Word on the street is we are up from two rate cuts to three, with the first slash coming as soon as September. Can we cheers to that? Or should we be weary?
The US Central Bank, our pals over at the Federal Reserve, seem to be gaining confidence in price stability. We reviewed the latest inflation readings last week, you can catch up here. Or they are becoming unable to ignore the threats to the labor market. Initial jobless claims – people filing for unemployment for the first time, rose this week 20k. At 243,000 claims over the past week, that is the highest level in almost a year. Continuing claims – people staying on unemployment because they haven’t found a job yet – also rose 20k.
As your boots on the ground to monitor the economy from the point of view of someone who slept through ECON 101 in college but is obsessed with mortgage bonds – I’ve noticed some interesting trends. Last year when I went to purchase our Oogie Boogie tickets to Disneyland’s Halloween party – there was so much demand, it took two days and the website broke. This year, I got in the queue on my first attempt and was out with my tickets 30 minutes later. On the Fourth up at the lake, I noticed a lot less folks at the restaurant but free events – those were PACKED. So I knew people were up there, maybe they were just being cautious with their spending.
Of course there is more to the real estate industry than interest rates.
Inventory has been the hot topic this week.
Nationwide, we are at a 4.4 month supply of homes on the market. This includes resales and new construction. The flipping point between a buyers and sellers market is a six month supply. Back in 2021 we had a two month supply which pushed home prices up 40%. At this point, housing starts shot up to 1.1 million. Builders wanted to capitalize on the pandemic demand from buyers hyped and hopped up by the most amazing interest rates ever seen.
Then rates shot up.
Builders had inventory though. And they own mortgage companies too. So they capitalized on the buyers who were left in the market by offering amazing financing incentives. Another story of the guy up top winning right?
The resale market is changing too.
In markets with a decent amount of inventory under $500k, home values are doing really well. Did you know that supply nationwide is lowest in the $100k-$500k range. Yes, that one price range with the most buyers. Let’s look at inventory by price point. Homes between $100k and $250k have a 2.7 month supply while luxury homes priced above $1M have a 4.2 month supply. Also interesting to note is that the more affordable markets – think Midwest or even Florida and Texas – they are seeing larger growth in supply of homes for sale and their prices are below where they were a year ago. While the rest of the country is 4.9% higher than it was last May.
What happens next?
No one is talking about this but….As interest rates come down, homes prices will reaccelerate. That’s right, remember you heard it here first.
Ok fine, but I am the one who helped you understand that while inventory may be rising, when you consider the source and price points of said inventory – you can see why the expectation of price growth over the coming years is supported.