Mortgage rates jump as interest and hot inflation slow down the housing market

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Welcome back mortgage rates reversing their recent down downward trend with the 30-year fixed rate rising again to 5.51 today according to freddie mac now this follows consumer prices hitting another 40-year high at 9.1 percent in june misha fisher angie chief economist is here with a new report on how homeowners are faring in this difficult environment so misha what

Can you tell us what are their primary concerns in this environment hi michelle thanks for having me there’s a lot of things going on the primary concern i think for people in the market right now is what’s the best way to get a good value on the dollar and what we’re seeing right now in our research that we just released this morning is that the overall market

Grew by about another little over 10 about 62 billion over the last year so that’s still pretty robust gross for growth for home improvement and home maintenance spending and the reason why is because if you’re out there shopping for more space right now if you’ve got a great mortgage right now at 2.8 to 3.1 percent and your option on the market for switching to

A new place is a five and a half percent mortgage all of a sudden that overall calculus of do i want to move or do i want to stay in place in a model the remodeling just gained a really big competitive edge and so that’s why even though traditionally you’ve seen home service in terms of maintenance and improvement in particular tied to the housing market they

Are two distinct markets and so even though you’re seeing a slowdown in the housing market which is very predictable given what interest rates are doing the home service market is going to behave a little bit differently right now because the calculus for consumers is pretty different as they’re shopping around for how they want to get more space of course in

The face of that is the cost of materials spiking have they peaked and how they impacted home services yeah certainly the cost of materials is a big part of it they have peaked if you look at the height of the inflationary period for materials it was over 30 growth year over year we actually have new price indices out this morning that show that it’s down to

About 10 inflation in construction materials that’s a third drop just from last month where it was about 15 so they are coming down quickly this is another area where home services is kind of distinct from home construction in home construction the materials are a big big part of your sticker price in home services the labor is a big part of your sticker price

And the labor inflation rate hasn’t been nearly as high as for construction materials so it is coming down that will help the consumer on the back end but overall people have been spared the worst effects of inflation in home improvement home services because the labor rates have not risen as much as the construction materials well misha what about the fact that

It’s just hard to find those workers we’ve been talking about the labor shortage for so long this is an area of the economy that has certainly been affected when you take a look at those housing numbers where does that stand shauna you raise a really really important point and overall we saw we were tracking this before the pandemic and you’re right people were

Saying hey this is a crisis level of labor scarcity in terms of the market and that got about 10 worth at the at the peak of covet so that’s why we think that this 10 growth rate is actually a great market renormalization at 20 that’s more than trades people can keep up with that’s certainly more than you can train under the best of circumstances it’s more than

Manufacturers can keep up with and supply chains so i think that those pressures are going to ease somewhat in this coming year as demand normalizes because 10 percent is still you know that’s still a hot market but at least it’s a sustainable market whereas 20 percent is just more than most markets can handle independent of a pandemic so as homeowners are looking

For people to provide some of these services which are the biggest growth drivers that you’re seeing within the home services categories there’s a couple of growth drivers so on the consumer side we’ve got demographics is one of the biggest growth drivers we’re all sort of primed to think about this in the context of the last recession the great recession and at

The time the typical millennial was early 20s through middle school right now they’re late twenties through forty and so that’s a very very different stage of life in terms of you’ve got the largest generational cohort hitting those peak family formation years hitting their peak earning years getting their careers in stride and so that’s really driving one side

Of the market on the flip side we still have baby boomers who are the second largest cohort and they’re all starting to hit the stage of life where kids are well out of the house and they’re trying to decide do i want to age in place or do i want to downsize all of that requires a lot of work in terms of either transitioning a home to a new buyer or in terms of

Making a home sustainable for somebody who’s in those 80 plus years and then on the flip side you’ve also got a lot of trends culturally around the value in the home if you look before the pandemic we were tracking it and people were saying that the main reason they were doing pop projects were financial reasons they wanted a good roi as they increased the size

Of their home and they padded their net worth right now the primary reason why people are remodeling over a quarter of our modelers are saying that it’s a lifestyle that’s driving the reason for it and so that’s a big driver because it means people are more willing to pay for premium product they’re more willing to pay for some of the new technology that’s

Coming out you know you can get pretty fancy with a kitchen and a bathroom right now in terms of all of the that’s that’s coming online and available and all that’s complex and requires a lot of work to get it done so those are all pretty fundamental drivers in terms of what’s really pushing the market how about the greater trend towards working from home how

Has that changed the remodeling industry that’s changed it for a couple of reasons the first is i think it’s giving a lot of people a lot of segments of the market a more predictable pathway to saying i’m going to be in this house longer and that means i get better value about spending on quality products if you’re only going to be in a house for one to three

Years your calculus on how much you’re willing to spend on that really nice kitchen countertop or that premium flooring and you’re less willing to spend on that because you’re not really going to enjoy it for its whole life but if you look at well you know because of work remote i can be in this home for 10 or 20 years and i really like this location then all of a

Sudden you’re willing to spend so that certainly impacts it it’s also impacted in terms of overall space needs if you think about how much space you need when you’re at home more you just need more of it the kitchen in particular has been serving triple duty for a lot of families in a lot of households but people are also needing more office space more home gym

Space because they’re just spending more time at home in that sense misha what about on a regional basis certain areas of the country where this is more prevalent people aren’t moving because of the high cost of homes compared to others the big regional variation comes in terms of what labor costs and in terms of what the overall improvement market looks like

So you’ve seen a lot of variants in terms of growth in house prices around equity gains and equity gains can really really act as jet fuel for this market that’s why we’re pretty bearish about the mark are pretty bullish about the market rather because consumers gain six to seven trillion dollars in new equity over the course the pandemic but that does vary a

Lot by region if you bought a house just before the pandemic in phoenix then you’re doing a little bit better if you bought it just for the pandemic in chicago in both places you’re doing great but the overall price increases have been different in those two areas and so the overall leveraged return on that down payment investment that the typical consumer has

Gotten really varies and so i think that’s the most interesting regional variation in terms of the finances that we see but there are also regional variations in terms of project need if you’re talking about people moving to more temperate areas where you can sort of live year round so we’ve seen a lot of that people moving from the northeast and the midwest

To the south and the mountain west then all of a sudden that outdoor living space you get to use it year round and so one of the most interesting rises in terms of trends we’ve seen in the last couple years is the importance of things like outdoor gardens and the outdoor kitchens and grilling stations pergolas arbors pools all of those things have risen in terms

Of their proportional use because we’ve shifted people from cold climates to warmer ones misha fisher thanks so much for joining us angie’s a chief economist

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Mortgage rates jump as interest and hot inflation slow down the housing market By Yahoo Finance