National Real Estate Trends- as of July 19th

[Kristen Haynes]

Real Estate News in Brief

A string of favorable data (lower inflation, higher unemployment rate) has convinced the market that the Federal Reserve will begin cutting short-term interest rates in September, and mortgage rates are already moving lower.

Reminder! Only one month remains before the August 17 implementation date for the NAR settlement. Are you ready? Are your sellers and buyers ready?

Builder confidence bottoming? The National Association of Homebuilder’s confidence index dropped from 43 in June to 42 in July (anything less than 50 = bearish). That’s the lowest index level seen since December 2023.

Looking closer at the components of the index, however, revealed that expectations for the next 6 months actually improved slightly. [That’s the yellow line in the graph above.] Why? Because builders are looking forward to rate cuts and lower mortgage rates.

More ‘doves’ are cooing. Influential Fed Governor Christopher Waller has entered the dovecote. On July 17, he had the following to say: “I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress that view…While I don’t believe we have reached our final destination [for inflation], I do believe we are getting closer to the time when a cut in the policy rate is warranted.”

TP: Bird Words — When it comes to armed conflict, ‘hawks’ want war and ‘doves’ want peace. When it comes to interest rates, ‘hawks’ are worried about inflation and want higher rates, ‘doves’ are worried about the economy and want lower rates. Hence, a ‘dovish’ datapoint is one that supports rate cuts, such as a fall in inflation rates or a rise in unemployment.

A modest rebound for housing starts. The pandemic spurred a multifamily construction boom (condos, apartments, townhomes etc.). A wave of MF completions is now swelling, with the industry on pace to deliver over 650,000 units nationwide over the next year. That’s the fastest pace of MF construction since 1975! (BTW, over 50% of these units are being built in the South, which includes TX & FL.) [Source: Census Bureau]

TP: This increase in MF supply should help to keep rental rate increases in check, which should also be good news for “shelter” costs and overall inflation.

A 5% cap on rental rate increases? As part of the Biden/Harris plan to boost housing affordability, the White House is proposing a 5% maximum annual rental rate increase for corporate landlords (or forfeit federal tax breaks).

Single-family rents rise faster. Rents for SFHs were up 3.2% year-over-year in May, the fastest rate of growth since April 2023. The strongest growth was seen in St. Louis (+6.2% YoY); the weakest in Austin (-0.6% YoY).

TP: Single family homes (SFH) make up half of the nation’s rental housing stock

Zillow says home listings are “piling up”. Zillow’s June Housing Market Report also pointed out that nearly 25% of listings had a price cut, with most markets in the South now “buyer-friendly”.

TP: It’s certainly true that the nationwide inventory of homes for sale is up significantly year-over-year. But it’s also true that most of that increase is coming from a few key states (Florida, Texas). Despite the rise, national inventory is still 30% below pre-COVID levels.

Mortgage Market

The market is convinced that the first rate cut will arrive on September 18, and Federal Reserve members haven’t been actively trying to quash those hopes. In general, their public comments have sounded a bit more dovish. Let’s just pray that we don’t get a “hot” inflation reading between now and then.

Average 30-year mortgage rates have broken convincingly below 7%. That should boost future loan demand — for both purchases and refinances. Don’t forget that mortgage rates were at or above 7.5% for several months in 2023. Research analysts at Jeffries recently estimated that a $2.7 trillion refinance boom could start soon.

Current odds on Fed rate cuts at upcoming FOMC meetings below. Keep in mind that the US Presidential election is on November 5.

• July 31: 5% (down from 9% last week)
• Sept 18: 98% (up from 93% last week)
• Nov 7: 100% (up from 97% last week); 60% expect rates to be 50 basis points lower than current.
• Dec 18: 100% (was 99% last week); 55% expect rates to be 75 basis points lower than current.