New figures suggest inflation could remain elevated for the foreseeable future.
US consumer prices rose more than forecast in April, building on economy-wide inflationary pressures that are weighing on households and spurring the Federal Reserve to raise interest rates aggressively. The core consumer price index, which excludes food and energy, increased 0.6% from a month earlier and 6.2% from April 2021, according to Labor Department data released Wednesday. The broader CPI rose 0.3% from the prior month and 8.3% on an annual basis, still among the highest readings in decades. Some of the largest contributer's to the monthly increase included shelter, food, airfares and new vehicles. The core CPI was projected to rise 0.4% from a month earlier, while the headline gauge was seen climbing 0.2%, according to the median estimates in a Bloomberg survey of economists. While the latest report shows that US inflation has likely peaked, the figures underscore the breadth of price increases in the economy and, when combined with firm wage growth, suggest inflation will remain elevated for quite some time. Despite the Fed raising interest rates, including the biggest rate hike since 2000 last week, global headwinds like China’s lockdowns and resilient services’ demand may mean a slow road to the central bank’s 2% goal. Fed Chair Jerome Powell signaled last week that officials are open to several half-point increases in the central bank’s benchmark rate in the months ahead. The CPI will help shape estimates for the April personal consumption expenditures price index, the Fed’s preferred inflation gauge, which will be released on May 27. Inflation has put President Joe Biden and Democrats on their heels this year, threatening their thin congressional majorities despite a robust job market and resilient consumer spending. A key expectation for a moderation in inflation this year hinges on slowdown in goods prices as Americans shift their discretionary income to activities like travel and dining out. Goods inflation declined while services costs increased by the most since 2001 on a monthly basis.
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Much of the cost control can be attributed to technology, says CoreLogic exec.
The national average closing costs for a single-family property refinance increased by $88 to $2,375 in 2021, data from CoreLogic showed. While refinance closing costs were 3.8% higher than 2020’s reported amount of $2,287, they were less than 1% of the average refinance loan amount of $304,909. Refi closing costs were also relatively lower compared to the average closing costs for purchase transactions, which require title insurance and several inspection fees. Still, homeowners were able to get good deals on refinance closing costs, according to CoreLogic executive Bob Jennings. “While refinance closing costs increased marginally, annual increases in fees still remain below the 7% average rate of inflation seen in 2021,” Jennings said. “Much of the cost control can be attributed to the growing use of technology solutions by both lenders and settlement services providers, which enabled the industry to scale up capacity while holding the line on closing costs.” The highest average closing costs (without specialty taxes) were Hawaii ($4,730), New York ($4,679), Florida ($3,956), Texas ($3,588) and District of Columbia ($3,370). Including taxes, New York ($10,084), Pennsylvania ($7,614), Delaware ($7,223), Florida ($5,821) and California ($5,762) posted the highest closing costs. Consumer perception of getting a mortgage also falls.
Consumer outlook toward housing slumped in April to its lowest level in two years as Americans continue to stress about housing affordability and rising mortgage rates. Fannie Mae’s Home Purchase Sentiment Index (HPSI) plunged 4.7 points month over month and 10.5 points year over year to 68.5 – its lowest reading since May 2020. The decline comes as more consumers report “difficult homebuying conditions amid the budget-tightening constraints of inflation, higher mortgage rates, and high home price appreciation,” said Doug Duncan, chief economist of Fannie Mae. “The current lack of entry-level supply and the rapid uptick in mortgage rates appear to be adversely impacting potential first-time homebuyers, in particular, evidenced by the larger share of younger respondents (aged 18- to 34) reporting that it’s a bad time to buy a home,” Duncan said. “Additionally, consumer perception regarding the ease of getting a mortgage also decreased across nearly all surveyed segments this month, suggesting to us that the benefit of the recent past’s historically low mortgage rate environment appears to have diminished, and affordability is poised to become an even greater constraint going forward. This sentiment is consistent with our forecast of decelerating home sales through the rest of 2022 and into 2023.” More stats
They have resumed their upward climb.
