Jun 26, 2023

Report of Housing’s Demise are Greatly Exaggerated

Weekly Market Commentary

The 30-year fixed mortgage averaged 3.04% in 2020 and 2021, according to Freddie Mac’s weekly survey. The 15-year rate: 2.44%. Housing money was almost free…almost. Through June 22, the average 30-year fixed rate was 6.43%, a substantial increase.

High home prices and the jump in rates have locked some prospective buyers out of the market. Last week, the National Association of Realtors (NAR) reported that existing home sales (this excludes newly built homes), which account for almost 90% of all housing sales, were down 20% versus one year ago (through May).

You’d expect a big drop in prices, but the NAR said the median home price for existing homes is down just 3% nationally compared to a year ago. Redfin said through mid-June that the median U.S. home price of about $383,000 is 44% higher than in January 2020.

What’s going on? Lending standards have improved significantly since the 2000s. Nowadays, buyers are making bigger down payments, undergoing a more rigorous underwriting process, and are sporting higher credit scores, which means they are less likely to abandon a recently purchased home. This has resulted in much fewer distressed sales.

Plus, many homeowners are experiencing what’s known as the “golden handcuffs.” They purchased or refinanced their homes when interest rates were low, and now they are hesitant to list and buy at today’s higher rates.

As of mid-June, Redfin reported a 24% decrease in housing listings compared to the previous year. Fewer homes for sale translate into lower inventories, which supports prices.

More housing, please

Freddie Mac estimates the nation faces a housing shortfall of about 3.8 million units.

Due to the shortage, some folks are opting for newly constructed homes, and builders are slowly ramping up production. We’re nowhere near the bubble days of the 2000s, but housing starts have perked up, even with today’s high rates.

Home sales are nowhere near the 2020 and 2021 levels, but prior talk of a price collapse has yet to materialize. Still, higher mortgage rates, high prices, and a shortage of homes are adding up to new headaches for first-time buyers.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Advisor. Securities offered through Valmark Securities, Inc., Member FINRA/SIPC | 130 Springside Drive Suite 300 Akron, OH 44333-2431 | 800.765.5201. FDP Wealth Management, LLC is a separate entity from Valmark Securities, Inc. If you do not want to receive further editions of this weekly newsletter, please contact me at (949) 855-4337 or e-mail me at info@fdpwm.com or write me at 8841 Research Drive, Suite 100, Irvine, CA 92618. FDP Wealth Management, LLC, Valmark Securities, Inc. and their representatives do not offer tax or legal advice. You should consult your tax or legal professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

RELATED POSTS

How Do Investors Spell Relief?

Investors celebrated an ‘in line with expectations’ CPI that suggested the rate of inflation isn’t accelerating. It’s a small win, but it was enough to send the three major market indexes, the Dow, the Nasdaq, and the S&P 500 to new highs.

An Annual Ritual at the Gas Pump

You’re right if you have this nagging feeling that gas prices rise in the spring. As the graphic illustrates, on average prices rise through Memorial Day, plateau over the summer, and slip in the fall. This year is no exception, as prices echo the seasonal pattern.

Rate Cuts Still on the Table, Timing Less Certain

We often discuss the Federal Reserve and interest rates because both greatly impact investors. For starters, changes in interest rates have a significant impact on stock prices and income earned on savings. Sharply higher rates in 2022 pushed equities into a bear market.

Just Do It

That ubiquitous phrase from one of America’s most extensive athletic footwear and apparel makers seems to have been adopted by most American shoppers. The U.S. Census Bureau reported last week that retail sales jumped 0.7% in March, following a strong 0.9% rise in February.

The Road to Lower Inflation Takes a Detour

The rate of inflation is accelerating. That’s not how we hoped to start this week’s Insights. Take a moment and review Figure 1. The 4-month moving average has broken out of its long-term downward trend (red-dashed lines). On a monthly basis, prices bottomed in June and began to gradually turn higher. The upward trajectory picked up in January.