Weekly Economic Update
Economic News:
Three Quarters of the Way Home
2023 has been all about persistence.
We are almost through three-quarters of the year. And if we had a word to describe this year, it would be persistence. As a matter of fact, persistence could describe the past 15 years. Yes, it has been 15 years since the Great Recession. And the effects of the Great Recession persisted for much longer than we expected. The housing market slowly recovered for years before real estate turned hot again. Then the pandemic hit and again the pandemic persisted longer than we expected. Those who expected COVID to fade away quickly were deeply disappointed.
Now we have the same persistence applied to the current interest rate environment. When the Federal Reserve started raising rates about 18 months ago, many thought that we are just going back to normal after the pandemic. But the increases in rates have persisted for much longer than expected and now rates are expected to stay higher for a longer period of time. Why? For one, inflation has persisted for longer than expected. Secondly, the economy has continued to expand for longer than expected. Thus 2023 is all about persistence. But that does not mean that higher rates and inflation are here to stay. Like the recession recovery, the tide will change.
We are already seeing evidence of this change. Inflation has slowed down significantly. Jobs growth is subsiding, which will open the way for the economy to slow down. These trends open the door for rates to stabilize and hopefully fall somewhat in the future. Will this happen in the fourth quarter of this year? Or will we have to wait a bit longer? Another inflation indicator is due this week and next week we will see the jobs report for September. This data will help us answer these questions. If there is good news on the “moderation front” – remember that market rates such as mortgages can move before the Fed acts – especially if we hear positive statements from Fed members in their many speeches around the country.
More Buyers Prefer Multi-Generational Homes
NAHB survey finds 45 percent of buyers would prefer a multigeneration home.
Multigenerational living is a common practice in many countries, including here in America. Prior to World War II, many extended families, particularly those of recent immigrants, lived together under one roof. After the war, though, a shift toward independent living took hold, spurred in large part by the rise of relatively inexpensive housing in the suburbs. But the practice never went away entirely. And over the last few years, it has gained steam because of a number of factors – the pandemic and high housing costs among them. According to the Pew Research Center, “the number of Americans living with multiple generations under one roof has quadrupled” to some 59 million over the last 50 years. For the most part, multigenerational living involves adult children, plus one or both parents and/or grandparents. Sometimes it’s a young adult returning to the nest after college or after a divorce. Sometimes it’s siblings choosing to live together, maybe to care for each other’s children or to pool resources while each saves for their own places. Whatever the arrangement, some builders have taken notice. The National Association of Home Builders reports a steady increase in the share of houses built with two or more main suites. According to the latest, yet-to-be-published NAHB survey, 45 percent of all buyers would prefer to buy a multigeneration home. But there are differences among ethnicities: Just 37 percent of white respondents said they would want such a place, compared with 72 percent of Latinos, 71 percent of Asian Americans and 61 percent of African Americans. In the resale sector, 14 percent of all buyers are multigenerational, according to the latest figures from the National Association of Realtors. Whether it’s young roommates or senior citizens, “people are supporting each other,” said NAR Deputy Chief Economist Jessica Lautz. If you already own a place, you really don’t have to worry about financing if you want to bring a parent or an adult child in under your roof. But if you are buying a place together, there are financing rules such as whose income can be used to qualify. (Source: Lew Sichelman, The Housing Scene, Published by Banker & Tradesman)
Mortgage Equity Products Can Ease Homeowner Anxiety
Survey results underscore the need for education on the benefits of home equity-based solutions and reverse mortgages.
Finance of America’s second annual Home Equity Punch List survey reveals persistently high anxiety among U.S. homeowners as it relates to their economic outlook and personal finances. Nearly 8 out of 10 (79%) homeowners surveyed feel anxious about the state of the U.S. economy, the same as 2022, while anxiety about financial expenses increased further. A key finding points to varying levels of product knowledge and low familiarity with the different ways financial products can be used as potential factors contributing to financial anxieties for some homeowners. Notably, respondents familiar with a reverse mortgage were also more likely to know the different use cases of financial products – with 73% reporting they were aware home equity could help supplement income in retirement, compared to just 40% for those unfamiliar with a reverse. Drilling down further into the overall confusion or unawareness of the specific uses for certain financial products, interestingly, women respondents reported being less familiar with products than men, with retirement accounts like a 401(k) or IRA as the exception where women and men were equally familiar. Baby Boomers reported being less familiar with home sharing, cash-out refinancing, reverse mortgages, and cryptocurrency when compared to Gen X and Gen Z/Millennials. Women and older generations were also less familiar with different financial products and less aware of how the benefits of home equity – and reverse mortgages specifically – can help address many of their financial concerns, including the ability to pay for certain expenses, such as healthcare costs and home renovations. Commenting on the survey results, FOA Chief Marketing Officer, Chris Moschner said, “Homeowners’ concerns about the economy remain high and they are more apprehensive about their ability to meet their future financial goals compared to last year. This coincides with the fact that more than three in four seniors can’t meet their financial obligations in retirement and America’s retirement savings gap is nearing $4 trillion. There is a persistent lack of education and limited understanding of the benefits of home equity-based solutions and reverse mortgages – such as supplementing retirement accounts, helping older homeowners age in place, and paying for long-term care needs – exacerbating the problem further. However, we have an obvious solution hiding in plain sight, that can help allay concerns about financial longevity. Now is the time to tackle this challenge head on.” (Source: BusinessWire)
Real Estate News:
Back to the City
Growth is coming back to cities as workers return to the office.
As businesses call employees back to the office, more home buyers are moving closer to city centers, according to a new analysis. More home buyers are once again factoring commute times into their homebuying decisions and are moving closer to city centers. Remote work in recent years prompted many to move to more affordable exurbs. Now companies are demanding that workers return to the office, which is driving growth back to the city, according to a report from realtor.com®.
“As many companies continue to call employees back to the office, we’re seeing a surge in home shoppers who are seeking a desirable combination of cost and convenience within commuting distance of major metropolitan areas,” says Danielle Hale, realtor.com®’s chief economist. “In addition to affordable markets, this year’s list also features some higher-priced areas close to large urban cores, which will likely appeal to buyers who are concerned with finding the right mix of size and amenities within reach of a nearby city center.”
The renewed interest in cities marks the first time in five years that the suburbs of major metro areas have made it onto realtor.com®’s list of “hottest ZIP codes.” The list reflects market demand as determined by views of listings on realtor.com®, as well as the number of days listings remain active in an area. Realtor.com® researchers note that its 2023 list reflects growing demand for areas near metro areas that also offer greater affordability. (Source: Realtor® Magazine)