The Real Estate News Brief: GDP Turnaround, Mortgage Rate High Point, Faltering Rent Growth

In this Real Estate News Brief for the week ending October 29th, 2022... a turnaround for the U.S. GDP, a new high point for mortgage rates, and faltering rent growth.

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 an encouraging report on the U.S. GDP. The government reported a 2.6% growth rate in the third quarter. It was better than the Dow Jones forecast of 2.3%, but is also thought to be a rebound from two quarters of negative growth. According to CNBC, the upside came from a decline in the trade deficit, along with stable consumer spending, higher government spending, and a rise in nonresidential fixed investment. (1)

A positive GDP isn’t eliminating concerns about a recession, especially if the Fed continues to aggressively raise interest rates to fight inflation. The PCE, which is the Fed’s preferred inflation gauge shows a .5% increase in September, to an annual rate of 5.1%. That’s for the core rate, which eliminates food and gas. The core rate for the well-publicized CPI, shows an annual rate of 6.6%. (2)(3)

Initial jobless claims rose slightly last week. The Labor Department says they were up 3,000 to 217,000. The number of people already collecting benefits was up 55,000 to 1.44 million. (4) Economists are expecting a gradual increase in jobless numbers as the Fed continues to hike the Federal Funds rate.

The housing market is feeling the impact of the slowdown. The Case-Shiller index shows that home prices were down for a second straight month. The 20-city index dropped 1.3% in August, while the national index was down 1.1%. The biggest price drops are happening along the West Coast, but the index shows they’ve gone down for every one of the 20 cities in the index. Year-over-year gains are still in the double digits however, at 13.1%, with Miami, Tampa and Charlotte topping the list for annual gains. (5)

Sales are also down for both new and existing homes. The Commerce Department reports that new home sales were down 10.9% in September to a seasonally-adjusted annual rate of 603,000 homes. The drop follows a surprise surge in home sales the month before. Year-over-year, home sales are down 17.6%. (6) For existing homes, the National Association of Realtors says they were down 10.2% in September. MarketWatch says that buyers have become hesitant because of high home prices and interest rates. Sellers are also less likely to list, because they want to hold on to their low-interest loans. (7)

Mortgage Rates

Although some lenders hit the 7% mark weeks ago, Freddie Mac says the average rate for a 30-year fixed-rate loan is now 7.08%. For the 15-year, it’s 6.36%. (8)

In other news making headlines...

Big Drop in Mortgage Deman

Lenders are taking a big hit because of high rates. The Mortgage Bankers Association says that home loan demand is close to half of what it was a year ago, and has fallen to its lowest level since 1997. Demand was down 2% last week, and was 42% lower than the same week last year. (9)

There was a slight increase in demand for FHA loans thanks to lower rates and lower down payment requirements. Many borrowers are also choosing a riskier adjustable-rate loans because payments are lower at first. There are about four times the number of those loans right now compared to the start of the year.

The National Association of Homebuilders also reports a jump in the number of people paying all cash for new homes. That number has been increasing for the last three quarters, and hit a 20-year high of 9.5%, or 14,000 sales, for the current quarter. (10)

Rent Growth at a Standstill in Some Markets

Rent growth has stalled for a second straight month, and has even declined slightly in some areas. The Real Deal reports that any drops are minimal, but after the rip-roaring growth we saw during the pandemic, the pullback might feel severe for people. (11)

Data from Zumper shows that apartment prices were flat, or fell slightly, in nine of the 10 most expensive U.S. cities. Zumper’s CEO, Anthemos Georgiades, described the decline as a “correction to prices that had become overinflated.” He says renter migration is slowing down as renters try to cut costs by living with friends or family. He says that could push rents lower if landlords are competing with each other for renters.

RentCafe says we’ll see 420,000 new apartments coming on line this year. That’s a 50-year high for multi-family construction. But the Zumper report also warns tenants that they should not expect any drastic price drops until supply and demand are more closely matched.

Rental Demand Slows

Data from RealPage also shows that high rents have pushed apartment demand to a 13-year low. It dipped over the summer in the big cities like New York, Los Angeles, Houston, Dallas, and Chicago when it usually goes higher. Vacancies are also higher according to CoStar. That data shows an apartment vacancy rate that rose from 5.1% in the second quarter to 5.5% in the third. (12)

UBS analyst Michael Goldsmith says: “It’s a signal that rent can’t continue at the same level it has sustained over the last couple of years. We’ve reached a point where renters are maybe willing to pull out of the market.”

The market for single-family rentals is a whole different niche, which is cooling down slightly in some areas. For example, one real estate broker told the Phoenix Business Journal: “It’s cooling down a bit, but only from a level of insanity. Now it’s just a hot market.” (13)

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.cnbc.com/2022/10/27/us-gdp-accelerated-at-2point6percent-pace-in-q3-better-than-expected-as-growth-turns-positive.html

2 -https://www.cnbc.com/2022/10/28/pce-inflation-september-2022-.html

3 -https://www.cnbc.com/2022/10/13/consumer-price-index-september-2022-.html

4 -https://www.marketwatch.com/story/u-s-jobless-claims-tick-up-in-latest-week-11666874248?mod=economic-report

5 -https://www.marketwatch.com/story/u-s-home-prices-fall-for-second-straight-month-in-august-case-shiller-11666703999?mod=economic-report

6 -https://www.marketwatch.com/story/u-s-new-home-sales-retreat-in-september-partially-reversing-surprising-gain-in-prior-month-11666794303?mod=economic-report

7 -https://www.marketwatch.com/story/decline-in-u-s-pending-home-sales-gathers-steam-in-september-11666965739?mod=economic-report

8 -https://www.freddiemac.com/pmms

9 - https://www.cnbc.com/2022/10/26/mortgage-demand-from-homebuyers-is-nearly-half-what-it-was-in-2021.html

10 -https://eyeonhousing.org/2022/10/all-cash-new-home-sales-outnumber-fha-backed-for-the-first-time-since-2007/

11 -https://therealdeal.com/national/2022/10/25/rents-slide-or-stagnate-in-4-out-of-5-us-cities/

12 -https://therealdeal.com/national/2022/10/25/soaring-rents-sink-apartment-demand-to-13-year-low/

13 -https://www.bizjournals.com/phoenix/news/2022/10/18/corelogic-single-family-rental-market-cooling.htm