How Will Rising Inflation, Interest Rates and War Impact the Housing Market?

 

While there is still a considerable amount of uncertainty surrounding the implications of the Russian invasion of Ukraine on the housing market, the picture is getting a bit clearer for experts at Fannie Mae. In a recent report, forecasters from the government sponsored enterprise, note that the geopolitical event has already started weighing several economic hurdles influencing housing and the U.S. economy.

“The Russian invasion of Ukraine further complicates an economic landscape still affected by a pandemic, historically large monetary and fiscal policy responses, and the ensuing 40-year high inflation rate,” read a March 17 statement by Fannie Mae forecasters who recently revised economic projections for 2022.

Fannie Mae’s Economic and Strategic Research (ESR) Group dropped their projections for full-year 2022 real GDP growth from 2.8% in February to 2.3% this month in the wake of the Federal Reserve announcing that it would begin raising interest rates. 

The first of potentially six rate hikes for the year occurred on March 17, and media reports suggest that it could be as many as eight by early 2023.

The forecast change reflects “substantial downside risks to both the macroeconomic and housing outlooks.”

“A slowing economy, decades-high inflation, expired fiscal stimulus, tightening monetary policy and now Russia’s invasion of Ukraine are all weighing on the health of the U.S. economy,” said Fannie Mae SVP and Chief Economist, Doug Duncan, in a statement.

He went on to say that trade disruption in energy, agriculture and other commodities are putting upward pressure on inflation and “making an already difficult task for the Federal Reserve even more challenging.”

Before the geopolitical conflict, inflation hit a 40-year high of 7.9% in February, with increases in energy and food prices playing a significant role in the increase.

Though the Fed was tight-lipped about the timeline and extent of rate hikes, the Central Bank telegraphed increases were on the horizon for months as they sought to combat elevated inflation.

The general narrative by real estate experts has been that the Ukraine situation wouldn’t directly harm the housing market. However, Fannie Mae acknowledged that geopolitical and monetary policy uncertainty adds risk to the housing outlook.

Fannie Mae expects a decline of 4.1% in total home sales in 2022—up from its initial forecast of a 2.4% drop. Existing home sales jumped in January by 6.7% to an annualized pace of 6.50 million units, which Fannie Mae suggested as the peak for the metric this year.

The surge in housing activity is partially due to a rush of prospective buyers trying to lock in lower mortgages before expected increases in interest rates. As the dearth in housing supply and affordability challenges continue, experts predict a considerable slowdown in existing home sales.

“We expect existing sales to trend downward to a pace of about 5.6 million annualized units by the end of the year, compared to the Q4 2021 average of 6.2 million units,” Fannie Mae forecasters said in the report.

Recent data from the National Association of REALTORS® (NAR) shows that existing home sales have started to retract in February, dropping 7.2% from January.

“Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases,” said Lawrence Yun, NAR’s chief economist in a recent statement. “Some who had previously qualified at a 3% mortgage rate are no longer able to buy at the 4% rate.”

Yun noted in NAR’s recent report on existing home sales that rising rates and escalating prices have prevented many consumers from making a purchase.

“The sharp jump in mortgage rates and increasing inflation is taking a heavy toll on consumers’ savings,” he said. “However, I expect the pace of price appreciation to slow as demand cools and as supply improves somewhat due to more home construction.”

Pending home sales also fell by 5.7% in January, while purchase mortgage applications sank in February by 11.9%, marking additional shifts leaning toward moderation in the market that the ESR Group expects to carry on throughout the year.

“With affordability declining, a significant further rise in mortgage rates would price many buyers out of the market,” read an excerpt from the report. “In the short run, the prevalence of bidding wars and a lack of inventory for sale leads us to believe that further rate increases will have a comparatively muted effect on sales relative to the historical rate-change relationship.”

Transactions are still expected because of a “reserve of currently outbid buyers” who will replace buyers squeezed out now. However, according to the report, the long-term market impacts may likely mean an overall retraction in sales activity.

