Blue market update.

Rates Continue To Climb – Real Estate Market Update

Kevin Graham5-minute read
October 17, 2022

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The number of leaves on the ground lets us know that the season has changed to autumn. But with that, does it mean the cooling of the housing market? For the Federal Reserve, it might be the winter of their inflation discontent. Let’s get into it.

The Big Story

The Federal Reserve is set on getting inflation under control at any cost right now. To that end, they increased the federal funds rate another 0.75% to a range of 3% – 3.25%. Four times a year, they give us a look at where they think the economy is headed as well.

Their most recent projections show that members think the federal funds rate will be 4.4% by the end of 2022 and go up to 4.6% in 2023 before falling to 3.9% in 2024. Over the longer run, the federal funds rate is expected to sit around 2.5%.

This has pushed up mortgage rates in a big way. According to Freddie Mac, the average interest rate on a 30-year fixed rose 3.67% compared to last year. (Spoiler alert for the superstitious: You might want to skip the paragraph on the 30-year fixed in the mortgage rates section.)

The sure thing is that we are in a very different market than we’ve grown accustomed to. If your clients are looking to buy, patience is the order of the day. Historically, prices tend to come down or at least level off as rates rise. You can also make sure budgets are in order.

More News You Can Use

As always, this section of the report benefits from the analysis of our friends at Econoday.1

Retail Sales

Retail sales were up 0.3% overall, but down 0.3% when taking out vehicles in August. However, they were up 0.3% again when excluding vehicles and gas.

In categories of most concern to the housing sector, there was a 1.1% uptick in sales of building materials. This optimistic note is dampened by a 1.3% downturn in sales of home furnishings.

Housing Market Index

In September, builder sentiment was down again, falling 2 points to 46. Sales of new single-family homes were down 3 points to settle at 53. Outside of the anomaly that was spring 2020, this is the lowest level since June 2014. Meanwhile, expected sales over the next 6 months were down 1 point at 46.

Finally, traffic of prospective buyers was down 1 point, coming in at 31. Again, excluding COVID-19 outliers, this is the lowest level since April 2014.

New Residential Construction

Completions have an immediate impact on housing supply. Unfortunately, the rate of completions was down 5.4% in August to come in at 1.342 million. It is 3.1% higher than the same time last year. Single-family completions were up 0.4% at 1.017 million. Meanwhile, 318,000 units were completed in buildings with 5 units or more.

Meanwhile, August starts were up 12.2% at a rate of 1.575 million on an annual basis, down 0.1% from last year. Single-family starts were up 3.4% at 935,000 units, while there were 621,000 multifamily units.

Permits are furthest out from becoming actual homes, but still worth keeping an eye on. They were down 10% to an annual rate of 1.685 million, having fallen 14.4% since last year. Single-family permits came in at 899,000, down 3.5% over the last 12 months. Meanwhile, the annual rate for multifamily permits is 571,000.

Existing Home Sales

Existing home sales were down 0.4% in August, settling at an annual rate of 4.8 million units sold. This has fallen 19.9% compared to August of last year as high rates are definitely having an effect all over each of these reports.

Sales of single-family preowned homes are down 0.9% for the month at 4.28 million, while condo sales are up 4% at 520,000. On a yearly basis, sales are down 19.2% and 24.6% in these categories, respectively.

On the supply side, this was unchanged at 2.6 months based on the current sales rate. Meanwhile, prices were down 2.4% in August at $399,200. This is still up 7.7% from a year ago.

Case-Shiller Home Price Index

For those of you who like to look for shifting tides, this is interesting. On a seasonally adjusted basis in July, prices were down 0.4% across this 20-city index. Taking out seasonal adjustment, they were down 0.8% overall. Prices are still up 16.1% on the year, but this is the first time prices have fallen on a monthly basis in almost 4 years.

This is a 3-month rolling average, so it will be interesting to see if it stays this way moving forward or if this is an aberration.

FHFA House Price Index

Unlike Case-Shiller, this index only looks at transactions backed by conventional mortgages. It’s also not a rolling average. Still, directionally, they’re trending the same way. Prices were down 0.6% in July. They’re still up 13.9% on the year, but that’s down from 16.2% in June.

