The Real Estate News Brief: Inflation Overload, Home Loan Double Whammy, Super-Sized Social Security COLA

In this Real Estate News Brief for the week ending October 14, 2022... another round of inflation overload, a double whammy for home loans, and the big news from Social Security.

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. Federal Reserve officials released the minutes of their last meeting which show they are more worried about inflation than they are about going overboard with rate hikes. They feel that inflation is “unacceptably high” and is not falling as fast as they anticipated. They raised the short-term rate three-quarters of a point at the last meeting to a range of 3 to 3.25%. It was the third super-sized rate hike in a row, and many economists are expecting another three-quarter point rate hike at the next meeting. (1)

There were two inflation reports last week that will fan the flames for additional rate hikes. First, it was the producer price index which was up .4% in September. That was double what Wall Street economists had forecasted. The index had been down in July and August because gas prices were lower, but the latest number shows that overall inflation is still raging. The annual rate is down slightly from 8.7% to 8.5%. If you remove gas and food from the equation, the annual rate is 5.6%. (2)

The monthly consumer price index was also released with a similar .4% gain in September. Economists had predicted a .3% gain. The yearly rate did slip down a bit – from 8.3% to 8.2%. It had peaked in June with an annual rate of 9.1%. The core rate shows a .6% monthly gain and a yearly “core” rate of 6.6%. As reported by MarketWatch, lower gas prices kept inflation in check toward the end of the summer, but economists don’t expect them to go any lower, especially since the OPEC oil cartel is cutting production. Prices were higher for things like rent, medical care, education, furniture, new cars, and auto insurance. They were down for used cars, clothes and communication. (3)

Jobless claims are still low, but they did rise for a third week in a row to their highest level since August. The Labor Department reported that initial claims were 9,000 applications higher to a total of about 228,000. Many of those claims were in Florida, however, where people are dealing with the aftermath of Hurricane Ian. Continuing claims were also up slightly to 1.368 million. (4)

Consumers appear to be feeling a little more confident about the economy despite the latest inflation reports. The University of Michigan’s consumer sentiment survey shows it was up about a point, to a reading of 59.8. but that’s only 9.8 points higher than an all-time low of 50 in June. (5)

Mortgage Rates

Mortgage rates continue to move higher. It is breaking through the 7% level for some loan programs, but Freddie Mac says the average 30-year fixed-rate mortgage was 6.92%. The 15-year also moved higher to an average of 6.09%. (6)

In other news making headlines...

Double Whammy for Borrowers

Not only do borrowers have to contend with higher mortgage rates, they are now having a tougher time qualifying for a loan. According to the Mortgage Bankers Association, lenders are tightening their standards which resulted in a 5.4% decline in the Mortgage Credit Availability Index for the month of September. (7)

While lenders would like the business, they are more concerned about a weakening economy and the possibility of delinquencies. The MBA’s Joel Kan says: “Credit availability fell to the lowest level since March 2013 – the seventh consecutive month of tightening.” He says: “There’s a smaller appetite for lower credit scores and high loan-to-value loan programs.”

Home Flippers Are Getting Flipped

Rising mortgage rates are flipping profits to the downside for many home flippers. As reported by The Real Deal, flippers were wildly successful not that long ago. At the beginning of the year, home-flipping made up 10% of all transactions. That’s according to Attom Data Solutions. It fell to 8.2% during the second quarter. (8)

Data from August shows that profit margins have slipped to 26% from about 31% a year ago. But they also now plummeting a lot more in some areas, like San Jose California. The report says flipping profits hit 45% in March and are now down to 6.5%. It also says that 42% of the homes sold on Opendoor are being sold for less than the iBuyer paid for them.

Hard-money lender Noah Brocious told The Real Deal that flippers need to lower their expectations. He says: “Price it to sell. Today is not the time to get greedy.”

Social Security Will Be Giving Retirees a HUGE Raise

Retirees will be getting a big raise in their Social Security checks next year. Officials announced that the Cost of Living Adjustment or COLA for 2023 will be a whopping 8.7%. That’s even higher than the giant 5.9% that recipients got last year. (9)

The increase will apply to about 70 million people who are on Social Security, and boost checks by an average of $140 per month. The cost of Medicare Part B will also get a little bit cheaper. It will be reduced from $170.10 to $164.90.

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/fed-saw-too-much-action-vs-high-inflation-as-less-risky-than-too-little-minutes-show-11665597813?mod=federal-reserve

2 -https://www.marketwatch.com/story/wholesale-prices-rise-for-first-time-in-three-months-and-show-inflation-still-raging-11665578458?mod=economic-report

3 -https://www.marketwatch.com/story/coming-up-consumer-price-index-for-september-11665662566?mod=economic-report

4 -https://www.marketwatch.com/story/jobless-claims-rise-to-highest-level-since-august-11665665081?mod=economic-report

5 -https://www.marketwatch.com/story/americans-inflation-expectations-rise-in-october-consumer-mood-stays-somber-11665756467?mod=economic-report

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

7 -https://www.mba.org/news-and-research/newsroom/news/2022/10/11/mortgage-credit-availability-decreased-in-september

8 -https://therealdeal.com/national/2022/10/11/mortgage-rates-reverse-home-flippers-fortunes/

9 -https://www.cnbc.com/2022/10/13/social-security-cola-will-be-8point7percent-in-2023-highest-increase-in-40-years.html