“In our view, this will likely lead to fewer bidding wars and decelerating price gains,” Fannie Mae’s report stated. “We believe this comparative resilience will be temporary, though, as eventually this pool will be exhausted. This is especially true given we expect that many recent purchases represent buyers moving forward on their plans, meaning future demand will soften at some point.”

Fannie Mae’s report was favorable regarding new home sales, forecasting robust activity as homebuilders work to complete more homes after ongoing supply chain and labor-related delays.

Multifamily starts are slated to total 465,000 units in 2022—up from a previous 442,000—while single-family housing starts are slated to average 1.15 million units compared to an earlier 1.17 million, according to the report.

Despite the optimism, building sector pundits have been skeptical that conditions will get better for builders who are still battling longer build times and higher prices for new homes.

“I would not expect a significant easing of constraints, and in part that does reflect the experience of the individual participant of the market,” said Sam Chandan, a professor of finance and director of Stern Real Estate at New York University in a recent interview with RISMedia.

“I expect for the foreseeable future the market will feel slight constraint and that will mean higher costs across the board, as well as for homebuyers, and ultimately act as a drag on the supply of new houses,” Chandon added.

Jordan Grice is RISMedia’s associate online editor. Email him with your real estate news ideas, jgrice@rismedia.com.

DO PRE-LISTING HOME INSPECTIONS MAKE SENSE IN THIS MARKET?

 

By the Experts at Pillar To Post Home Inspector

With inventory at or near all-time lows, many homes are selling “as is” and transactions are moving quickly. In this seller’s market, is a pre-listing home inspection a good idea? The short answer is “yes.”

Homes that have had a pre-listing inspection can sell for more. It’s to the seller’s advantage to fully understand the home before listing, and it’s also the perfect opportunity to make recommended repairs should they choose to. Another advantage is that having a detailed understanding of their home’s condition will help sellers feel confident that they’re getting the best price for their home, which of course reflects well on you. And by having an up-to-date pre-listing inspection in hand to share with potential buyers, you can keep the transaction moving and get to closing faster.

A pre-listing inspection can also create buyer trust through transparency about the home’s condition, avoiding surprises down the road. This information is invaluable when it comes to putting together an offer. Simply put, a buyer who’s confident about the home will feel more comfortable offering more money.

 

4 Staging Tips That Have Universal Appeal

Posted on Jan 21 2022 - 3:02pm by Housecall

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By Meghan Belnap

When you're selling your home, you want to do all you can to ensure it sells as quickly as possible and for the highest possible price. While the home itself will be the main attraction, it's still important to consider the small details that buyers will inevitably notice.

Related: Winter Home Staging Tips That Promote Safety and Sales

Some people choose to forego the staging process, thinking it's a waste of time, but it can greatly increase the number of offers you receive. Here are four approaches to take that'll make your home look great when potential buyers come through:

Remove Personal Items

The first thing you want to focus on when staging your home is to make sure to remove any personal affects. Pictures, kids' drawings, certificates or anything else that might identify you needs to be taken down. While there are safety benefits to taking this step, the main reason you want to depersonalize your home is so that any potential buyers can visualize themselves living in your home. If you can capture their imagination, you've already won half the battle.

Go for Neutral

Although you may have a very bold decorating personality, it might be best to mute that somewhat when you're trying to sell your home. Again, buyers want to be able to visualize themselves living in your home, but if your decor is too far from what they enjoy, you might cause them to miss the underlying beauty of your home. This isn't to say, of course, that you can't have a few fun pops of color throughout your home. Instead, just make sure that everything matches and isn't too distracting.

Keep It Simple

When REALTORS® show a home, it makes a world of difference if they can easily explain what a room can be used for. That's why it's important to simplify your decor as much as possible. Try to have only a few main pieces of furniture in each room, and make sure to remove any clutter that makes your home look smaller. This will help potential buyers "catch the vision" of how they can use certain rooms as they tour your home.