Mortgage rates in the US resumed their upward climb, reaching the highest level since August 2009. The average for a 30-year loan jumped to 5.27% from 5.10% last week, Freddie Mac said in a statement Thursday. The Federal Reserve yesterday raised its benchmark rate by a half point, the biggest bump since 2000, and signaled further hikes to come in its effort to cool inflation and the overheated housing market. Higher mortgage costs -- already up more than two percentage points this year -- may increasingly push out would-be homebuyers and ease competition for a scarce supply of listings. “While housing affordability and inflationary pressures pose challenges for potential buyers, house-price growth will continue but is expected to decelerate in the coming months,” Sam Khater, Freddie Mac’s chief economist, said in the statement. Families typically spent 18.7% of their income on mortgage payments in the first quarter, up from 14.2% a year earlier, data from National Association of Realtors showed this week. At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,660 a month, $377 more than at the end of last year. “With much higher monthly payments, buyers who don’t have savings for a large down payment risk being priced out of the market,” said Joel Berner, senior economic research analyst from Realtor.com. “Unfortunately, this is occurring just as nationwide rents reach an all-time high, making saving more difficult for those looking to buy their first home.” Tight inventory is beginning to crimp purchases. But plenty of pent-up demand from the past couple of years and a rising share of cash buyers make a crash in home sales unlikely, according to Matthew Pointon, senior property economist at Capital Economics. "Expeditiously 'getting to neutral' will not be enough this cycle"
The Federal Reserve will need to raise short-term interest rates to at least 3.5% to bring surging inflation under control, former vice chairman Richard Clarida said. “Expeditiously ‘getting to neutral’ will not be enough this cycle to return inflation over the forecast horizon back to the 2% longer-run goal,” he said in remarks prepared for delivery to a Hoover Institution conference on Friday. “The funds rate will I believe ultimately need to be raised well into restrictive territory, by at least a percentage point above the estimated nominal neutral rate of 2.5%.” The Fed on Wednesday raised it target range for the federal funds rate by a half percentage point, to 0.5% to 0.75%, and said ongoing increases were likely. It also announced a plan to start reducing its big balance sheet next month. Clarida, who left the Fed in January, said his former colleagues might not have to raise rates as high as he suggested if the balance-sheet rundown has a substantially bigger impact on financial conditions than currently envisaged. The Fed will begin shrinking its holdings of Treasuries and mortgage-backed securities from June 01 at a combined monthly pace of $47.5 billion, stepping up after three months to $95 billion. Conversely, policy makers might have to raise more if inflation does not fall as much as they’ve projected, the Columbia University professor said. It's also a double-digit price appreciation for most metros.
A host of metros reached double-digit annual house price gains in Q1 2022 compared to the previous quarter – with midsize and small markets making the biggest jumps, according to the National Association of Realtors (NAR). Alarmingly, 70% of 185 metros have reported a 66% increase from last quarter. This has been exacerbated by the increases in median single-family existing-home prices, rising 15.7% to $368,200 compared to 2021. The South region alone made up 45% of single-family existing-home sales in the first quarter, with a double-digit price appreciation of 20.1%. Meanwhile, the Northeast saw a climb of 6.7%, the Midwest 8.5% and the West 5.9%. Lawrence Yun, chief economist at NAR, said appreciation would likely ease as more supply comes in for the upcoming quarter, noting a record low amount of inventory at the start of Q1. “Prices throughout the country have surged for the better part of two years, including the first quarter of 2022. Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months,” Yun said. “I expect more pullback in housing demand as mortgage rates take a heavier toll on affordability. There are no indications that rates will ease anytime soon.” The top 10 locations with the highest YOY price gains consist of mid and small markets, with half of them in Florida: Punta Gorda (34.4%), Ocala (33.8%), Ogden-Clearfield (30.8%), Lakeland-Winter Haven (30.1%), Decatur (28.9%), Tampa-St. Petersburg-Clearwater (28.8%), Fort Collins (28.4%), North Point-Bradenton-Sarasota (28.0%), Myrtle Beach-Conway-North Myrtle Beach (28.0%) and Salt Lake City (27.9%). “Traditionally, homes in these markets were viewed as relatively inexpensive, but with recent migration trends, prices have increased significantly,” Yun said. “As more families relocate to various areas, we may see some surprising markets on our top 10 list.” Meanwhile, the top 10 locations with the most expensive markets aren’t so surprising, with half of them in California: San Jose-Sunnyvale-Sta. Clara ($1,875,000), San Francisco-Oakland-Hayward ($1,380,000), Anaheim-Sta. Ana-Irvine ($1,260,000), Urban Honolulu ($1,127,900), San Diego-Carlsbad ($905,000), Boulder ($859,100), Los Angeles-Long Beach-Glendale ($792,500), Seattle-Tacoma-Bellevue ($746,200), Naples-Immokalee-Marco Island ($745,000) and Denver-Aurora-Lakewood ($662,200). Supply chain issues and cost spikes are especially problematic.
