Mortgage Rate Trends: What the Summer Housing Market Holds for 2024

00:00:08
Well, hello, everyone. Welcome to the Texas Real Estate and finance podcast market update for the week of April 23. I'm your host, Mike Mills, a local North Texas mortgage banker with Mike Mills Mortgage and Finance. And I may moonlight as a crazy person speaking nonsense into the Internet on this podcast, but my day job is helping people all over Texas buy and refinance their home. So if you have a client that needs a little help or have a problem file you need help solving, give give you me a a call.

00:00:30
I love doing podcasts, but I love helping your clients even more. Now, today we are talking a lot about interest rates and what to expect for the housing market for this coming summer. There's been some big shift in interest rates over the last couple of weeks, and the summer housing market might not be what we all hoped it would be at the start of this year. So we're going to get into why rates have taken such a big swing in the last couple of weeks, what this may mean for home sales this summer, and what's happening in the news that may also affect interest rates in the housing market going forward. So I'll give you an idea of where the overall housing market is right now and where it might be as we head into the rest of this year.

00:01:01
So stay tuned. But before we get started on today's episode, I'd be forever in your debt if you could help me beat the algorithm today. Please just take one little second to subscribe, like comment or share this episode with your network. We're trying to continue to grow our little real estate community out there, and every like we get goes a long way in helping us get our message out there to the real estate world. So if you find value in today's episode, tell a friend I would greatly appreciate it.

00:01:24
All right, let's get on with it. So where are mortgage rates as of today? Well, as of right now, they're averaging somewhere between 7.375 and 7.5, depending on a lot of factors. But bottom line is that they are a good bit higher than they were just two weeks ago when we were just a hair under 7% on average. And just so you know how this affects a payment, a half a percent increase in interest rate, which is a major adjustment in rates, moves your average $400,000 loan payment about $140 a month.

00:01:48
So it is certainly impacting things. Now, the question is, why did this happen? What's with the sudden shift? Well, if you've been listening to this podcast in the past, you know that these days, whenever we get so called good news about how the economy is performing. It's usually not good for interest rates.

00:02:01
And over the last two weeks, we've had some pretty good, quote, good economic news that's hit us pretty hard. First, we had the jobs report that came out two weeks ago that showed continued growth in the job market. The Bureau of Labor and Statistics, the BLS, reported that the US economy added about 303,000 jobs in March of 2024, marking an acceleration in the pace of hiring. So the report also included a 3.8% unemployment rate and a 0.3% month over month rise in average hourly earnings. And these numbers were also very strong.

00:02:28
You see, the Federal Reserve previously said that it needs to see more evidence that unemployment is slowing to bring inflation down to his 2% target. But here's just a little fun fact about the reality of this jobs report. Right now, full time jobs are down 1.8 million since June of 2023. Meanwhile, part time jobs are up 2 million since March of 2022. And Americans getting second and third jobs is artificially boosting this unemployment figure to 3.8%.

00:02:51
Not to mention all the downward revisions from the past reports that go missed in all the headlines. But you see, here's the problem. When the BLS releases these numbers and then they show that 300,000 jobs have been added to the economy despite all the revisions and despite the fact that those are mostly part time jobs and government jobs, the bond market that drives interest rates will go down and this will cause mortgage rates to rise. And this happens because strong job ads and low unemployment show a strong economy. And when you have a strong economy, people want to put their money into the stock market to have it continue to grow.

00:03:21
So they moved their money out of bonds and put them into stocks. So even though job data is boring to most people, if you buy and sell real estate, it should be something that you absolutely pay attention to, especially right now, because that jobs report caused the market to lose 30 basis points in one day, which probably moved interest rates by a 8th of a point at least. Then, of course, we had the big fat cherry on top that hit us just a few days later, the CPI inflation report. So the consumer price index report rose by 0.4% month over month for the third consecutive month. And the annual inflation rate, the year over year inflation increased to 3.5% in March March, up from 3.2 in February, exceeding all expectation.

00:03:57
What were some of the drivers of this inflation? Well, significant contributors to March's inflation included shelter and energy sectors, which accounted for over half last month's headline inflation gain. The energy component alone saw a 1.1 increase month over month and a 2.1% rise year over year, marking this as the first annual increase since February of 2023. The food index rose slightly to 0.1% month over month in March, with varying changes across different food categories. And core CPI, which strips out food and energy, rose by 0.4% month over month and 3.8% year over year.

00:04:30
And shelter costs, which is a big component that significantly drove the core CPI, rose 0.4% monthly and 5.7% annually, which showed an increase in rent and owner's equivalent rent. Now, what is owner's equivalent rent, you ask? Well, get this, if you own your home, even though you're not an investor, you're not a realtor, you have no idea what the market's bearing out. The government shoots you an email and says, if you could rent your house out today, what would you rent it for? And then you respond again, without being an investor, without knowing the market or going rental.

00:04:57
All this is is the owner, if you were going to rent your property out, how much you would rent it? And that number is then taken and heavily factored into the CPI. Sounds crazy right? Now, something that they just made up pretty recently called super core inflation, which excludes the housing from the core services. Well, it went up 0.7% month over month and 4.8% year over year.

