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‘Shark Tank’ Star And Real Estate Expert Barbara Corcoran Discusses When Housing Prices Will Increase 

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Barbara Corcoran is one of America’s largest public figures in the realms of commerce, finance and real estate. In a recent interview, she discussed when she believes the housing market will see another dramatic shift of increased home pricing.

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Central Bankers Around The World Claim The Fight Against Inflation Will Continue To Get Worse

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Central bankers from all over the world are claiming that the fight against high inflation rates will only continue to get more “serious and painful” if certain rates remain how they are currently.

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Mortgage Rates Hit a 20-Year High of 6.92%

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According to Freddie Mac, mortgage rates reached a 20-year high last week due to rising interest rates, now at a whopping 6.92%. The Federal Reserve is continuing its aggressive monetary policy to squash surging inflation, sending shockwaves throughout the housing market.

The federal funds rate is projected to reach 4.4% by the end of 2022. Russia’s invasion of Ukraine, supply chain issues and record low interest rates during the pandemic led to unprecedented inflation, prompting the Fed’s policy initiative.

While the Fed continues to wrangle with inflation, the housing market is especially feeling the pinch of higher interest rates. The S&P 500 and the New York Stock Exchange also fell 20% from this time last year as a result of these rate hikes. The declines have continued for several weeks.

Despite the Fed’s efforts, the consumer price index has not significantly budged. The index rose to 8.2% in September, far from the Fed’s eventual target of 2%.

For the last 15 years, mortgage rates in the U.S. have been relatively low. Thirty-year fixed mortgage rates were notably low during the previous two years, hovering between 2.5% and 3.5% between 2020 and early 2022.

However, mortgage rates spiked in recent weeks. As of Oct. 13, the thirty-year mortgage rate is at a two-decade high of 6.92%. The fifteen-year rate is at 6.09%.

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Freddie Mac’s chief economist Sam Khater released a statement regarding the rates.

“Rates resumed their record-setting climb this week, with the 30-year fixed-rate mortgage reaching its highest level since April 2002. We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously. The next several months will undoubtedly be important for the economy and the housing market.”

The Fed has been clear about its plan to continue increasing the federal funds rate until prices begin to level out. Mortgage rates tend to rise alongside the federal funds rate.

In September, the chairman of the Fed, Jerome Powell, said there is no way to avoid the rising unemployment and slowing growth that will follow the Fed’s current monetary policy. The consequences of out-of-control interest rates may be even more disastrous for the economy than necessary rising interest rates. The Fed estimates unemployment will climb to 4.4% in 2023 and 2024, up from the current rate of 3.5%.

“We have to get inflation behind us. I wish there were a painless way to do that. There isn’t.”

Some experts are taken aback by how quickly mortgage rates are rising. Economist Matthew Speakman from Zillow told ABC News that “few could have predicted exactly how far and how fast they have risen.”

“There’s not a lot of incentive for rates to come down dramatically in the near-term, but that doesn’t necessarily mean they’re going to keep running away at this pace.”

The relationship between homebuyer behavior and rising mortgage rates is complicated. In general, higher mortgage rates reduce demand, which drives down the prices of homes. Real estate prices are falling, but not as rapidly as expected, in the face of the skyrocketing mortgage rates.

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Daryl Fairweather, an economist at Redfin, spoke on the complexity of the current housing market.

“It’s like a standoff between buyers and sellers. Buyers can’t afford higher prices, and sellers don’t want to sell for lower prices.”

Recession worries, rising inflation and high-interest rates have made things appear bleak, but many experts believe mortgage rates will not continue to skyrocket. Lawrence Yun, the chief economist at the National Association of Realtors, predicts that rates will hover around the resistance point of 7%.

“We don’t want to see a bursting out of that second resistance and going up, because you’re talking about 8.5% mortgage rates, something that we clearly do not want to see. The 7% interest rate could be the new normal.”

In July, Yun released a statement predicting that higher mortgage rates will persist as long as the high inflation rate persists.

“If consumer price inflation continues to rise, then mortgage rates will move higher. Rates will stabilize only when signs of peak inflation appear. If inflation is contained, then mortgage rates may even decline somewhat.”

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US Home Prices Decline at Fastest Pace Since 2008 Financial Crisis

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We are in the middle of the most significant two-month drop in home prices since shortly after the collapse of the Lehman Brothers in September 2008. Prices have been declining at the fastest pace since the Great Recession, prompting some experts to believe we are entering a housing market correction.

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Dow Tumbles More Than 1200 Points After Inflation Data

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US stocks plummeted Tuesday after the latest Consumer Price Index report showed inflation rates are still at a 40-year high. The Dow fell more than 1200 points on its worst day since June 2020.

The report revealed that monthly consumer prices rose more than expected in August. History shows that low unemployment and rising inflation often precede a recession. High inflation rates erode consumer purchasing power. They also decrease companies’ profits due to rising material costs, causing stocks to fall and economic activity to slow down.

