In this Real Estate News Brief for the week ending August 29th, 2020… the Fed unveils a new monetary policy that will allow higher inflation, home sales surge to the highest level since 2006, and the FHFA announced a delay in the new fee on refinance loans.
We begin with economic news from this past week, and a new inflation control strategy from the Federal Reserve. Fed officials unveiled the new policy this last week after approval by all 17 committee members. The Fed will now shoot for an “average inflation target” of 2%. That means the Fed will allow inflation to run above the 2% level for some period of time after a period of low inflation, which we’ve been experiencing. It has also eliminated the idea that a strong job market correlates with high inflation. In the past, the Fed would respond to a strong job market by raising interest rates, but according to Fed Chief Jerome Powell, “A robust job market can be sustained without causing an outbreak in inflation.” (1)
Economists say a higher rate of inflation may be good for workers getting pay raises but it will also result in higher mortgage rates. That’s the result of a lower yield on bonds and mortgage-backed securities. That said, economists don’t see inflation going above the 2% level anytime soon. President of the Peterson Institute for International Economics, Adam Posen, told MarketWatch that he doesn’t think it’ll overshoot the 2% target for at least the next few years.
The government says the second quarter GDP is not quite as bad as initially thought. It revised a record drop of 32.5% down to 31.7%. That’s still not a pretty number, but some economists say the U.S. is on track for a substantial rebound in the third quarter.
On the other hand, there’s a large contingent of economists who are predicting a double-dip recession. According to a survey by the National Association of Business Economics, 80% of economists surveyed believe there’s a one in four chance of another dip. Forty-percent are blaming Congress, saying it hasn’t done enough to offset economic damage from the virus. Thirty-seven percent say the response has been “adequate.” (2)
Weekly jobless claims were down from last week’s surge in new applications. The Labor Department says they were just above the one million mark, leading economists to believe that we are once again on a path to job market recovery. The U.S. jobless rate is now 10.2% but a state-by-state breakdown shows a huge difference from state to state. For example, Utah currently has the lowest unemployment rate at just 4.5%. Other states with super low unemployment rates include Nebraska at 4.8% and Idaho at 5%. A total of 28 states and the District of Columbia had rates that were lower than the national average. Eleven states had higher rates, and 11 were about the same. (3)
Some of the best economic news is coming from the real estate sector. New homes sales were up 14% from June to July. Compared to last year, they were up 36%. The July numbers represent the highest level of sales since 2006, right before the housing market crashed. The Census Bureau says the surge was driven by a 59% increase in the Midwest, along with higher sales in the South and West. They were actually “down” in the Northeast.
Pending home sales also rose in July. The National Association of Realtors say they were up 5.9% compared to June, and were up 15.5% compared to a year ago. NAR’s chief economist, Lawrence Yun, says, “We are witnessing a true V-shaped sales recovery as home buyers continue their strong return to the housing market.” (4)
Home prices also continue to rise. The Case-Shiller 20-city price index shows a 3.5% year-over-year gain in June. Phoenix was leading those gains, but Seattle and Tampa were close behind.
Consumer confidence fell in August to the lowest it’s been during the pandemic. Economists say the decline from 91.7 to 84.8 shows that consumers have become more pessimistic about the recovery. The University of Michigan’s consumer sentiment survey shows a slight improvement, however.
Mortgage rates reversed course and dipped 8 basis points this last week. Freddie Mac says the average rate for a 30-year fixed-rate mortgage was 2.91%. There’s also good news about a new refinancing fee that would add another $1,400 on to the average loan. Under intense pressure from the housing and mortgage industries, the Federal Housing Finance Agency announced a delay in the implementation of that fee until December 1st. It was supposed to go into effect on September 1st for all loans backed by Fannie Mae and Freddie Mac. (5)
In other news making headlines…
Foreclosure, Eviction Moratoriums Extended
The FHFA has extended the expiration date of its moratorium on foreclosures and evictions. The moratorium applies to all mortgages backed by Fannie Mae and Freddie Mac, including investment properties and the tenants who are renting them.
The Agency has already extended the moratorium once before, but due to the ongoing crisis, it will now run through December 31st. FHFA director Mark Calabria says the moratorium will help distressed borrowers remain in their homes. He estimates that it will protect more than 28 million borrowers.