The Real Estate News Brief: Inflation Report Optimism, Housing Affordability, 10 Fastest Growing Cities

In this Real Estate News Brief for the week ending November 12th, 2022… what’s next after a really good report on inflation, the NAHB’s latest report on housing affordability, and the ten fastest growing U.S. cities.

Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week, and a report on inflation that shows the Fed is making progress with its rate hikes. The U.S. Bureau of Labor Statistics reported a lower-than-expected .4% increase in the October Consumer Price Index which brought the annual rate down to 7.7%. It was 8.2% in September. Stock market investors were pleased that inflation appears to be subsiding, and the Dow closed up more than 1,000 points. But that doesn’t mean that the fight is over. Although Fed officials are expressing some amount of optimism, several spoke out about the danger of pausing too soon on the rate hikes. (1)

Richmond Fed president Thomas Barkin told CNBC that the Fed had its foot on the gas and is now ready to “pump the brakes.” He explained that likely means the Fed will call for “a slower pace of increases, a longer pace of increase and a potentially higher point.” He sees the Federal Funds rate going as high as 5%, or higher, in smaller increments, before the Fed gets inflation back down to the 2% level. (2)

San Francisco Fed president Mary Daly said the CPI report was “indeed good news,” but that 7.7% inflation is still far too high. She said: “It’s better than over 8% but it’s not close enough to 2 in any way for me to be comfortable. So it’s far from a victory.” (3)

Dallas Fed President Lorie Logan had similar comments saying the CPI report was “a welcome relief” but that more rate increases are probably needed. She said: “I believe it may soon be appropriate to slow the pace of rate increase so we can better assess how financial and economic conditions are evolving.”

The Fed’s next meeting in December happens right after the November report on the CPI, so that data will surely impact any rate hike decisions made at that meeting.

Mortgage Rates

Meanwhile, mortgage rates fell sharply right after the release of the CPI. According to Mortgage News Daily, the average rate on the 30-year fixed-rate loan fell 60 basis points from 7.22% to 6.62%. The Daily’s chief operating officer Matthew Graham says: “This is the best argument to date that rates are done rising, but confirmation requires next month’s CPI to tell the same story.” (4)

Jobless Claims

The number of people applying for unemployment was up 7,000 last week to a total of 225,000 initial claims. That’s the highest it’s been in a month but it’s still a low number, although some big companies are announcing layoffs. Jefferies economist Tom Simons says that “Layoff announcements from larger companies have become more frequent. So we are likely to see this number rise in the weeks and months ahead.” Continuing claims were up 6,000 to a total of 1.49 million. (5)

In other news making headlines...

NAHB: Housing Affordability

More Americans are finding it’s too expensive to buy a home of their own. The National Association of Home Builders released its third quarter report on housing affordability and it shows that affordability has fallen to its lowest point since the Great Recession. According to the NAHB, just 42.2% of new and existing homes that were sold in Q3 were affordable for families making a median income of $90,000. That percentage was 42.8% in the second quarter. (6)

That data includes a drop in the national median home price from $390,000 to $380,000 and an increase in the average mortgage interest rate from 5.33% to 5.72%.

Home Equity Falls

Lower home prices mean that homeowners are also losing some of their equity. According to Black Knight, about $2.5 trillion in home equity has disappeared since May, with the average borrower losing $30,000. Although home equity could fall further, Black Knight’s president of data and analytics, Ben Graboske, says that “homeowner positions remain broadly strong.” (7)

The report shows that the number of people who are underwater on their loans is only .85%. That’s fewer than 500,000 borrowers out of about 53 million U.S. mortgage holders. That’s double what it was in May, but it’s still considered quite low.

Fastest Growing Cities

Some U.S. cities are doing much better than others when it comes to economic growth. The Kenan Institute of Private Enterprise issued a list of the ten fastest growing cities in the nation, and New York is not one of them. (8)

It may not surprise you however, that the San Francisco/Bay Area is number one on the list with a 2022 GDP of $1.4 trillion and a GDP growth rate of 4.8%. Austin, Seattle, Raleigh/Durham, and Dallas round out the top five. Denver, Salt Lake City, Charlotte, New Orleans, and Orlando are in the fifth through tenth positions.

A few markets that we like for residential investment include the Dallas and Orlando metro areas. The 2022 GDP for Dallas is $682 billion with a 3.1% growth rate. And for Orlando, the GDP is $246 billion with a growth rate of 2.4%.

That’s it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

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Thanks for listening. I'm Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/coming-up-consumer-price-index-for-october-11668086355?mod=economy-politics

2 -https://www.cnbc.com/2022/11/04/fed-officials-barkin-and-collins-see-possibility-for-slower-rate-hikes-ahead.html

3 -https://www.cnbc.com/2022/11/10/fed-officials-welcome-inflation-news-but-still-see-tighter-policy-ahead.html

4 -https://www.cnbc.com/2022/11/10/mortgage-rates-fall-sharply-to-under-7percent-after-inflation-eases.html

5 -https://www.marketwatch.com/story/jobless-claims-tick-higher-in-latest-week-11668087725

6 -https://eyeonhousing.org/2022/11/unsurprisingly-housing-affordability-continues-to-fall/

7 -https://www.cnbc.com/2022/11/07/homeowners-lost-1point5-trillion-in-equity-since-may-as-home-prices-drop.html

8 - https://www.cnbc.com/2022/11/09/fastest-growing-us-cities-kenan-institute.html