Appropriate Exterior

Staging a home starts with the exterior. An attractive exterior will create a strong first impression, making it easier for buyers to overlook other small flaws in your home. Try to coordinate your landscaping with the season, having mums in the fall, flowering plants in the spring and summer, as well as simple, tidy landscaping in the winter.

If you're having trouble figuring out how best to stage your home, it's worth it to ask an expert. Even a few simple tips can help you significantly increase the perceived value of your home. Selling a home is a major financial transaction, so make sure that you don't leave this transaction to chance!

Meghan Belnap is a freelance writer who enjoys spending time with her family. She loves being outdoors and researching new topics that help to expand her horizons. Belnap recommends working with real estate professionals like those at the BHHS Towne Realty for your home listing needs.

Appliance Maintenance for New Homeowners

 

A Guide to Appliance Maintenance for New Homeowners

Posted on Jan 5 2022 - 4:29pm by Housecall

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By Meghan Belnap

Buying home appliances is expensive. From dishwashers and refrigerators to espresso machines and water heaters, once they're fitted into a home, the responsibility of making sure they operate efficiently lies on the homeowner.

Related: How to Avoid Dust Buildup in Household Appliances

Although it may seem like a daunting task for new homeowners, with the right repair tools and regular maintenance, you'll not only prevent the appliances from breaking down, but also keep your home looking its best. Here's a new homeowners' guide to proper and efficient appliance maintenance:

Clean the Dishwasher

As a new homeowner, one of the main appliances you'll use regularly is the dishwasher. While it is a cleaning machine in and of itself, keeping it clean will help it properly do its job. Maintaining your dishwasher ensures that your plates are clean and free from odors, smudges and bacteria. Start by cleaning the spray arm nozzles. Also, if the filters aren’t self-cleaning, be sure to clean them with vinegar, lemon juice or other recommended acidic solutions.

Inspect the Air Conditioner

We all know the value of a working home air conditioner. Unfortunately, AC units require regular maintenance. Occasionally, you'll need to check the air filters and ensure they're cleaned to get rid of clogging and dirt. Clogged filters can cause inefficiency and reduce the lifespan of your appliances. You’ll want to change out these filters several times per year for the best results.

Maintain the Water Heater

Water heaters also require a lot of maintenance. First, confirm that the pressure relief valve is working efficiently by trapping excess pressure created by hot water. Also, check any clogging in the waterway that may be caused by calcium buildup. Most importantly, develop the habit of draining water completely out of the heater tanks to release any settled sediments. If your water heater has technical problems, you should contact a professional water heater repair technician.

Clean the Refrigerator Coils

Refrigerators can be expensive to purchase and repair. Therefore, the last thing you would want is to have them break down. As a homeowner, you need to ensure the refrigerator coils are cleaned regularly and water filters changed to increase the cooling efficiency. Usually, you'll find the instructions for cleaning coils and changing filters on the manual pamphlet.

Oven and Stove Maintenance

You don't have much to worry about when it comes to oven and stove maintenance. The only responsibility you have is to ensure they are properly cleaned. This is particularly true on stove igniters which can be affected by food spills. You should also confirm that the oven doors are tightly sealed to increase energy efficiency and faster cooking.

Conclusion

Proper maintenance of your home appliances goes a long way in improving their efficiency and lifespan. As a new homeowner, the above-mentioned tips will ensure your appliances serve you best and for an extended period. For more technical maintenance, you can always contact experts in your area.

Meghan Belnap is a freelance writer who enjoys spending time with her family. She loves being outdoors and researching new topics that help to expand her horizons. Belnap recommends working with professionals like those at the Plumb Doctors for your water heater repair needs.

 

10 Worst Things to Carry in Your Wallet

With identity theft rampant, keep only the essentials in your pocket or purse

by Katherine Skiba, AARP, December 7, 2021

KATHYDEWAR/GETTYIMAGES

In an episode of “Seinfeld,” Jerry's neurotic friend George Costanza has so much stuff jam-packed into his wallet that it’s ridiculed as a “filing cabinet.” The wallet bulges with everything from Irish currency to a coupon redeemable at Orlando, Florida-area Exxons to filched packets of Sweet’N Low. Walking down the street, Costanza the pack rat tries to stuff one more thing inside and the billfold explodes, scattering its contents to the wind.

