New: 🧠 Market Minds Issue #019

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The Spring Market Ahead

Nationally, prices have been increasing between 4% and 6% per year. Despite the Federal Reserve's efforts to cool down the housing market, price indices from 2023 show positive growth year over year.

Additionally, the high mortgage rates have created a rate lock effect, where homeowners with low-interest mortgages cannot afford to sell their homes and buy new ones due to the doubling of their mortgage payments.

A survey conducted by CJ Patrick for RCN Capital, a private lender, revealed that rising insurance costs or the inability to get insurance is impacting the decision-making process for buying and selling real estate. The increasing insurance costs, coupled with high interest rates and higher prices, are creating challenges for investors.

However, there has been a shift in investor behavior, with more respondents opting to buy properties and hold them as rentals rather than flipping them. This shift is attributed to limited inventory and slower price growth.

Foreclosure activity in 2023 was 30% lower overall compared to 2019. Homeowners facing foreclosure often choose to sell their properties to avoid losing their equity, resulting in fewer auctions and bank repossessions. Homeowners have an impressive $31 trillion in equity, with 80% of homeowners in foreclosure having more than 20% equity in their homes. While there may be an increase in foreclosure starts in 2024, it is unlikely to result in a flood of distressed properties.

Biden’s Proposals in the State of the Union

While we won’t be taking a political stance, it’s important to stay up-to-date on Biden’s comments.

In Thursday night’s State of the Union address, Biden outlined several homeownership and rental initiatives.

Biden announced his plan to provide an annual tax credit to help Americans with their mortgage payments. Under this initiative, eligible individuals will receive $400 a month for the next two years as mortgage rates continue to decrease. This tax credit can be used by first-time homebuyers or those looking to upgrade to a larger property.

Another proposal outlined by Biden is the elimination of title insurance fees for federally-backed mortgages when homeowners refinance. This measure has the potential to save homeowners $1,000 or more during the refinancing process.

Biden also addressed the issue of rising rents and the actions of big landlords who engage in price-fixing. He proposed cracking down on these practices and enforcing antitrust laws to protect renters.

Mixed Results in the Job Report

The jobs report this morning was a pretty mixed bag, with higher-than-expected job gains for February, but also a higher-than-expected unemployment rate and large revisions to the previous month’s job gains. Overall, this data shouldn’t push the Fed too much in one way or another but paves the way for a June rate cut if inflation data also cooperates next week.

The economy added 275,000 jobs in February, more than the 200,000 expected by forecasters. However, December employment was revised down by 43,000 and January by 124,000, for a total of 167,000 fewer jobs than we had previously thought. The January revision is especially notable because last month’s hot jobs report blew expectations out of the water and many analysts figured it was a statistical fluke due to residual seasonal effects.

These data point to a still strong—but not too strong—labor market. They confirm that last month’s jobs report was a fluke and that we’re largely back where we expected to be. Combining today’s report with the JOLTS (Job Openings and Labor Turnover Survey) report earlier this week, which showed job openings coming down gradually, the labor market appears to be in a “just right” spot for the Fed. They should feel good about gradually cutting rates because we see little risk of the labor market pushing inflation out of control again. And there’s also little reason to be worried about an impending recession necessitating large rate cuts immediately.

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Make a List, and Check it TWICE!

Make a list of comps, that is. This home will have a BIRTHDAY on the market next month if it’s not sold and has already had almost $1M in price reductions. View the full listing here.

The price history is quite amusing 😂

TL;DR (Too Long; Didn’t Read)

The housing market is experiencing steady price growth despite efforts by the Federal Reserve to temper it, with high mortgage rates leading to a rate lock effect for homeowners. Rising insurance costs are adding to challenges for investors, who are increasingly opting to buy and hold properties rather than flipping them. Foreclosure activity decreased in 2023, with homeowners preserving equity, though a slight increase in foreclosure starts is expected in 2024. Biden's proposals include a tax credit for mortgage payments and measures to address rising rents and price-fixing by landlords. The recent job report shows mixed results, with higher-than-expected job gains but also a higher unemployment rate and revisions to previous months' data, suggesting a strong but stable labor market that aligns with the Federal Reserve's outlook.

Have a great weekend - we’ll see you next Saturday.

Cheers 🍻

-Market Minds Team