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They’re Giving Out $100,000, But There’s Nothing to Buy.

Whoops, inflation may not be transitory.  While that might not seem like earth-shaking news to you; it is a market mover when uttered by the lips of our newly re-nominated Fed Chair Jerome Powell.  He closed down November admitting the Federal Reserve cannot be sure that price increases will slow in the second half of 2022 as originally expected.  This epiphany was relayed as the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflationary measure, hit 5%.  The highest it’s been since December 1990.  The Consumer Price Index came out earlier in the month also hitting its three decade high of 6.2%. Surprise. Inflation looks to be staying around for a bit longer than expected and will not go away quickly.

The supply chain constraints we are facing as 2021 comes to a close were brought on by a complicated series of events and political decisions, which understandably cannot be reversed by the simple act of “people returning to work”. ADP numbers for November show continued strong jobs numbers with 534,000 new jobs created last month. 19.6 million people lost their jobs between March and April 2020.  To date 15 million have returned to work; that leaves a 4.6 million gap. 2 million are still on unemployment claims, 3.5 million age 55 and over retired. Increased savings and investment returns and caring for family and children will delay others from returning to work.  There are still 10.4 million job openings.  No wonder Quits are at an all-time high, while unemployment is still 4.6% nationwide and 5.4% in Colorado. These high quits and job openings are putting pressure on wages with private sector wages up 11% year over year this last month.  Wage pressure inflation does not just go away, because fundamentally people will not just give back their raises.  The silver lining in our current workforce deficiencies is that the U.S. is now 50.7% millennials and younger. So the secret… hire more young people!

Lack of labor has a ripple effect on everything from products on the shelves to the cars we drive to the homes we buy.  It’s this inability to manufacture, load, ship, truck, distribute, stock, and sell that will continue to put pressure on the price of everything for years to come, including the houses you and I help our clients buy so they can build their financial future.  For the Fed to think it would have been solved by the second half of next year was a bit rosy.  

So, What Does This Mean for Housing?

Prices of homes will continue to increase, interest rates will go up, supply will remain challenged and demand.. well.. that pesky demand keeps beating it’s drum, putting pressure on everything.  Wage increases, job opportunities, investment profits, equity gains and demographics will have the real estate market hopping for the foreseeable future.  Demand as seen through pending home sales was up 3.27% from last year, but down 16.65% from October as 1,577 less new listings made it to market this month, ending the month with just 2,248 homes for sale.  1,444 detached and 804 attached.  There are over 3.3 million people living in DMAR’s 11 county area, shacking up in 1.4 million housing units.  There are 2,248 homes for sale.  Think the price of homes are coming down anytime soon?  Nope.  The detached median home sold for $600,000 that ties the highest number on record.  The attached median home sold for a record breaking $390,000.

Meanwhile 2022 will mark a rise in interest rates.  In Powell’s November 30th remarks regarding the unexpected non-transitory persistence of inflation; he also hinted at speeding up the current Fed taper of mortgage backed securities and treasuries.  This means the sooner the taper is complete, the sooner the Fed can start raising the Fed Rate.  Remember.. this is not exactly tied to mortgage rates, but impacts the market just the same.  HELOC rates are directly tied to the Fed Rate as they are short term, as are car, personal loans and credit cards.  Inflation is the arch enemy of bonds, and has now become the Fed’s number one priority.  Raising rates is how you fight inflation.  Freddie Mac puts out a weekly report on rates and at the end of November, the 30 year fixed was .38% higher than one year ago.  As home prices continue to increase, so will the cost of financing them.

Who Will Be Hurt the Most?

First time home buyers will take the majority of the brunt.  The rate of appreciation will slow down, it already has from Denver’s high of 21.5% year over year per CoreLogic.  However, it won’t drop significantly while inventory remains tight.  As reflected this month, the median year over year prices popped up to 16.77%.  A jump from October’s 13% when there were 1,100 more homes for sale.  Year to Date, 2021 is getting close to over with median home prices up 16.67%.  First time home buyers will have to stretch themselves as the majority of detached homes for sale were over $500,000.  In fact, 609 of them were between $500,000 and $750,000; 633 over $750,000.  Only 202 homes were available for sale under $500,000.  Good thing FHFA just gave homebuyers a little more wiggle room on conforming loans.

The $98,950 Gift

FHFA just announced their 2022 new loan limits raising the nationwide conforming loan limit 18% from $548,250 to $647,200.  That’s a $98,950 increase.  Denver Metro high balance home seekers have the added cushion of $684,250, a jump up from $596,850. $684,250 loan limit allows a purchase price of $720,263 with as little as 5% down.  This is good timing considering 60% of the homes sold and 72% of the active listings were over $500,000.

FHA is also primed to increase loan limits and lower their mortgage insurance rates.  We are still waiting for announcements; but the current FHA federal reserve account is four times what it is mandated to be; forcing HUDs hand to reduce the cost of FHA financing.  When 86% of all FHA financed purchases are first time home buyers; it couldn’t be better timing.

But with little to buy and even more competition coming after the holidays, home buyers wanting to spend their $98,950 gift card are instead finding there’s nothing to buy.

That’s a wrap for this month’s Market Trends update.

It’s my pleasure to keep you updated,

Nicole Rueth
Producing Branch Manager with The Rueth Team of Fairway Mortgage

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