Unless one is in the process of building a home, the effects that supply chain issues and inflation have on homebuilders can be viewed as an abstraction. But to builders themselves, the issue is hardly conceptual but one dramatically affecting business. Just ask Ernie Hofmann, president of New Jersey-based Hofmann Design Build Inc. – a full line design/build firm specializing in residential remodeling, custom home construction, historic restoration and light commercial remodeling – who’s also a member of the National Association of Home Builders. In a recent interview, he gave Mortgage Professional America an insider’s look at the real-world impact market changes are having on his industry. For instance, take lacquer – the liquid made of shellac that’s dissolved in alcohol or of synthetic substances that dries to form a hard, protective coating for wood, metal and other materials. “Kitchen cabinets and cabinetry in general has gone up 30 percent in the past year and continues to go up on a monthly basis,” he said during a recent interview, as if setting up for the zinger. “The lacquer finish that my cabinet maker uses was 90 bucks a gallon two years ago, and now it’s $400 a gallon.” Having worked in the construction industry for 43 years – starting as an apprentice carpenter before working in the field for ten years prior to earning his degree in civil engineering technology – there’s not much Hoffman hasn’t seen. But the current situation has been eye-opening for even this seasoned industry veteran. “The supply chain [issues] are significantly delaying our projects,” he said, citing a two-year period beginning in 2020 when delays began occurring in earnest until today. Last year, his firm had a project for which interior doors were needed. What would’ve have taken a week to secure in the past instead took three and a half months, he said. Exacerbating the problem is the sheer randomness of shortages, with one never knowing what specific items will be delayed and which won’t. “It was not quite as random,” he said of times past. “Probably the biggest issue is the long lead time on things. Kitchen cabinets went from four to six weeks in June 2021 to 14 to 18 weeks in August 2021, and it hasn’t changed since. “It only takes about six weeks to renovate a kitchen, and we’re waiting on cabinets. Windows are a 14-week lead time. That’s really hurting cash flow in a big way.” Labor shortages aren’t an issue, he said, but those shortages put things on hold: “We don’t necessarily have a labor shortage, but we can’t start because of potential delays.” Sub-zero refrigerators and Viking ranges are all the rage among luxury supplies, but are hard to come by as well, he noted. “There are alternatives, but still months and months away.” And that’s not even mentioning supply costs. “Another big factor is several of our projects are canceled because of the astronomical building material costs,” Hofmann said. Take cedar shingles: “They’re practically the cost of gold these days. I think it’s $450 to cover 20 square feet with cedar siding, which is just ridiculous. That project was postponed because from when we started this design to when it was ready for construction, the building materials costs jacked up the price by $30,000.” Lumber costs continue to rise as well – if one can even secure it, he said. “We can’t order that in advance, and there’s no lead time.” Back in the day, he said, one could call the lumber yard and get what’s needed in a matter of a couple of days. Today, it takes two to three weeks. Lately, more substitutions are being made with three0inch flooring in lieu of the 2 ¼-inch variety given the latter’s shortage amid high demand, he said. Clients sometimes postpone projects given such spiraling costs, hurting builders’ cash flow and revenue in the process. “We’ve had at least four projects in the past year that have been canceled because the costs have escalated so much,” Hofmann said, invoking the example of a $400,000 project upon which his firm was ready to embark. “The owner said ‘We want to do this, but can’t bring ourselves to spending that kind of money right now with building materials so out of control.’” So, homebuyer, next time you start to write a negative online review for a builder or fire off a nasty email, think of their woes amid this changing market. And maybe think more along the lines of a sympathetic hug. "Multiple offers will soon dissipate and be replaced by much calmer conditions"
slower pace of housing activity as interest rates and home prices surge to record highs. Pending home sales dipped 1.2% month over month to 103.7 – marking the fifth consecutive monthly decline and the lowest level since May 2020, according to the National Association of Realtors. Year over year, contract signings sank 8.2%. “The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” said NAR chief economist Lawrence Yun. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity. The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.” According to Yun’s projections, the 30-year fixed mortgage rate will likely hit 5.3% by the fourth quarter before reaching 5.4% by 2023. He expects inflation to average 8.2% in 2022 but start moderating to 5.5% in the second half of this year. Unemployment rates will average 3.7%, Yun estimated, and GDP growth to accelerate by 2.8%. As of March, higher mortgage rates and persistent price growth have driven an annual increase of 31% in mortgage payments. “Overall existing-home sales this year look to be down 9% from the heated pace of last year,” Yun said. “Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.” Costs have also pushed monthly rental payments up. Yun predicts this will lead to more renters exploring homeownership. “Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year. I expect that to result in a boost to construction of less than 5%.” "The start of the spring home buying period is off to a mixed start"
Mortgage applicants are feeling the heat as buying a home becomes a lot more expensive this spring. The Mortgage Bankers Association’s new Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time relative to income, edged up 5% to 150.9 in March from 143.7 in February. Loan application payments are now $1,736, compared to $1,653 in February. Edward Seiler, AVP of housing economics at MBA, pointed out that payments on new mortgages take up a larger share of a typical person’s income. “The start of the spring home buying season is off to a mixed start. The healthy labor market and robust wage gains fueled demand throughout the country in March, but rapid home-price growth and the 42-basis-point surge in mortgage rates last month slowed purchase application activity. A typical borrower’s principal and interest payment was $387 more than in March 2021,” said Seiler. For borrowers applying for lower-income mortgages (the 25th percentile), the national home loan payment grew 3.2% to $1,129 in March. Mortgage payments for home purchases have also increased relative to rents. MBA’s national mortgage payment to rent ratio (MPRR) soared to its highest level since 2010, up from 1.32 in February to 1.38 in March. The national median asking rent increased 4% quarter over quarter to $1,255 in Q1 2022. The 25th percentile mortgage application payment to median asking rent ratio was 0.90 in March, up from 0.87 the month before. “Swift price appreciation, sky-high inflation, low inventory, and mortgage rates now two percentage points higher than last year are all headwinds for the housing market in the coming months – especially for first-time buyers,” Seiler said. “MBA’s updated forecast calls for an annual decline in existing sales, higher home prices and mortgage rates, and a smaller but solid 4% gain in purchase origination volume.” |
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