Weekly Economic Update

Economic News:

The Great Disappearing Recession

We could have the best of both worlds – a strong economy and waning inflation.

For about a year now we have been talking about the predominant forecast of market analysts which projected a recession as early as the second quarter of this year. And for a year we have been stating emphatically that it is tough to have a recession when the job market is hot. Well, the job market may have cooled off a bit, but it is still strong. And the preliminary measure of the economy’s growth in the second quarter came in at 2.4%, which is stronger than the first quarter. What does that mean? No recession is on the horizon.

We also make a habit of not predicting the future. We report other predictions. Thus, we are not saying there will not be a recession. But we will take note of the fact that these economic prognosticators are now saying that a soft landing is more likely. What is a soft landing? Well, if you fall off of a trampoline, you want a soft landing. In economic terms, it means the economy will slow down, but not fall into negative growth territory. Or if we have negative growth during a quarter, it is only slightly negative.

A stronger economy is good news for everyone but the Federal Reserve. The Fed has been trying hard to stop the economy in its tracks. The stronger economy just gives the Fed more fuel to either raise rates again or keep them at this “higher” level for a longer period of time. If inflation continues to cool, we could have the best of both worlds – a strong economy and waning inflation. The July inflation numbers were released recently, and they showed that things continue to move in the right direction, though the numbers were slightly higher than expected. To us, that means we may have to wait a bit longer to see the Fed’s medicine accomplish its task.

Affordability Wanes in 2nd Quarter

ATTOM Q2 2023 Home Affordability Report: affordability hits 16-year low as housing prices jumped.

ATTOM found median-priced single-family homes and condos were less affordable in the second quarter compared with historical averages in 98% of the U.S. This continues a pattern that began in early 2022, ATTOM said in its second-quarter 2023 Home Affordability Report. Currently, the typical portion of average wages nationwide required for major homeownership expenses is sitting at 33%, which ATTOM noted is unaffordable by common lending standards that call for a 28% debt-to-income ratio. It’s also the highest portion since 2007. The report pinned the median single-family home value at $350,000, with a 10% increase from Q1 to Q2–one of the biggest quarterly increases in the past decade. “The U.S. housing market has done an about-face following a downturn that threatened to usher in an extended period of flat or falling prices. With that has come another blow to how much house the average worker around the country can afford,” said ATTOM CEO Rob Barber. “Whether this is just a temporary blip amid this year’s peak buying season or a sign of another extended price surge is anyone’s guess. But any predictions of a market demise were certainly premature–and house hunters are feeling the pinch.” (Source: The Mortgage Bankers Association)

Housing Market Emerges from Pandemic’s Delinquency Surge

National delinquency rate continues its near-record-low streak.

The U.S. housing market has finally emerged from the swell of serious mortgage delinquency triggered by the pandemic. The number of homeowners lagging three months or more on their mortgage payments plunged to its lowest since August 2006. As of June's end, 477,000 borrowers were still three or more payments in arrears but not in active foreclosure. This reflects a substantial reduction of 177,000 compared to the same period last year. The national delinquency rate also continues its near-record-low streak, with June's figures marking the third-lowest level on record. This trend remains consistent despite minor monthly increases in early- and mid-stage delinquencies. Early-stage delinquencies, referring to borrowers 30 days late on their payments, saw an uptick of 19,000 (+2.2%), while those missing two payments (60 days past due) increased by 5,000 (+1.7%). June also saw a slight rise in foreclosure starts, tallying 28,000 for the month. However, it's crucial to note that this figure is only 1% above the average for the preceding 12 months and remains 38% lower than June 2019's pre-pandemic level. Foreclosure proceedings began on an equivalent of 5.8% of the existing serious delinquencies in June, a climb from May's 5.1%. Yet, it still lags three percentage points behind the start rate in May 2019, prior to the pandemic. Simultaneously, the total number of loans in active foreclosure declined by another 5,000 in June and continues to sit at 47,000 (-17%) below the March 2020 figure. Furthermore, June witnessed a 1.5% rise in foreclosure sales (completions) from May, reaching 6,900. (Source: National Mortgage Professional)

Real Estate News:

On The Move

Redfin Migration Report: out-of-town moves holding up better than in-town moves.

More than one-quarter of homebuyers nationwide are looking to move to a different metro area, reported Redfin. The figure increased from 23% a year ago and less than 20% before the pandemic. The Redfin Housing Migration Report said a record share of homebuyers are relocating because high mortgage rates have made housing more expensive, which makes relatively affordable areas more attractive. But that doesn’t mean more homebuyers are looking to relocate, Redfin noted. In fact, the number of homebuyers moving to a new metro is down 7% from a year ago, the biggest decline on record, as elevated mortgage rates push many Americans out of the homebuying game entirely.

Still, out-of-town moves are holding up better than in-town moves: The number of homebuyers looking to move within their current hometown is down a record 18%. “In other words, the overall homebuying pie has shrunk, but buyers moving to a new metro make up the biggest piece of that pie on record,” the report said. Phoenix is the most popular destination for homebuyers looking to move to a different part of the country, followed by Las Vegas and several Florida metros, Redfin said. Popularity is determined by net inflow, a measure of how many more Redfin.com users looked to move into an area than leave.

“Climate risks haven’t yet stopped many homebuyers from moving into areas that don’t have enough water, like Phoenix, and places that could eventually be underwater, like coastal Florida,” Redfin Chief Economist Daryl Fairweather said. “That’s because even though Sun Belt home prices soared during the pandemic, those metros remain a bargain for people relocating from expensive coastal cities.” (Source: Redfin)