning to sell a home over the next 12 months, realtor.com? says. Yun said new supply will also partly come from new housing construction, which is already underway, as well as the conclusion of the mortgage forbearance program that will likely cause a number of homeowners to sell. "With more housing inventory to hit the market, the intense multiple offers will start to ease," Yun said. "Home prices will continue to rise but at a slower pace." (Source: realtor.com?)

The Bidding-War on Homes Continues

Home prices up 14% year over year.

Redfin reported 60.3% of home offers written by Redfin agents faced competition, unchanged from September but down from a pandemic peak of 74.5% in April. The bidding-war rate has fallen from its peak in recent months amid a typical seasonal cooling in the housing market, but has begun to plateau as a second wind of homebuyer demand has fueled competition, according to Redfin Chief Economist Daryl Fairweather. “While the housing market slowed in October, the latest homebuying demand data indicates it may be heating back up—a sign that bidding wars could start to tick up again,” Fairweather said. “Homebuyers who dropped out of the housing market in the spring have returned under the assumption there will be less competition. They may be surprised to discover that bidding wars are still common because so many house hunters are looking to take advantage of low mortgage rates before they rise.” Redfin also reported home prices hit a record-high $359,975 in the four-week period ending November 21, up 14% year over year, the largest increase since early September. The report said prices have risen in the past month nearly four times faster than they did at the same time last year. The unseasonable surge in home prices appears to be drawing in more sellers, as the number of homes listed for sale was down less than 3% from 2020, and up 11% from 2019. “Rising rents and rising prices on everything from gas to groceries may be motivating more people to buy homes now,” Fairweather said. “Buying a home is a type of hedge against inflation, especially with mortgage rates still near historic lows. If high inflation. (Source: Redfin)

Climate Change and Housing

64% of US home buyers did not factor in climate change when purchasing their home.

Most people do not consider the impact of climate change when it comes to buying a home or choosing its location, according to a new online survey by real estate tech startup PropertyNest. With the recent Cop26 climate summit fresh in most people’s minds, PropertyNest asked a total of 1,483 US home buyers aged 18 and older whether they linked the impact of climate change with the safety of their properties, and whether the location they chose was determined by the risk of flooding, rising sea levels or wildfires. The survey found that up to 64% of US home buyers did not factor in climate change at all in their choices. Out of that group, more than 33% admitted that it had simply not occurred to them, while almost 19% did not see how the issue was related to buying a home. More than 12% said they did not believe in climate change. By contrast, 10.6% considered climate change as one of the top priorities when making a property choice, although only 5.9% said it was the most important consideration. Ruth Shin, CEO and founder of PropertyNest, said the most surprising aspect of the survey was that younger people weren't more concerned about the issue of climate change. Speaking to MPA, she said: “We talk about Gen Z and Gen Y being the generations that are most concerned about climate change in the environment - this is the top issue of their generation - but they're not seeing how that actually translates to something like buying a home.” However, she warned that extreme weather patterns were not only a reality but that they were going to get worse, adding that homebuyers should act in consequence. She said: “A lot of homeowners don't pay attention to some of the things that are happening to their home until there's a major event; until that big weather event occurs and you have destruction and damage in your home.” (Source: Mortgage Professional America)

Real Estate News:

Staying Put

77% of adults over 50 say they want to remain in their current homes.

According to AARP’s newly released Home and Community Preferences Survey, seventy-seven percent of adults 50 and older say they want to remain in their current homes over the long term. But many say their home would need to be outfitted to accommodate aging in place. Some older adults say they would consider leaving their current home for one that allows them to age independently, particularly if it cost less or was physically easier to maintain, the survey shows. “It’s really important that we understand what people’s housing preferences are, what they want, what they need, and how well their options are meeting their needs,” says Rodney Harrell, vice president of family, home, and community at AARP. “It’s foundational to our work to improve housing options and communities.” The number of older adults is growing: The number of households headed by people aged 65 and older is expected to increase from 34 million to 48 million over the next two decades, according to Urban Institute data.

Nearly 80 percent of respondents to the AARP survey own their home, with 51% having no mortgage. Some respondents said they already live in a home that allows them to age in place, such as with a bathroom on the main level or a room on the first floor that could be used as a bedroom. But a third of participants said they would need to modify their current home so they or a loved one could live there. “A portion of seniors are aging in place but are also stuck in place,” Linna Zhu, a research associate at the Housing Finance Policy Center at the Urban Institute, told AARP. “They don’t have the financial resources to help them move or relocate or downsize, or they cannot afford to live in nursing homes.” (Source: AARP)