Consumer Confidence

Overall consumer confidence was up 4.4 points at 108 in September. On the downside for those of us interested in real estate, fewer people see themselves buying homes in the next 6 months. As always, it’s important to keep in mind this is one survey.

New Home Sales

New home sales surprised in August, up 28.8% to a seasonally adjusted annual rate of 685,000. There are three theories being posited in the analysis:

The first is that the seasonal adjustment factor is wrong here. COVID-19 has made it hard to estimate certain things because there were unseasonable spikes all over the place for a while in housing. The second theory is that people took advantage of temporarily lower mortgage rates and last that they jumped on builder discounts.

It might be a combination of things and we may never know. However, getting back for a second the hard numbers, supply of new homes did fall, down to 8.1 months compared to 10.4 months in July, suggesting a faster sales pace. The median price of a new home was down 6.3% to $436,800 in August.

Pending Home Sales Index

The number of existing homes under contract for sale fell 2% in August, coming in at an index level of 88.4. Taking a look at the regional data, only the West was up 1.4%. Sales in the South, the biggest housing region, were down 0.9%, while the Midwest saw a 5.2% drop. The Northeast saw a pending sales drop of 3.4%.

Pending sales are an indicator of existing home sales for the following month.

Gross Domestic Product (GDP)

For the second consecutive quarter, economic growth according to this metric declined, falling 0.6%, while personal consumption expenditures were actually up 2%, better than previous readings. However, this report confirmed what many of us in real estate already know. It’s getting more challenging. Residential investment was down 17.8%.

Mortgage Rates

Mortgage rates have certainly risen, but this is just an opportunity to make sure buyers are really locked in on their budget. We invite you to check out Inflation Buster and Rate Drop Advantage.2,3,4

Inflation Buster is a temporary buydown that allows clients to have a 1% below contract interest rate for the first year of their term. Meanwhile, Rate Drop Advantage allows clients to buy now and refinance with reduced closing costs if rates drop at any time between 4 months and 3 years after they close.

According to Freddie Mac, the average rate on a 30-year fixed with 0.8 points paid was 6.66% last week. I warned you. That’s down 4 basis points for the week but it’s up from 2.99% a year ago.

Looking at shorter terms, the average rate on a 15-year fixed mortgage with a point in fees was down 6 basis points to 5.9%, but it’s also up from 2.23% last year.

Finally, a 5-year treasury-indexed, hybrid adjustable-rate mortgage with 0.3 points paid in fees was up 6 basis points to 5.36%. It’s risen from 2.52% last year.

Now that you have the knowledge, go use it to make your home buyers that much better prepared for the market. Talk to you next 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.

2If client locks their initial rate on a purchase loan between 9/15/22 and 2/28/23 client’s loan is eligible for the Inflation Buster offer. The offer will effectively reduce the rate by 1% for the first year of the mortgage; a custodial escrow account will be funded by the lender-paid credit, up to a maximum amount of $9,708, and funds will be dispersed from the escrow account to the investor to account for the difference in interest during buydown period. Offer valid only on primary residences and second homes through Fannie Mae and Freddie Mac. Offer not valid on non-agency Jumbo Loans, Interest Only loans, 2nd lien products, bank statement loans, and manufactured homes. Offer only valid on 15-, 20- and 30-year fixed-rate conventional conforming and government purchase loans in retail channels. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans and may not be used with any other discounts or promotions. This offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.

 

3 If client locks their initial rate on a purchase loan between 7/19/22 and 2/28/23 and that loan closes, client is eligible for Rate Drop Advantage. Refinance offer must be claimed by locking initial rate between 120 days and 36 months from purchase closing date. Refinance loan must be on the same subject property as the original purchase loan. Rocket Mortgage will cover the following fees as a lender paid credit: first appraisal fees, credit report, tax certification, mortgage recording fee, flood certification and life of loan, notary fees in Pennsylvania and New York, and if a conventional loan, processing and underwriting fees. Rate Drop Advantage is only valid on conventional conforming and government loans in our retail channels. Offer may not be redeemed for cash or credit and is nontransferable. Offer cannot be retroactively applied to any loans. Offer may not be used with any other discounts, promotions or interest-only/buy-down and second lien products. This offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend and is contingent on qualification per full underwriting guidelines.

4 Refinancing may cause finance charges to be higher over the life of the loan.

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.