Jon Clay, vice president of threat intelligence for Trend Micro, a global cybersecurity firm, mentions the episode when talking about what consumers should not carry in their wallets lest they lose valuable information. In an era in which identity theft is epidemic, the lessons of the old sitcom remain timely.

TREND MICRO

Cybersecurity expert Jon Clay of Trend Micro urges consumers to keep the bare minimum in their wallets.

Pickpockets — and ne’er-do-wells who say “finders keepers” when they stumble on a lost wallet — aren’t after just your cash. When it comes to personally identifiable information, it may be that the original crook profits by reselling it, Clay says.

Worse, the crook may bring in accomplices and share the loot. After a lost wallet was pocketed in June at a casino in Davenport, Iowa, the thief kept the $800 inside and an ID card. Later, the rightful owner’s name and personal information was exploited to set up an online bank account to obtain a debit card and checks, and with accomplices, the first crook and his cohorts went on a spending spree at a half dozen merchants, later peddling some of their $5,600 in purchases on Facebook Marketplace, authorities said.

“We all think we are being careful, but it takes one second for a criminal to steal our wallet or purse,” says AARP’s Amy Nofziger, who oversees its Fraud Watch Network helpline, 877-908-3360.

“Limit what you carry to ensure you don’t put yourself at a greater risk,” she says. “Even though we hear about online crime every day, there are still many criminals waiting to get ahold of your personal belongings. They look for your wallet and purses at gyms, grocery stores and your car.”

How to keep your wallet safe

Since many merchants accept digital wallets, Clay says he’s apt to carry just a single credit card because he’s only encountered some gas stations that won’t let you pay with a digital wallet. These contain digital versions of your credit and debit cards, and you pay with a smartphone. Examples include Apple Pay, Samsung Pay and Google Pay.

A resident of Colorado, Clay also relies on the myColorado mobile app to store his driver’s license, vaccination record, vehicle registration and proof of auto insurance. So unless he’s traveling out of state, he avoids carrying those.

Even if you’re not as tech-savvy as Clay, your wallet can be leaner, and with respect to cybercrooks, meaner. Take some time to declutter and potentially spare yourself from some time and trouble cancelling accounts and obtaining new cards. First, consumer advocates say, make photocopies (or take smartphone photos) of the front and back of all your cards, so you know whom to contact if they go missing.

Here are the 10 things that he suggests you remove from your wallet and store in a safe place, such as a fireproof lock box or a safe deposit box depending on how often you need to access them:

• Social Security card.

• COVID-19 vaccination record card, which carries your date of birth and hints at where you live.
  
  
• Multiple credit cards and credit-card receipts.
  
  
• Checkbook, or even one blank check.

• Work ID card.

• Passport or passport card.

• List of your passwords.

• Gift card not fully redeemed.

•  Birth certificate.

• Library card. It sounds benign, but a crook can always check out lots of books and sell them for a buck or two apiece, Clay warns.

​“We all think we are being careful, but it takes one second for a criminal to steal our wallet or purse.” ​

—Amy Nofziger, AARP's director of fraud victim support

Year End Outlook

Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022. 

Depending on whom you ask, the past year of home price gains may have been a boon or a bust. Home prices rose by nearly 20% over the past year under a perfect storm of a widening supply and demand gap in addition to pandemic-induced influences.

On the one hand, sellers have benefited from heated competition that drove property value through the roof during the second half of 2021. On the other, surging price tags have continued to exacerbate long standing affordability issues, with more people being priced out of the market.

Housing affordability dipped in 2021 as tight inventory and high demand contributed to record-setting price surges, according to Gay Cororaton, senior economist and director of Housing and Commercial Research at the National Association of REALTORS® (NAR).