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Matt Peron, director of research at Janus Henderson Investors, agreed with most analysts that the Federal Reserve will likely increase the federal funds rate higher to cool off the market.

 “The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes.”

The Fed responds to rising inflation by increasing the federal funds rate. In the wake of the pandemic, the rate sat at near zero in an attempt to stimulate the economy. The Fed then hiked rates from a range of 0.25% to 0.50% in March 2022 to a range of 2.25% to 2.5% in July 2022. The rate of increase in borrowing costs was the fastest since the 1980s.

When the Fed raises the federal funds rate, the cost of credit throughout the economy increases and loans become more expensive for businesses and consumers, since interest payments are higher. At the same time, people with savings in banks earn more interest on their deposits. Together, this drops the amount of money in circulation, bringing down the inflation rate. However, if the Fed increases the federal funds rate too high, it may also trigger a recession by slowing economic activity too much.

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The Fed is expected to keep hiking the federal funds rate until a sustained drop in consumer price inflation. Investors hoped that the Fed would keep its interest rate increases at a slower speed, with analysts predicting a federal funds rate of 3.4% at the end of the year. Brian Jacobsen, a senior investment strategist at Allspring Global Investments, told Reuters his concerns.

“The big risk is that next week, the Fed tries to convince the markets that they’re not going to just try to go for 4% with the Fed funds rate, but that they could push it to something closer to four and a half percent.”

All three major US stock indexes — S&P 500, the Dow, and Nasdaq had their most significant one-day percentage drops in over two years. The CBOE volatility index, which measures the market’s expectations for volatility over the next 30 days, rose to 25.74 points.

The next Federal Reserve meeting is scheduled for Sept. 20.

 

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Home Sale Cancellations Seeing Highest Rates Since Start Of Pandemic

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According to a new report by real estate brokerage company Redfin, 60,000 agreed home purchases fell through nationwide in June, which is equal to 14.9% of total homes that went under contract in the month.

That number is the highest since the COVID-19 pandemic began in March and April of 2020, where 17.6% and 16.4% of houses under contract fell through, respectively.

This month’s rate rose from 12.7% in May and 11.2% in 2021. “The slowdown in housing-market competition is giving homebuyers room to negotiate, which is one reason more of them are backing out of deals,” Redfin deputy chief economist Taylor Marr explained.

“Buyers are increasingly keeping rather than waiving inspection and appraisal contingencies. That gives them the flexibility to call the deal off if issues arise during the homebuying process.”

Marr additionally noted that raised mortgage rates are playing a role in cancellations. “If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan,” he said.

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The Federal Reserve previously raised its benchmark interest rates to 0.75% on June 15 in an effort to lower the now-9.1% inflation rate. With a possible recession on the horizon, it clearly impacted buyers who found themselves on the cusp of securing a property.

“When mortgage rates shot up to almost 6% in June, we saw a number of buyers back out of deals,” Miami Redfin mortgage agent Lindsay Garcia recounted, saying some buyers could no longer get a loan due to the rate jumps. “Buyers are also more skittish than usual due to economic uncertainty.”

Among the markets that saw the highest percentage of pull-outs during a pending sale include Las Vegas (27.2%) and several Florida cities like Lakeland (26.7%), Cape Coral (25.7%), Port St. Lucie (25.7%), and Jacksonville (25.3%).

Unlike Southwest metro areas, the Northeast saw a minimal loss of sales with Newark, New Jersey, Rochester, New York, Nassau County, New York, and Montgomery County, Pennsylvania all at or below 6%.

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As Fox News notes, homebuilders are also experiencing cancellations. A survey conducted by John Burns Real Estate Consulting (JBREC) in June found that cancellation rates of new builds flew up to 14.5%. That’s up from 10.4% this past May and 6.5% in June of 2021. Total home sales also fell by 31%.

The increased mortgage rates have also seen the average amount of home purchase loans diminish. The week ending on July 8 saw total mortgage application volume hit 1.7%, while the loan size fell to $415,000. Mortgage applications to buy a home fell by 4%.

However, 30-year fixed mortgage rates finally saw a win by cooling off to 5.3%, which Redfin reports is the largest one-week drop since 2008. That should give potential buyers an opening to save before rates increase again.

Federal Reserve

Federal Reserve Raises Interest Rates By 0.5% In Largest Move Since 2000

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On Wednesday, the Federal Reserve raised short-term interest rates by 0.5% to 1.00%, marking the largest increase in over two decades as it attempts to fight the ever-increasing inflation that has continued to cause financial burdens for Americans.

Since 2000, the Fed has only raised interest rates in increments of 0.25%. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” the Fed said in a FOMC statement. “The Committee is highly attentive to inflation risks.”

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In March, inflation rates rose to 8.5%, up 0.6% from February’s 7.9% and 1.5% from December’s 7%. It’s now the highest inflation rate the country has seen since the 1980s, though forecasts project a downturn over the coming months. The increased interest rates will take time to lower the inflation, however.

