Key Insights This Week: What You Need to Know

This week is full of important events that could influence the bond market and mortgage rates, so it's crucial to stay informed and be ready to make decisions.

 1. Fed Meeting Minutes (Wednesday)

On Wednesday, the Fed will release the minutes from their July meeting. This will give us a better understanding of their thoughts on inflation and interest rate hikes. These details could hint at future changes in rates, which will directly affect mortgage rates. Remember, the devil is in the details, and the market loves any sign of a rate cut. If the Fed hints at more tightening, and you’re currently under contract, it might be wise to lock in your mortgage rate now to avoid any potential increases.

2. S&P Global Services PMI (Thursday)

On Thursday, the S&P Global Services PMI will be released, giving us a glimpse into the health of the service sector. A strong report could support higher rates, while a weaker one might ease some pressure on the bond market. Keep an eye on this report, especially if you’re thinking about refinancing. Remember the brief panic on August 5th? It didn’t last long.

3. Housing Market Reports (Thursday & Friday)

Thursday and Friday will bring reports on July’s Existing Home Sales and New Home Sales. These are crucial for understanding the housing market's strength, buyer demand, and affordability—factors that influence mortgage rates. If you’re a realtor, these reports can guide your advice to clients on buying and selling strategies. Homebuyers should pay attention to these numbers to better gauge their options.

4. Jackson Hole Economic Symposium (Thursday - Saturday)

From Thursday to Saturday, top economists, central bankers, and policymakers will gather for the Jackson Hole Economic Symposium. Fed Chair Powell’s speech on Friday will be particularly significant. Keep a close watch on Powell’s speech for any clues about future rate policies. This could be a key moment for mortgage rates in the near term, especially after the recent CPI report.

5. Fed Speakers (Throughout the Week)

There are four Fed speakers scheduled to talk throughout the week, offering more chances for market-moving commentary.

Market Watch

The S&P 500 is just 2% away from reaching an all-time high. While this is great news for investors, it also signals that economic sentiment is strong, which could lead to higher rates. After all, why would the Fed want to stimulate an economy that’s already on the upswing?

By staying informed about these events, you can make smarter decisions in this dynamic market. The bond market and mortgage rates are closely linked to economic signals, and being proactive could save you or your clients a significant amount of money. 

Recessions and Home Prices

Let’s take a look at the major recessions in the U.S. over the last 30 years:

1. Early 1990s Recession

   - Timeframe: July 1990 – March 1991

   - Cause: Triggered by a mix of factors, including the 1990 oil price shock, the savings and loan crisis, and restrictive monetary policy to control inflation.

2. Dot-Com Bubble Recession

   - Timeframe: March 2001 – November 2001

   - Cause: The burst of the dot-com bubble led to a significant drop in stock prices, especially in tech. The 9/11 attacks added to the economic instability.

3. Great Recession (GFC)

   - Timeframe: December 2007 – June 2009

   - Cause: Triggered by the housing bubble collapse, leading to a severe financial crisis. Key factors included subprime mortgage lending and excessive risk-taking by financial institutions.

4. COVID-19 Recession

   - Timeframe: February 2020 – April 2020

   - Cause: The global COVID-19 pandemic led to widespread economic shutdowns, a sharp decline in consumer and business activity, and significant supply chain disruptions

Home Price Trends During Recessions

- Early 1990s Recession: Minimal impact, slightly flat to declining prices.

- Dot-Com Recession: Home prices continued to rise.

- Great Recession: Significant decline in home prices due to a surge in inventory from delinquencies and foreclosures.

- COVID-19 Recession: Home prices increased.

Home Price Increase from 2018 to 2024

- 2018-2019: Home prices rose by about 3-5% annually, depending on the region.

- 2019-2020: Prices continued to climb, with a 4-5% annual growth.

- 2020-2021: The COVID-19 pandemic sparked a housing boom, with prices jumping 10-15% in many areas due to low mortgage rates, high demand, and low inventory.

- 2021-2022: Prices surged further, with annual increases of 15-20% in many markets.

- 2022-2023: Growth slowed but remained strong, with a 5-10% increase on average.

- 2023-2024: Home prices stabilized as interest rates rose, slowing growth to around 3-5% annually.

On average, home prices across the U.S. have increased by about 40-50% from 2018 to 2024. The U.S. real estate market continues to show strength and stability, making it a safe asset class for investors and homeowners.