00:05:15
And this was driven by increases in transportation services like car insurance premium. And again, this is just something that the Fed recently came up with. So after the report came out, Federal Reserve Jerome Powell hinted at possible rate cuts still later this year, but hedged his bets and said it was depending on the moderation of inflation and economic growth. So they're still leaving the door open for possible rate cuts. But I wouldn't bet on that anytime in the near future, because until they get close to that 2% mark, or at least see it headed in that direction in a pretty strong trend, they're not going to make rate cuts for fear of inflation continuing to spiral out of control.

00:05:47
And when this report came out, the jump in expected inflation caused the market to fall over 100 basis points in just a couple of days. That's 1%, making it the biggest rise in rates that we've seen this entire year. And when inflation continues to run hot, the market expectation is that the promised rate cuts will either not come at all or get severely reduced or delayed until the end of this year. And this again causes everything to go down. This causes the stock market to adjust and the bond market to adjust as well, because now people are not expecting for the rate cuts to come like they were at the beginning of this year.

00:06:18
So we're in this environment called hire for longer, at least in the immediate future, which, like I said, is not what the overall market expected when we started this year. And of course, these higher rates are having an impact on the housing market as a whole. Now, depending on how you look at it, it could be good or bad. Good, perhaps home prices maybe start to decline a little bit, but not so great for sales because less and less people are wanting to get into buying a house right now. As these rates remain elevated and this time of year, right around April, we do start to see slight increase historically in inventory, but not quite at the same rate that we've seen now.

00:06:49
And those tend to be taken over as we move further into summer, when you'll see inventory start to decline. But as more and more homes come on the market, and less and less buyers are in the market to purchase, you could start to see over the summer this overall inventory start to increase. And like I said, that's not necessarily a bad thing for home prices because you could start to see prices come down. So for buyers, that could be a good thing. But for those of us in the real estate industry who earn our living on doing loans or doing purchases or sales, then having a slower moving market isn't necessarily a great thing, because that could mean less sales for everybody overall.

00:07:21
And to give you an idea of this, so the weekly inventory changed from April 12 to April 19. Inventory rose from 526,000 to about 543,000. And just to give you an idea, this same week, last year, from April 14 to April 21, inventory rose from 406,000 to 414,000. So, still a game, just as it was last year, but a little bit more significant this year, with a lot more inventory already currently on the market. Now, the all time inventory bottom was in 2022, and that was 240,000 units for sale.

00:07:50
And the inventory peak for 2023 was about 569,000. So we're not too far off from that. But to give you a little bit of context, the active listings for this week in 2015 were over a million. So even though listings are increasing, we are still severely undersupplied as far as available housing. And as for new listings coming to the market, last week, the market added 68,000.

00:08:11
In 2023, at this exact same time, we added 59,000. And in 2022, at this exact same time, we also added about 59,000. So more and more listings are coming. They're sitting on the market just a little bit longer, and there's not quite as many buyers that are out there looking to purchase. So the limit, the inventory is lasting a little bit longer than normal.

00:08:29
So as you can see, higher rates means we get more homes on the market, which is helping with our inventory, which is a good thing. But it also means that sales are going to slip in the summertime and it might not be as robust as we had all hoped for initially. So is the economy as strong as the BLS and the federal government would lead you to believe based on this information? Well, even though unemployment currently isn't yet where they want it to be before they would start cutting interest rates, there's some interesting data that's showing this, that this trend may continue and that unemployment may spike up as we get further into the summer. You see, right now, as of April 22, we have more layoffs just this month than we had in all of April in 2023.

00:09:03
And this year, at the end of this month, we're expected to be close to some 370,000 layoffs just this year already, which is a number that we haven't seen since 2009. And we all know what happened then. Plus, we're going to start to see earnings reports coming out this week from big companies. And when it comes to the big five, the tech companies, Nvidia, Apple, Microsoft, some of those bigger companies that are driving the stock market right now, and Amazon, those companies are showing, probably going to show good earn, but everybody else is going to be in the toilet. And although in the retail sector, Amazon is showing good sales and good profits, many of the other retailers like Walmart, Target, and some of the higher end retailers are actually showing a decline in revenue because everybody right now, for the most part, seems to be pretty crunched on money.

00:09:45
And when you're crunched on money, you're looking for affordable options. And when you go shop on Amazon, those things that you need for household items that you could usually find at a discounted price that you may not be able to get at your local retailer. We're also going to be getting GDP numbers pretty soon. And based on our reports, they are expected to increase. Usually means the economy's humming along pretty well.

00:10:01
But in this GDP number, you have to understand that government spending is very, very much a big factor in these reports. And right now, government spending is the highest it's ever been over the last 18 months, including a recently passed $95 billion aid bill for Ukraine, Israel and Taiwan. And, oh, by the way, you just paid all your taxes a few days ago, so guess where all that money just went? Not to make your groceries cheaper, that's for sure. But again, with all this, is the economy actually that much better for the average american?

