The economic landscape is ever-changing and can have a significant impact on the real estate market. As an affiliate of Leading Real Estate Companies of the World®, Weidel Real Estate is committed to staying ahead of the curve and keeping our clients informed of the latest economic insights. Dr. Marci Rossell, the Chief Economist at LeadingRE, has provided her top five economic insights for the month of August 18th – September 15th, 2023.
Mortgage rates remained stubbornly elevated through August, with 30-year- fixed products reaching 7.23% in the latter half of the month, their highest since 2002. Dr. Rossell notes three key factors as contributory to this trend:
(1) The Feds are engaged in quantitative tightening, rolling off their holdings of mortgage-backed securities and putting upward pressure on rates.
(2) Mortgage-backed securities’ inherent prepayment risk is driving up rates as investors seek compensation for the likelihood that borrowers will refinance their mortgages once rates cool.
(3) The current prevalence of all-cash deals mean that those individuals taking out mortgage products are, as a group, slightly riskier than in years past.
While the mortgage landscape may feel discouraging, the inversive good news is that foreclosure risk is still very low. As homeowner equity is historically high, home valuations have soared over the past two years, and there are no indications of a pricing crash in the foreseeable future.
While housing starts eventually rebounded following the 2008-2009 collapse, development still has not come back to the rate required to keep up with population growth. Dr. Rossell notes that zoning, particularly parking mandates, have been holding back homebuilding for decades. While some progress has been made, with New York just last month announcing a major initiative to allow more modern commercial properties to convert to residential, much more work at both the national and local levels is required to fulfill the current housing demand.
Strong GDP Indicators:
Despite ongoing inventory concerns, as of mid-August the Federal Reserve Bank of Atlanta’s running estimate of U.S. GDP was trending upwards of 6%, spurred in part by a recent surge in residential construction projects. Dr. Rossell tempers this good news with a caution that several ongoing wildcard factors, including the Hollywood strikes and an upswing in natural disasters, most recently the tragedy in Hawaii, could wreak negative macroeconomic impacts in the latter part of the year.
China’s Real Estate Crisis:
China’s real estate crisis was brought even further to the forefront of global economic activity in mid-August, first with the Chinese developer Evergrande filling for Chapter 15 bankruptcy in the United States, followed by developer Country Garden losing billions in recent months and accruing over $220B in debts. China’s economic woes are compounded by its underregulated shadow- banking landscape, leading to lower consumer sentiment and, subsequently, less spending at home and abroad. Dr. Rossell notes that as prices fall in China in response to lagging consumer spending, we are likely to see lower prices in U.S. exports, including fuel and pork, which could be a trigger for the Feds to lower rates and subsequently, could help trigger the beginning of a downward trend for mortgage rates.
As an affiliate of Leading Real Estate Companies of the World®, Weidel Real Estate is committed to providing exceptional client experiences and staying up-to-date with the latest economic insights to best serve our clients.