family mortgage blog - July 2022

Recession Coming? What Does It All Mean For Housing…?

You can’t pick up any article or watch anything on TV related to the economy today, without hearing the word recession. The National Bureau of Economic Research determines when a recession starts and ends. Typically, they define this as two consecutive quarters of negative gross domestic product (GDP). But there are other factors involved including unemployment rates, etc.… I have been in this business since 1999 and have lived through three recessions, 2001, 2008-2009 and 2020 (COVID). In 2001 it lasted for 8 months, the 2008-2009 recession was the longest since the Great Depression, weighing in at 18 months in length. The 2020 COVID related downturn, clocked in at the shortest duration of all, 2 months. Before COVID hit, we had the longest running expansion in our economy since 1907, 11 years. There were many leading indicators pointing to a recession before COVID even hit. Two of those leading indicators are unemployment and an inversion of the yield curve. One of the first signs you are heading towards a recession is that unemployment claims and then the unemployment rate will start to increase. These have just recently started to increase in the last month or so. The yield curve has inverted, this is where the two-year treasury yield is higher than the 10-year. This certainly is not an exact science and much of the government stimulus and supply chain issues have certainly made this harder to predict. All that said, is becoming much more difficult to see how the Federal Reserve keeps the economy out of a recession. They completely got the inflation bogeyman wrong and now have to raise rates very rapidly to try to squash inflationary pressures. The speed and velocity in which they are doing this almost ensures we will end up with negative growth for a period of time. If this turns out to be true, how this plays out with its impact on the housing market and residential mortgage rates can be forecast as follows: The Fed has alluded to significant interest-rate hikes in both July and/or September meetings. We will not see meaningful declines in inflation rates until the fall, which means that residential mortgage rates most likely will stay elevated until that time. After that, there is a high likelihood that the Federal Reserve will slow down the pace of their increases, because it will become apparent that they have raised too aggressively. From there, a recession ensues in long-term residential mortgage rates will come down which we fully anticipate later this year and into next year. Now for the housing market. With housing values up dramatically over the past few years and mortgage rates going up significantly this year, there has been a slow-down in activity. This is showing up in an increase in supply which generally happens this time of year anyway but also in a slowdown in demand with many people opting to go to the sidelines hoping for housing values and mortgage rates to drop. While this is helped somewhat, we are still seeing multiple offers on most properties that are priced properly. We still see this is a unique opportunity for people that have been actively searching for some time to stay the course. You will have a much better chance of getting an offer accepted during the next 6 to 9 months in our opinion. Assuming a recession does happen, rates will start coming down again and the floodgates will open once again with all the folks that were on the sideline. There’s an old saying that you “Marry the House and Date the Rate”!! In other words, if you can secure the house that you want now, we can always refinance you later into a more favorable rate. We have a wonderful presentation we do for our prospective clients that educate you in much more detail about why the supply and demand dilemma is likely to continue for the foreseeable future. So, if you really do want to make a move, seize the opportunity!!

Don’t Wait to Downsize

We recently wrote an article about the importance of having a proper estate plan. We wanted to expand upon that to talk about the significant value in decluttering before it’s too late. If you are of retirement age or if you have family members in that is in that age group, this will be an important message. As many of you know if you have gone through a move recently, it is amazing how much “Stuff” we collect over time in every nook and cranny of our home. People always underestimate the amount of time, energy, and resources it takes to whittle down a lifetime of possessions. This is especially true if you have lived in your home for 10 to 15 years or longer. Life events happen that can cause a relocation event to occur much quicker than was desirable. When a move is imminent, it can be even more stressful. If people have made the decision to move on their own, it is a very different experience that if they don’t really want to move or feel like they’re being pushed. The key is to tackle this in bite-size pieces. One closet at a time for a set amount of time each day, for example. This allows you time to determine what you want to get rid of to charity or giveaway to various family members or friends. Many of these items have sentimental value which are really the memories that we cherish. Sometimes you find you have items that you can sell to help with a little extra money. You can also hire move managers to help relieve the stress of this task. On average they charge between $40 and $80 an hour. They can also refer you to other sources of help, such as photo organizers, estate sales and appraisers.

Interest Rate Update

Interest rates have been extremely volatile over the past several months but in general have been moving upward until just recently. We had a big spike in rates in early June when the May inflation numbers were released and came in higher than the expectations. The June numbers moderated somewhat, so we have seen rates down in the past week or so. The trajectory of rates will be wholly dependent on these inflation numbers in the Federal Reserve’s fight to contain it. The short-term challenge is that the July, August, and September 2021 inflation numbers had moderated somewhat. Because they measure year-over-year changes, we could see these numbers stay elevated until the fall. If this happens to be the case, you can expect residential mortgage rates to remain elevated until there are clear signs that 1) inflation is meaningfully declining or the Federal Reserve’s aggressive approach to raising rates throughout sent to a recession. Either way, we should see lower rates later in the fall and/or next year. In the meantime, Adjustable-Rate options have significantly better rates which may be a great short-term solution for those taking advantage of this slight shift in the housing market.

*Watch our latest Mortgage Tips Video – “Interest Rate Update – July 2022

Were Now Licensed in 4 States

If you or any Family or Friends are looking out of State at properties or to refinance, we are licensed in Georgia, Alabama, Florida, and South Carolina and soon to be Texas. If you are looking for someone in any other States, our company has great loan officers in every state in the nation that we know will treat you like our own that we can refer you too!