Weekly Economic Update

Economic News:

Is It Fall Already?

Fed reviewing latest economic data ahead of September 20 meeting.

If Memorial Day weekend is the conceptual start of summer even though it is almost a month earlier than the official start of summer, then Labor Day weekend is the similar conceptual start of the fall season. Vacation season is over, and the kids are going back to school. Speaking of vacations, did it seem to you that the entire nation went on vacation this summer? After a few years of sitting at home during the pandemic, everyone seemed ready to get the heck out of Dodge. This phenomenon affected businesses in July and August – some positively and some had a negative influence.

For one, in a normal year the real estate market slows down in July and August but picks up after Labor Day. It has been so long since we have seen a “normal” year, it will be interesting if we see a general pickup in activity. Of course, it would help if mortgage rates would come down a bit which could help fuel some action. Speaking of rates, the Federal Reserve is back in action again. After not meeting in August, they will meet in two weeks. And one of the most important economic indicators they will be analyzing will be this week’s jobs report – which is followed by inflation data next week.

We have seen signs of a cooling job market, though the gains are still healthy. Friday’s release showed that August was no exception with a gain of 187,000 jobs and an unemployment rate of 3.8%. Wage gains were slightly below expectations, but still higher than the Fed’s target year-over-year. We have seen inflation cooling down in general, but it is not near enough to the Fed’s target of 2.0%. It is hard to root for less creation of jobs and smaller raises for American workers, but without these factors in place, it is not likely that the Fed will take their collective feet off the pedal. Still, an increase in short-term rates is not a given during this month’s meeting.

Equity Rich Homes Dominate

Equity-rich figure stands at its highest point in at least four years.

ATTOM reported nearly half–49%–of mortgaged residential properties in the United States were considered equity-rich in the second quarter, up from 47% in early 2023. “Equity-rich” means the estimated amount of loan balances secured by those properties was no more than half of their estimated market values. The firm’s second-quarter U.S. Home Equity & Underwater Report said the equity-rich figure stands at its highest point in at least four years. “With home prices rebounding across the U.S., the level of equity-rich mortgage-payers went up from the first quarter of 2023 to the second quarter of 2023 in 45 of the nation’s 50 states,” the report said. The gains followed two straight quarterly drop-offs caused by a temporary slowdown in the U.S. housing market that had threatened to end a decade-long run of price and equity growth, ATTOM said. The second-quarter upturn marked another sign of how the market shift has helped homeowners, as home-seller profits also spiked. “The second-quarter market revival bestowed immediate benefits on homeowners around the nation in the form of better profits for sellers and rising equity for those staying put,” said ATTOM CEO Rob Barber. “Equity levels were high even during the recent downturn, and now they are going back up and better than ever.” Barber noted the market remains in flux and the recent improvement could easily be temporary. “Lots of changing forces are at work affecting whether boom times are really back, especially amid a recent increase in mortgage rates,” he said. “But with the 2023 peak buying season still underway, it seems that homeowners can reasonably expect their household balance sheets to grow a bit more in the near future.” The report also found that less than 3 percent of mortgaged homes in the U.S., or one in 36, were considered seriously underwater in the second quarter, meaning they had a combined estimated balance of loans secured by the property of at least 25 percent more than the property’s estimated market value. (Source: Mortgage Bankers Association)

Home Profits Rising Again

Profit margins increased in the second quarter of this year to 47.7%.

For the first time in a year, profit margins on median-priced single-family home and condo sales in the United States increased, according to a report from ATTOM. The Irvine, Calif.-based curator of land, property, and real estate data released its 2023 U.S. Home Sales Report, showing that profit margins increased in the second quarter of this year to 47.7%. The improvement in typical profit margins, from 43.9% in the first quarter of 2023, came amid a rebound in the U.S. housing market that pushed the median nationwide home price up 10% quarterly to a record $350,000. Both the nationwide profit margin and median home price increased after three straight quarterly drop-offs that had begun to reverse a decade-long market boom, ATTOM said. Even as seller fortunes turned around in the second quarter, the typical investment return nationwide remained below the recent high point of 53.2%, recorded during the second quarter of 2022. “Just when it looked like the housing market was flattening out, prices spiked again, which pushed seller profits back up to nearly their highest level in the past decade,” said ATTOM CEO Rob Barber. “Stable mortgage rates, an ongoing tight supply of homes for sale, and the usual springtime surge in buyer demand appeared to have combined to halt the downturn we started seeing a year ago.” Barber said it’s far too early to predict another long-term price run-up, “especially since buying a home is a financial stretch for so many households around the country. But the second-quarter numbers clearly show the market has more steam left in it, and sellers are reaping the benefits.” (Source: National Mortgage Professional)

Real Estate News:

Americans Paying Off Debt – Is It Enough?

Even with economic uncertainty, debt is relatively steady year-over-year.

Many Americans have made significant inroads in paying off personal debt in the last four years, but at $21,800 not including mortgages, the average debt level is getting in the way of other opportunities such as investing, a survey by Northwestern Mutual found. While the overall average is $8,000 less than it was in 2019 and down $554 from last year, 35% of Americans said they’re either carrying or close to carrying the highest level of debt they’ve ever had, the survey said. At the same time, 43% said their debt is now close to or at the lowest level it’s ever been. At a time of high inflation and economic uncertainty, it's encouraging to see personal debt levels have held relatively steady year-over-year, and even ticked down a little," wrote Christian Mitchell, chief customer officer at Northwestern Mutual, in the 2023 Planning & Progress Study. "That said, it can be a slippery slope between manageable debt and runaway debt, so it's an important time to remain extra vigilant about planning and spending."

Milwaukee-based Northwestern Mutual’s survey included 2,740 online interviews of U.S. adults earlier in 2023. Not surprisingly, the survey found the primary source of personal debt was credit cards, accounting for 28% of it. Car loans, at 12%, were the next most common source, followed by medical debt at 7%, home equity loans at 6%, personal education loans at 5% and educational expenses for children or family members at 3%. And the toll of this debt in 2023 is high. Americans with personal debt on average indicated that 30% of their monthly income goes to paying it off, and 61% of debtors said paying it off is a higher priority than any savings. Thirty-nine percent said they’re putting savings first. (Source: Financial Advisor)