Where housing prices are booming (and faltering)

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Estimated read time: 3 minutes 34 seconds.

Economic Watch: Fed Holds Rates Steady link

• The Federal Reserve maintained the federal funds rate at a range of 5.25% to 5.50% and confirmed the continuation of balance sheet reductions.

• A shift in the Federal Open Market Committee's stance indicates a potential rate hike this year, with expectations to decrease rates twice in 2023, contrasting with their previous forecast of four reductions.

• The Fed's updated outlook for 2023 reveals a stronger GDP growth prediction (2.1% vs 1.0% previously), a decrease in unemployment projections (3.8% vs. 4.1%), a slight rise in headline inflation (3.3% vs. 3.2%), and a drop in core inflation (3.7% vs. 3.9%) by the end of the year.

The US housing market is headed for the largest sales slowdown since 2011, Fannie Mae says link

• US home sales are predicted to plummet to 4.8 million this year, the most significant drop since 2011, with only a slight improvement to 4.9 million expected in 2024.

• The surge in mortgage rates, reaching an average of 7.18% over the past week, has led to the highest borrowing costs since 2001, severely impacting demand.

• Despite robust consumer spending, current trends appear unsustainable. Real personal consumption expenditures increased by 0.6% in July, but real disposable personal income decreased by 0.2%.

Weekly mortgage demand increases, driven by a strange surge in refinancing link

• Despite a rise in mortgage rates, demand for refinances surged unexpectedly. Refinance applications jumped 13% last week, even though they are typically inversely related to mortgage rates.

• The average contract interest rate for 30-year fixed-rate mortgages increased slightly to 7.31% from 7.27%. This rise might be prompting borrowers to refinance now, fearing even higher rates in the future.

• Purchase applications also saw a 2% increase from the previous week. However, they were 26% lower compared to the same week a year ago, indicating ongoing challenges in the housing market due to higher rates and limited inventory.

Where housing prices are booming (and faltering): New Report link

• Western states like Idaho, Wyoming, and Utah are experiencing declines in housing markets, while markets in the Midwest and Northeast are on the rise. Vermont leads with an 8.52% growth in the CoreLogic House Price Index.

• While Western states are seeing drops in median rental prices, the Southeast has witnessed significant increases. For instance, Arkansas reported a 37.42% rise, South Carolina a 23.77% gain, and Florida a 20.5% increase.

• Foreclosure trends show a mixed picture: the West, including North Dakota, Idaho, and Utah, saw surges over 30%, while the Southeast, led by Arkansas, observed an almost 19% decline. However, states like Pennsylvania, Maryland, and Kentucky also reported noticeable foreclosure increases.

The Stunning Disconnect Between Retail Space Demand and New Supply link

• Retail is booming for most store types, leading to rising rents, but there's a significant shortage of space to meet this demand.

• The U.S. retail outlook for 2Q 2023 shows an average occupancy rate of 95.4% for retail centers nationwide, with development being less than 0.3% of the total inventory.

• Net absorption surged by 12.6% quarter-over-quarter to 10.8 million square feet, while deliveries decreased by 5.1%. Only 11.9 million SF began construction in 1Q 2023, marking the lowest since 2005.

Interestingly Wages are Outpacing the Rent Growth link

• U.S. wage growth has surpassed effective apartment rent growth for nine consecutive months, with wages increasing by 5.3% compared to rents at 0.3% through August 2023.

• Rent growth is slowing down due to a significant rise in new apartment construction, with rent growth in 2021-22 almost doubling that of wage growth. However, this disparity is expected to diminish, possibly disappearing by the end of 2024.

• Improved affordability in the rental market is anticipated to expand the demand pool. The rent-to-income ratio reached a ten-year peak earlier this year at 23.1%, but it's predicted to drop below 23% by the year's end.