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Federal Funds Rate Continues Its Ascent – Real Estate Market Update

Kevin Graham5-minute read
November 10, 2022

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There are signs of a definite housing market slowdown. At the same time, are home buyers getting any relief? I’m sure you have some insight from every day you spend on the ground with clients, but let’s peek at what the data says.

The Big Story

If you’re working in real estate, you know there are two challenging factors that have been at play in the market this past year. First, interest rates have been on the rise as the Federal Reserve tries to tame inflation before it gets to be too much. Second, inventory has been very low, keeping home prices stubbornly high.

On the interest-rate front, the Federal Reserve is showing no signs of slowing down the pace of rate hikes. Although they control the federal funds rate, which increased another 0.75% last week, this has had a correlation with higher mortgage rates, however indirect that may be.

Then there’s the issue of home prices. What’s happening here really depends quite a bit on where you look. The data for new home sales is out of step with the data shown by existing sales, Case-Shiller and the Federal Housing Finance Agency (FHFA).

In the existing home sales data released by the National Association of REALTORS®, home prices were down in September, with the median falling 1.2% to settle at $384,800. New home sales painted a different picture, with the median price up just under $35,000 from August at $470,600.

Case-Shiller and FHFA data tells a much more cohesive story. Before seasonal adjustment, across 20 major metropolitan cities, the Case-Shiller data showed that prices were down 1.1% in August. FHFA looks only at sales backed by conventional mortgages and it’s not a rolling average, but here prices were down 0.7% for August.

On balance, it looks like home buyers might be getting some relief, but the picture is muddy.

More News You Can Use

As always, this portion of the report is compiled in part from summaries provided by our friends at Econoday.1

Consumer Price Index (CPI)

Prices for consumers were up 0.4% in September and have risen 8.2% on the year. When food and energy were taken out, these were up 0.6% for the month and 6.6% over the preceding 12 months. Prices for shelter were up 0.7% including a 0.8% increase in both rent and what it would cost for homeowners to rent an equivalent space.

Retail Sales

Retail sales were flat in September and rose 0.1% with the exclusion of vehicles. When gas was further removed, they were up 0.3%.

In categories relevant to homeowners, sales in the furniture and home furnishings sector were down 0.7%, while there was a 0.8% decrease in electronics and appliance sales. However, sales were 0.4% higher at building materials and garden stores.

Housing Market Index

Builder confidence is not very high at this point. Already in contraction, the index fell a further 7 points to end at 38 in October. Single-family starts are down for the first time since 2011 as a result of this, according to the National Association of Homebuilders.

Single-family sales were down 9 points at 45. Meanwhile, expected sales of single-family homes over the next 6 months were down 11 points to 35. Meanwhile, traffic of prospective buyers going through homes was down 6 points, settling at 25. These are all at lows not seen in nearly a decade or more.

New Residential Construction

Housing completions were 6.1% higher at 1.427 million. This is 15.7% higher than last September. As part of this, single-family completions were up 3.2% higher at 1.049 million. Meanwhile, in multifamily buildings (those with 5 units or more), there were 376,000 completions.

Turning to starts, these were down 8.1% at 1.566 million, 7.7% below September 2021. On the single-family side, starts were down 4.7% at 892,000. Meanwhile, multifamily completions are progressing at a rate of 530,000 on an annual basis.

Finally, let’s talk permits. These were up 1.4% in September at a seasonally adjusted annual rate of 1.542 million. On the downside, single-family permits were down 3.1% for the month at 872,000, while multifamily permits are pacing for 644,000.

Existing Home Sales

Sales of existing homes were down 1.5% at 4.71 million. Meanwhile, sales are down 23.8% since last September. Breaking that down a little further, single-family sales were down 0.9% at 4.22 million units. Meanwhile, multifamily sales came in down 5.8% at 490,000 units.

Meanwhile, supply of homes is still critically low at 3.2 months compared to the current pace of sales, which is sitting at a still very fast 19 days. Prior to the pandemic, 30 days on market was typical. Prices were still 8.4% higher than last year but have come down significantly from recent highs.

Case-Shiller Home Price Index

This index takes a look at home prices in 20 major metropolitan areas across all transactions. The index is a rolling 3-month average.

After seasonal adjustment, home prices were down 0.9%. When removing the adjustment, prices in August fell 1.3%. Prices are down 13.3% overall compared to August of last year.

FHFA House Price Index

The FHFA index only looks at transactions backed by conventional loans, and it’s a true month-to-month look rather than an average. However, the directionality is the same. Prices fell 0.7% in August and 11.9% compared to the same time a year ago.

Consumer Confidence

Overall consumer confidence was down 5.3 points in October to settle at 102.5. There was also a small downtick in September revisions. The good news is that the number of consumers who intend to purchase a home in the next 6 months rose.

New Home Sales

New home sales in September were down 10.9% at a seasonally adjusted annual rate of 603,000. Furthermore, this is down 17.6% compared to a year ago. Supply is up a bit, going from 8.1 months at the current pace of sales to 9.2 months in September. However, that is down from 10.1 months in July.

There’s a thought that the higher-than-expected sales rates here are based upon people having locked rates before the more recent spike.

Gross Domestic Product (GDP)

In initial readings for the third quarter, the economy grew at a rate of 2.6% after two consecutive quarters of contraction. Consumer spending was up 1.4%.

The bad news for those of us who follow real estate is that residential investment was down 26.4%. Higher mortgage rates are having their effect.

Pending Home Sales Index

The number of homes under contract for sale fell 10.2% according to this index. It settled at 79.5. This isn’t a good sign for October existing home sales numbers. It’s hard to say how much of this is a typical fall/winter slow down and how much is higher mortgage rates, but they can’t be helping.

Mortgage Rates

For a second there, home prices were up above 7%, according to the weekly Freddie Mac survey. They dipped last week. If you have buyers in the market who are ready to make a move, encourage them to lock their rate as soon as possible because the trend has been toward higher and higher rates.

The average rate on a 30-year fixed mortgage with 0.8 points paid in fees was down 13 basis points to 6.95%. This is up from 3.09% at the same time last year.

Turning to the shorter terms, the average rate on a 15-year fixed mortgage with 1.2 points paid was down 7 basis points at 6.29%. This is up from 2.35% last year.

Finally, the average interest rate for a 5-year treasury-indexed, hybrid adjustable-rate mortgage was down a single basis point at 5.95% with 0.2 points paid. This has gone up from 2.54% a year ago.

Now that you have the info, go spread it to your clients so they can have the best information possible. Have a great month!

1 Important Legal Notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of such information may change without notice. Econoday does not provide investment advice, and does not represent or warrant that any of the information is accurate or complete at any time. Copyright 2022 Econoday, Inc. All rights reserved.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.