The Fed explained it’s monitoring the situation of the 10-week-old Russian invasion of Ukraine — citing “tremendous human and economic hardship” — among other global issues that have essentially stalled production and sent the supply chain spiraling.

“The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”

As for what this all means for the average citizen, borrowing will become more expensive. Higher interests rates will occur for mortgages, student debt, car loans, credit cards, and business loans for both small and large companies.

Higher mortgage rates are a particularly hard pill to swallow for those in the already difficult-to-navigate real estate market, as home prices alone have shot up during the COVID-19 pandemic. In the first quarter of 2021, the average home sold for $507,800.

Currently, a 30-year fixed-rate mortgage rate sits at over 5%, up from 3.10% in early-December and 4.16% in mid-March. The Fed will now discuss increased interest rates between 0.75% to 1.00% in June and July, while some officials have advocated for raising rates to 2.5% by the end of 2022.

Following the Fed’s announcement, the Dow Jones Industrial Average spiked up 900 points to 34,064 before dropping 1,000 points Thursday morning, or 2.9%. The S&P 500 saw a 3.3% drop, while the Nasdaq Composite fell 4.6%. Similarly, Google’s parent company, Alphabet, had a 5.3% slide.

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Speaking Wednesday, Fed Chairman Jerome Powell attempted to relay that the bank understands the financial hardship Americans are going through, and explained the raising interests rates were done in order to relief that inflation tension. “Inflation is much too high, and we understand the hardship it is causing,” Powell said.

Powell also emphasized his belief that the economy can withstand the higher rates, with unemployment rates dropping by 0.2% from February to March and total job openings rate at 7.1%, a year-over-year increase of 1.6%. “Nothing about it says it’s close to or vulnerable to a recession,” he said.

President Joe Biden has previously supported the Fed’s monetary decisions. “The Federal Reserve provided extraordinary support during the crisis for the previous year and a half,” he said back in January. “Given the strength of our economy and pace of recent price increases, it’s appropriate — as Fed Chairman Powell has indicated — to recalibrate the support that is now necessary.”

The actions aren’t without concerns, however. As the Associated Press notes, many have criticized the Fed for taking too long to tackle inflation, leading to doubt from analysts that a recession can ultimately be avoided.

Real Estate Agent

What Real Estate Experts Are Predicting For The Rest Of 2020

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The coronavirus pandemic has obviously flipped a lot of businesses and industries on their heads this year. One of the biggest being the real estate market in America. At the end of every year real estate experts take to MarketWatch and other reputable platforms to tell clients and investors their predictions for the new year in regards to mortgage and real estate trends in general. It’s safe to say that the predictions made at the end of 2019 likely didn’t hold up, but that doesn’t necessarily mean all the current trends are bad.

One of the biggest predictions was that mortgage rates would stable out and remain relatively the same throughout the country. Instead, once Covid-19 began infecting Americans in February, sellers began pulling their property listings and buyers began pulling out due to fears of infection. This led to a decrease in the average mortgage rates in the country, dropping nearly a whole percent when compared to last year. As of right now, real estate experts expect that percentage to continue to drop as time and the pandemic progresses.

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One prediction that is proving to be true is the low inventory rates of homes to purchase in America. 2019 already saw a decrease in the amount of properties available for sale when compared to 2018, hence the prediction that this pattern would continue. As previously mentioned, many buyers and sellers have pulled out of potential listings due to health concerns; as a lot of real estate interactions need to happen in person. While it’s predicted that this pattern will continue, social distancing measures, facial coverings, and new technology that allows prospective buyers to take virtual tours of potential properties is keeping the industry alive.

Agents also predicted that a lack of affordability in properties would cause a lot of sellers to turn away from certain deals. This prediction is also proving to be true as home prices are currently increasing at a faster rate than there are buyers in the market. Again, the lack of buyers is mainly due to the pandemic, however, the prediction that this would occur shows that the industry is already in a tough spot when it comes to pricing. Lawrence Yun is a chief economist who recently spoke with MarketWatch about how he predicts this trend to turn around by the end of the pandemic.

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“Home sales should pick up with the economy reopening. But, new home construction needs to robustly ramp up in order to meet rising housing demand. Otherwise, home prices will rise too fast and hinder first-time buyers, even at a time of record-low mortgage rates.”

Another prediction that unsurprisingly came true was an increase in 3D/virtual home tours. Even before the pandemic became a reality, agents were predicting back in 2019 that virtual property tours and real estate deals would become more popular this year. Initially, they based this prediction on out-of-state/country buyers who were making large moves to new places but didn’t want to wait to start viewing properties. It’s predicted that this new technology will only grow to be more popular as the pandemic continues, but also after it ends.

It’s likely that once the coronavirus is no longer an issue, many industries will continue out implementing the health and safety procedures they were forced into to curve the spread due to how safe it makes everyone feel in general. The real estate industry specifically has had to deal with many national, and international, emergencies that have hindered sales and business, so when it comes to recovery, like all industries, it’s going to take time.