Mortgage rates have drifted lower once again. We can’t say that we’re surprised.
First, there’s weak gross domestic product (GDP) growth, with the economy growing at a 0.5% annual clip. In addition, businesses and government (mostly businesses) added 160,000 new employees to their payrolls last month. The consensus estimate was for 200,000-or-more new jobs.
Mortgage rates immediately moved lower on the disappointing employment numbers. In fact, earlier this week, we again saw rates hovering near three-year lows. We also mentioned a Wall Street Journal survey of economists last week. Specifically, 75% of economists the Journal surveyed said they expected the Federal Reserve to raise the federal funds rate in June. It’s likely many of the 75% have changed their mind. Traders in federal funds rate futures contracts are betting there’s less than a 10% chance the Fed will raise rates next month.
Fundamentally, there is something wrong with the economy when interest rates have to hang so low for so long. This is poignantly true when you consider how much new money the Fed has injected into the banking system via quantitative easing and by holding the fed funds rate near zero for so long. We might hold the minority opinion, but there are valid reasons to hope for higher interest rates.
Still Trouble at the Low End
The inability for young, first-time buyers to enter the housing market has been one of our frequent laments. We continue to lament to this day, and it appears we still have reason to lament.
Last week, the Wall Street Journal reported on the starter-home market. New homes under $200,000 comprised 19% of U.S. sales last year, down from 38% four years earlier.
Price competition for starter homes, existing starter homes in particular, has increased with the introduction of new institutional buyers. Companies like Blackstone and American Homes 4 Rent have entered the market to buy thousands of single-family homes for the sole purpose of renting them. Most of the homes reside on the low-end of the spectrum. In many markets, starter homes have seen the greatest price appreciation.
We might hold the minority opinion again, but we’d like home-price appreciation to take a breather, at least long enough to let younger buyers jump aboard the bandwagon.