The 'Unnamed' Real Estate Newsletter
Market Insights for Real Estate Investors
Welcome to my so-far Unnamed Newsletter, August 16th edition, where I do a brief, hopefully insightful, dive into financial markets and/or real estate. And whatever else is bouncing around my noggin.
Today I want to talk about the resilient US Consumer, interest rates and…Divorce.
They Spendin’ They Spendin’
Last week we discussed consumer confidence, which was improving, and perceptions on the future, more optimistic. This week, the data again supports consumers feeling frogish. According to the Census Bureau, July retail sales were up .7%, nearly double expectations, to January levels, auto sales was a standout monthly laggard (-.4%), and, of note, “Personal Care” merchandise and “Food Services and Drinking Places” are now up 8.1% and 11.9%, respectively, year on year. Hopefully the former was not the result of the latter. 🤣
The NY Fed also released its consumer survey this week, showing consumer confidence is continuing its upward trend. Among the many reasons consumers have some pep in their step: expectations for inflation for gas, food, medical care, and rent, all fell to their lowest levels since 2021. Folks feel that they will be better off a year from now and workers are less concerned about getting fired.
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Mortgage Interest Rates: An Update
Current interest rates (as of last week) just topped 6.96%, within earshot of the November high of 7.08%.
And at today’s (8-16-23) meeting, the Federal Reserve made no commitment to when rates may be brought down; in fact, they implied that rates could be raised further due to a continued concern over elevated inflation.
Is the specter of longer term high mortgage rates starting to affect the amazingly stout homebuilders? Perhaps. Homebuilder confidence fell sharply in August, month-on-month, for the first time this year. The index landed right at 50, with below 50 indicating poor conditions. Stubborn construction and materials costs, a shortage of workers and of course mortgage rates were cited as the root causes.
But the concern has not yet hit their bottom line or stock. Homebuilder stock prices have been on an absolute tear. The ETF that tracks them is up a whopping 43% this year, and is remaining resilient.
Stay Together for the Mortgage?
Most folks (80%) with mortgages have a sub-5% interest rate. (and nearly 25% have a rate below 3%!), according to RedFin. With current rates at 7%, folks who have a cheap mortgage just ain’t moving. 25% of potential home sellers told Redfin that they would likely sell if rates were to drop to 5% or lower, and a sky-high 80% would likely sell if rates were back to 3% or below. Don’t hold your breath.
Speakign of passing out…Fun Fact… US divorce rates, for the first time in decades, were actually below 2.9% these last 3 years, even during the COVID home hostage experiment. The saying used to be, “stay together for the kids.” Now it may be: “stay together for the 3.2% mortgage.”
Bottom Line
The Consumer feels good, homebuilders are starting to get concerned and the Fed seems to be hyper-focused on inflation, inflation, inflation.
My Thoughts? I’m still uber-concerned about the economy over the next 12 months. Credit availability, interest rates for anything ‘big’ you need to buy, the interest on our Federal debt (more on that next week), gas prices at a 7 week high, home supplies at an all time low etc….. and…. anecdotally it always makes me worried when a President starts taking credit for the economy. Let’s hope Jerome Powell can help co-pilot this airline to the ground.
Count me still (Level 7 of 10) concerned.
P.S. Who gets the 2.8% mortgage in the divorce? 😬😬😬
That’s it for this week! If you are interested in digging deeper into these ideas or talkin’ real estate investing - which I always love doing - don’t hesitate to reach out! You can email me directly at Andreas.Mueller01@gmail.com
Until next time.
Herzliche Grüße
-Andreas
* The preceding has been my opinion only, the views are my own, and is intended for educational purposes only and does not constitute financial advice.