00:10:27
I would argue not really. But I am curious to know what you think. What are you hearing out there on the street? Are people living their best lives, or are they cutting back on spending and having some job insecurity or even in some cases, having trouble finding a job? I'd really love to know what's happening out there because believe it or not, in the aggregate, we haven't added any full time jobs to the economy since August of 2023.

00:10:45
So in my opinion, and the opinion of many of the experts I follow out there, we might already be in a recession and may, may have more rocky economic data coming our way very soon. And I hate to say it, but this would actually be good for mortgage rates. Now, there's another thing that might actually spell some relief for rates, and it's also not such a great thing, but it's looking like a greater and greater possibility every single day, and that's the global conflict that we might soon be dragged into. So with a possible global conflict out there, will that be good for interest rates? Typically it is.

00:11:14
So on Friday, April 12, President Biden issued a warning that he expected Iran to attack Israel sooner rather than later. And then Saturday, April 14, Iran launched hundreds of drones and missiles against Israel. And what they say was a response to the Israel raid on the Iran consulate in Syria just a couple weeks ago. And in that instance, with the help of the US and UK forces, Israel claims to have intercepted the vast majority of those drones and missiles. But they also stated that they would retaliate against Iran.

00:11:42
And over the weekend, they did just that, supposedly destroying an air base that was defending one of Iran's nuclear sites. And previously, after Iran launched their initial strike, they had stated that if Israel retaliated from that attack like they did last week, that things would start to get really nasty. So you have to understand that this is a very tense situation right now with countries lining up on both sides of this conflict. And regardless of how you feel about all this, the reason that I'm bringing it up is that during times of turmoil and war, you will often see mortgage rates start to decline. Now, nobody wants this, but I'm just making you aware of what could happen should we get into some greater conflict over the next few weeks.

00:12:17
Oil prices and other commodities have already started to spike in response to this. And right now countries are buying up more gold than they have over the last 15 years. And none of this spells for good news for either our economy or less conflict across the globe. And oh, by the way, remember, currently the US government is pretty much a war machine. We're the arms dealer of the planet.

00:12:36
So to say that defense contractors and the Pentagon don't want war and will avoid it at all costs would be somewhat naive. Just look at Russia, Ukraine, Israel, Gaza, now Israel, Iran. It's all of our weapons that are fighting these wars. And for the most part, we're happy to produce them. And the fact that we're currently in an election year with a possibly weaker than advertised economy leads me personally to believe that as far as the current administration is concerned, going to war and fighting a battle wouldn't necessarily be a terrible thing because war is often a good excuse for a recession.

00:13:04
And in an election year, the general rule of thumb is you don't want to change presidents during a war. Now does that mean we're going to get involved? I have no idea. I'm just spitballing over here. Just a crazy person on the Internet spouting his own opinion.

00:13:15
Time will tell how all this plays out. Look, the bottom line to all this is that if things remain status quo, high rates, growing home prices and growing inventory, the housing market could be in store for a slower than expected summer. Which means each and every deal you can find is precious. And you're going to have to work that much harder to find and reach those folks out there that'll be buying and selling regardless of where the market is. For example, people relocating would fall into this category.

00:13:38
So maybe you want to target people outside your state, moving into your state. Investors with a lot of cash are going to fall into this category. As a matter of fact, right now, cash transactions make up over 32% of all the real estate transactions happening. And that's the highest level they've been since 2014. Or perhaps you want to look into new home builders because many of them are still offering incentives like rate buy downs to make things more affordable for new home purchasers.

00:13:59
But right now is the time for you to make your money and pay your bills. So you got to get out there and market your butt off. And my true goal here is that I hope that the information that I provide you each and every week helps you talk to your clients about the market and what to expect, because that's what I aim to do. I do the research and aggregate the information so you can share it with your clients to make sure that they see you as the expert in all things related to real estate. That's ultimately my goal for doing this each week, just giving you information so that you can serve your clients in the best possible way.

00:14:25
And if, God forbid, the economy does weaken, we have more job losses, or even worse, we get into a global conflict, you'll probably start to see interest rates come down. And while that may be good overall for some transactions to happen throughout the year, nobody ultimately wants that stuff. So here's the claw on our way back out of it, one way or another. All right, guys, that's a wrap for today. Our markets changing and evolving in a rate of speed that we haven't seen in quite some time time.

00:14:45
And you have to be aware of what's happening and what could possibly come our way. And my hope is to be one little piece of a much bigger puzzle that is your business strategy for the rest of this year. So I hope you keep coming back each week for more updates as to what's happening in and around this never boring world of real estate. Be sure to join me this Thursday as I welcome Michael Keller to the podcast. With Americans having massive amounts of equity in their property these days, but not wanting to mess with their interest rates, we're going to discuss options for homeowners to use that equity in creative ways to help grow their wealth without having to touch that low rate on their primary mortgage.

00:15:15
So tune in and find out about the many ways that you can help your clients use their equity to grow their nest egg. But until then, be good humans and keep grinding because the world is what you make it. So make it great. See you next time.