“Even before the pandemic, we had a tight supply because of lack of labor, and then when the pandemic hit, people didn’t seem too interested in listing their homes,” she says.

When the COVID-19 pandemic first appeared in March 2020, many people anticipated the housing market’s demise, says Matthew Gardner, chief economist at Seattle-based Windermere Real Estate.

“What we found was that demand not only came back, but it came back in an even more robust manner than had been seen before the pandemic hit,” Gardner says. “That was boosted even more by the work-from-home paradigm.”

The success and uncanny market behavior resulted from a series of factors, including razor-thin supply and mortgage rates, which began declining in January 2020 and ultimately landed at historically low levels—2.68%—by December of that year.

With a month left in 2021, real estate experts tell RISMedia that they expect home prices to continue climbing in 2022, albeit at a slower pace than 2021.

The days of double-digit price appreciation are gone, according to Gardner who suggests price gains to hit just above 7% in 2022.

“That is certainly not a number to be sniffed at,” Gardner says, adding that the growth will still be above the long-term average but will “come off of the sugar high that we saw this year.”

“We are going to see headwinds relative to price growth, but it’s going to be predominantly a function of two things: wages not keeping up affordability and mortgage rates rising,” Gardner warns.

In previous conversations with RISMedia, Gardner said he expected 30-year fixed mortgage rates to approach but not break 4% next year. While he maintains those predictions, he notes that it will still be up by an entire percentage point from the lows in 2021, which will squeeze more buyers out of the market.

Another factor likely to add to the cooldown in price gains is the addition of new supply. Cororaton suggests that new construction is poised to improve next year.

Despite expected improvements in new construction, Cororaton says there is still a long way to go before the industry makes a substantial dent in the market’s 5.8 million housing unit needs.

“We’re just estimating an increase of 100,000 housing starts right now, so supply will continue to remain tight as it has been since 2012,” she says.

Brokers and industry leaders say they are keeping a close eye on how many homes come on the market next year, especially as seller confidence picks up under continued progress in vaccinations.

“There are likely many that sat on the sidelines in 2021 because of the pandemic,” says Sherry Chris, president and CEO of Realogy Expansion Brands.

Chris suggests that the increase in supply and rising mortgage rates could influence the number of potential buyers. “Should this occur, we might see a decrease in multiple-bid offers, and prices might stabilize,” says Chris.

Another factor that could inject additional homes into the market is increasing foreclosure activity, says Ashley Bowers, president of HomeSmart International.

“If we start to see more foreclosures, I think it will slow down the price increase and probably shake up affordability too for people who want to do more of the fixer-uppers,” Bowers says.

The market hasn’t had to wait long to see foreclosure activity pick up since the moratorium lifted in July 2021.

While experts and brokers have been unconvinced that the market will see a deluge of foreclosed homes on the market, Bowers notes that a sizable increase could slow price gains a bit further.

“We’ve seen a little bit of an increase already, but I think it depends quite honestly on the administration and what happens with decisions that they are making as it relates to moratoriums and things like that,” she says.

Christina Pappas, VP of the Keyes Company, thinks brokers and agents looking to meet the coming market conditions head-on should prioritize their client-facing messaging regarding home-buying and affordability challenges.

“The misconception of the expensiveness of the down payment is one of those topics where we think about how we help our agents become valuable to the consumers,” Pappas says.

She adds that the value will come from agents showing deep knowledge and understanding of the programs offered in their neighborhood and what is affordable.

“The other catch when you look at affordability is that many people look at prices, and those are great headlines, but what matters is my monthly payment, and that’s the story that we need to talk about,” Pappas continues.

Despite the current trajectory of mortgage rates, they are still relatively low when compared with pre-pandemic levels. Pappas indicates that millennials and first-time homebuyers will still try to take advantage of the lower rates next year.

Jordan Grice is RISMedia’s associate online editor. Email him your real estate news ideas to jgrice@rismedia.com.