Weekly Summary: Housing Market Transformation as Mortgage Rates Rise


housing market rollers

Over the past couple of years, the story of the housing markets has been filled with conditions like low supply/stock, high demand, skyrocketing prices, all-cash deals and bid wars. However, a new story is being written.

The housing market has shifted more than once. It has rotated on its axis. Here are the reasons:

  • New home sales It fell 16.6 percent in the March-April period, the US Census Bureau found.
  • About 19 percent Sellers lower their prices During the four weeks ending May 22, according to Redfin.
  • Pending home sales It fell 3.9 percent in April, according to the National Association of Realtors (NAR) reports.
  • The number of new homes on the market 8 percent increased Over the past year, according to Realtor.com.

Mortgage rates rise

Many in the real estate sector attribute the change in the housing market to higher interest rates.

The 30-year mortgage rate is steadily rising. In this writing, it is 5.39 percent. That represents an increase of about 1% since February. In addition, the Fed has indicated that it will continue to raise interest rates. This usually leads to higher mortgage rates.

Higher rates mean lower orders. According to mortgage applications last week decreased by 2.3 percent Moody’s Mortgage Applications Survey. This came after a 1.2 percent decline in the previous week.

More homes for sale

Realtor.com reports that a file Inventory of homes for sale Last month, an eight percent increase from last year. This is the first time that the supply of homes for sale has increased year-on-year since June 2019.

Even with the increased supply, the number of unsold homes fell 3.9 percent. However, this is a significant change from the 10.1 percent of unsold homes in the previous month. These numbers include listings and listings that are active in the selling process.

price drop

“The picture of the housing market downturn is becoming more and more clear, especially for home sellers who are increasingly heading towards lower prices as buyers become more cost-conscious with higher mortgage rates,” says Daryl Fairweather, chief economist at Redfin.

About one in five sellers had a sales price drop during the four weeks ending May 22, according to a Redfin report. This is the highest level since October 2019.

The same Redfin report shows that pre-sale activities have leveled off. They include the home’s time on the market, the share of homes pending for sale within one week, and the share of homes sold above the list price.

sales decline

Home sales fell as a result of higher mortgage rates and lower demand.

New home sales fell 16.6 percent in April compared to March, according to the US Census Bureau.

Additionally, pending home sales fell 3.9 percent.

“Pending contracts are significant, as they better reflect the time effect of higher mortgage rates than closings,” says Lawrence Yun, NAR’s chief economist. “The latest contract signings indicate six consecutive months of decline and are the slowest pace in nearly a decade.”

conclusion

High mortgage rates are putting pressure on buyers and sellers alike. As a result, fewer homes are being put on the market and fewer buyers can afford to purchase them. However, those buyers who can make a purchase face less competition and may be able to negotiate a lower selling price.

Look for more of the same over the rest of the year as the Fed rate hike pushes mortgage rates higher.

If you’ve been waiting for inflation to peak – you may have missed it

You may not see it at the gas pump or the grocery store yet, but signs are emerging that inflation has peaked and what is expected to be a long slow decline is beginning.

It is possible that you do not track international shipping rates. However, if you did, you would see the main cause of inflation regressing. The rate for shipping a 40-foot shipping container has fallen from $10,000 in March to less than $8,000 this month, according to Baltic Fritos Index. This indicator tracks shipping rates around the world.

High freight rates usually drive inflation higher because they affect the cost of almost all goods.

Inflation is slowing down

The Consumer Price Index (CPI) is often quoted as a measure of inflation. However, the Federal Reserve is watching a different indicator. The Price Index for Personal Consumer Expenditure (PCE) is the Federal Reserve’s preferred inflation measure. PCE is more comprehensive than CPI, in part because it reflects changes in consumer spending such as a shift to cheaper products.

Personal consumption expenditures rose 6.3 percent year on year in April, according to the US Department of Commerce. This is down from a 6.6 percent increase in March, according to Economic Bureau Analytics. This was the first drop in a year and a half. In addition, the CPI declined from a 40-year high of 8.5% in March to 8.3% in April.

Consumer spending holds stagnation in the Gulf

Consumer spending has been an important factor in resisting inflation and the possibility of recession.

For the fourth consecutive month, consumer spending has outpaced the monthly inflation rate, according to the report. In April, that spending rose 0.9 percent.

Savings dip

One downside to consumers’ constant spending is that personal savings are declining.

Personal savings fell to 4.4 percent, according to the report. This is the lowest rate since 2008. Yet, Americans hoarded $2.5 billion in savings during the pandemic. This strong rate of spending can continue for some time.

back to earth

Have you ever dreamed of owning your own farm – grow what you eat and escape from the hectic city life? Wake up, you probably can’t do that. However, an increasing number of city dwellers are buying farmland and you can too.

The United States Department of Agriculture (USDA) found that 39 percent Of the 911 million acres of farmland in the lower 48 states owned by non-leasehold investors. Of that, tenant farmers work 50 percent of the agricultural land.

There is a growing trend in investing in agricultural land. Bill Gates and Warren Buffett have been buying thousands of acres for several years. However, you don’t have to be an Uber billionaire to buy farm real estate.

People of moderate resources were able to invest as little as $36 in a REIT (Real Estate Investment Trust) farm estate. Other investors are buying land through crowdsourcing

One company that buys land for investment is Gladstone Land Company Headquartered in McLean, Virginia. Gladstone reported that, as of May 10, it owned 164 farms in 15 states for a total of 113,000 acres.

How it works

The concept of investment is called the triple lease. Your money is used to buy farms. The land is then leased to the farmer. In turn, the farm continues to work the land.

The farmer benefits from having cash now for the land while being able to continue farming and maintain the home.

For investors, agricultural land can generate rental income, but the biggest payoff lies in the appreciation of the land. As land prices rise, the value of the REIT increases. Since most REITs are liquid, you can trade stocks on the stock exchange.

yields

AcreTrader is a crowdfunding platform for farmland investment based in Arkansas. pointing to NCREIF numbers which shows an 11 percent return on agricultural land over the past 25 years

In fact, land has long been seen as a hedge against inflation and economic volatility. However, like all investments, there are risks.

Risks

Part of the revenue from farming is the sale of crops. To get the best yield, the crops should be sold at the right time. It can be hit or miss.

The biggest challenge in bringing cash crops is the weather. A farmer can work hard and do everything right but the weather can kill the crop. Too much rain at one point or too little at another could be disastrous. Wildfires and hurricanes can also destroy crops.

Interest rates can also hurt farm yields. Land prices tend to rise with inflation. However, the cost of supplies, such as seeds, fertilizer, and farm equipment are all subject to the risk of inflation.

conclusion

The passwords for investing in farmland are the same as for any investment – know what you’re getting into. This means knowing the risks, what drives a return, and how to get out when you want to.

Read more:

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