Record-Breaking Value

As of June, the total value of U.S. real estate hit a new record of $49.6 trillion, a 6.6% increase (or $3.1 trillion) over the past 12 months, according to Redfin. 

Remarkable Growth

The value of U.S. homes has doubled in just eight years, reflecting the market's robust growth. Since 2020, real estate values have surged by about 65%, showing resilience even in uncertain times.

Economic Significance

To put this in perspective, the total value of U.S. real estate now equals 173% of the nation's GDP. This highlights the critical role real estate plays in the broader economy and its potential as a reliable store of wealth.

Market Dynamics

Interestingly, the median existing home is now selling at the same price as the median new home. This parity signals strong demand across both new and existing properties, reinforcing the value and appeal of real estate in today’s market.

When to Buy a House?

The right time to buy a house is when you can afford it. Trying to time the market is nearly impossible. Stick to sound logic and follow your plan.

Inventory and Negotiations

The current housing market is experiencing a slowdown in home construction, leading to tighter inventory levels, which supports stable or even rising home prices.

Here’s what’s happening:

- Builder Confidence Is Low: Confidence among home builders has dropped, with the NAHB Housing Market Index falling to 39 in August. Higher interest rates are impacting buyer demand, but there’s some optimism about future sales if rates drop.

- Housing Starts and Permits Decline: In July, housing starts, especially for single-family homes, dropped by 14%. Permits also fell by 4%, indicating that new home supply will remain limited.

- Tight Supply Supports Prices: With fewer homes being built, inventory is expected to stay tight, supporting stable or higher home prices as demand outpaces supply. 

What Does This Mean for Homebuyers and Homeowners?

- Price Stability: The ongoing shortage of homes, especially single-family units, supports stable home prices. For current homeowners, this means the value of their homes is likely to hold steady or appreciate.

- Wealth-Building Opportunity: For potential buyers, the tight supply suggests that entering the market now could be a smart move. As home prices continue to be supported by low inventory, buying a home remains a strong opportunity for building wealth over time.

Primary Residence and a Rental

The U.S. renter population is growing three times faster than the homeowner population, signaling a major shift in the housing market. This trend highlights the increasing exclusivity of homeownership.

Here’s what you need to know:

- Renters Are Rising: According to Redfin, the number of households renting a home increased by 1.9% year-over-year in Q2 2024, reaching a record of 45.2 million. This follows a 2.8% increase in Q1 2024, the largest since 2015. 

- Homeownership Is Slowing: Homeownership only rose by 0.6%, the smallest gain since 2019, making buying a home a luxury that fewer people can afford.

For Homebuyers:

This trend underscores the value of securing a home in an increasingly competitive market. As more people are pushed into renting, the demand for homes remains strong, supporting property values.

For Investors:

This shift presents a golden opportunity. With the renter population growing faster than the homeowner population, investing in real estate for renting or resale remains a robust and potentially lucrative move. Owning property is not just about having a place to live but also a strategic investment in a tightening market.

Rental Property Opportunity

If you could buy a rental property priced under $150K and net $1,200-1,500 per month, how would that change your life? If buying in your state isn’t feasible, look outside your area for good ownership opportunities that can increase your income.

Rate Cuts

Mortgage rates have settled after two weeks of volatility, which worked out in our favor. The average top-tier 30-year fixed rate stayed within a narrow range between 6.49% and 6.58%, with a slight drop to 6.56% by Friday. This 0.09% range is much smaller than the previous two weeks, which saw fluctuations of 0.29% and 0.41%.

Top Tier Rates

High credit scores and low debt ratios are key to securing the best rates. Currently, the average 30-year fixed rate on jumbo loans is lower, at 6.25%.

The recent volatility was due to the market adjusting its expectations ahead of the September rate announcement. The market now expects the Fed to cut rates by at least 0.25%. Earlier, some traders anticipated a 0.50% cut, with a few even speculating on a 0.75% emergency cut after a disappointing jobs report at the start of the month. That assumption was wildly inaccurate, wishful thinking. If you’re following this newsletter and joining our webinars, you know better. Stick to the basics and listen to what the Fed is saying. They weren’t even considering a 50 bp cut, and the stock market's dip on Monday, August 5, bounced back faster than you could write this paragraph.

Labor Market Stability

Recent jobless claims suggest a more stable labor market. The big reaction came after the unemployment rate jumped to 4.3%, but remember, 70% of the layoffs were temporary. It could bounce back.