Weekly Real Estate Monitor for Mar. 11-15

This week, mortgage interest rates climbed back above the 7% mark due to the release of the Consumer Price Index (CPI) reporting released on Tuesday (3/12). Starting the week at 6.87% and slowly increased to 7.02% as of yesterday. While Tuesday's consumer-oriented inflation report (CPI) was anticipated to potentially stir up market activity, it was actually yesterday's wholesale inflation report that had the most significant impact.

The Producer Price Index (PPI) revealed wholesale inflation exceeding expectations by a considerable margin (0.6% month-over-month compared to a median forecast of 0.3%). Even when excluding the more volatile food and energy prices to gauge "core" inflation, PPI still rose by 0.3% against forecasts of 0.2%.

Though these figures may appear modest, it's crucial to note that the Federal Reserve aims for a 2.0% annual inflation rate at the core level. Given that inflation is a primary concern for interest rates, it's unsurprising to witness rates climbing due to this Today's uptick brings the average conventional 30-year fixed rate above 7% for the first time in a while.

Consumer Price Index (CPI) Update

Consumer prices are experiencing a slower rate of increase compared to much of the past three years, yet they remain above the Federal Reserve's desired target of 2%. In February, the Consumer Price Index (CPI) increased by 3.2%. Notably, the significant "core inflation" component rose by 3.75%, marking its lowest reading since April 2021. Despite the heavyweight component of housing/shelter decelerating to 5.7%, the overall CPI remains above the 2% target. However, many unofficial private sector data sources suggest much lower rent growth than official measurements indicate.

These latest figures are not expected to fundamentally alter the Federal Reserve's likely actions, which include three anticipated rate cuts this year. Anticipated easing in inflation, particularly as official rent measurements show signs of stabilizing, could lead to five to eight rounds of rate cuts by the end of next year, aimed at reducing mortgage rates. However, a significant limiting factor is the substantial budget deficit. Increased government borrowing would result in fewer funds available for mortgage borrowing. There is a likelihood that mortgage rates could approach 6%, though further decreases would be challenging to achieve.

Housing Affordability Conditions Showed Improvement in January 2024

According to the National Association of Realtors (NAR), housing affordability increased at the national level in January compared to the previous month. The monthly mortgage payment dropped by 2.4%, while the median price of single-family homes decreased slightly by 0.3%. This resulted in a $49 decrease in the monthly mortgage payment compared to the previous month.

However, compared to one year ago, affordability declined in January. The monthly mortgage payment increased by 9.1%, while median family income rose by 5.3%. The effective 30-year fixed mortgage rate also rose from 6.35% to 6.72% year-over-year. Despite this, mortgage rates remained below 7% for the second consecutive month.

The Mortgage Bankers Association reported a modest increase in mortgage credit availability and a 9.7% increase in mortgage applications from the previous week. The decrease in mortgage rates has positively impacted potential home buyers, along with the increase in median family incomes and decline in qualifying incomes, contributing to improved affordability conditions.

Weekly Highlights:

Listings have consistently surpassed last year's figures for six weeks in a row.

For six consecutive weeks, the number of new listings has surpassed those of the previous year. Compared to the corresponding period last year, there has been a 4.1% rise in listings, with a 2.5% increase observed in the past week alone.

The median list price is just slightly below its record high.

After reaching a record-high median list, the current median list price has decreased by 1.0%, now resting at $415,000. Remarkably, both last week and this week showcase higher median list prices than any week in the preceding year, with this week's price surpassing last year's by 4.0%.

Contracts are slightly below last year's figures.

This week saw a slight decrease of 2.2% compared to last year. While the supply has seen modest growth in comparison to the previous year, a significant factor to consider is the recent movement of 30-year mortgage rates, which have crept back towards the 7% threshold. The rising rates are likely playing a role in the sluggish pace of contract signings, despite there being more homes available than last year.