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Fed Finds Grim Outlook For Housing In Latest Beige Book

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The housing market remains in a weakened state as rising interest rates and rising inflation continue to batter the sector and dampen demand for homes across the country, according to the Federal Reserve’s latest Beige Book report.

Prospects for a turnaround are grim the report released Sept. 7 reads, with demand expected to soften even further over the next six to 12 months and with the latest data from Freddie Mac showing mortgage rates passing 6 percent for the first time since 2008.

“While the headline figure slowed from June’s high, core inflation remains stubbornly elevated, putting pressure on the Federal Reserve to maintain an aggressive stance on monetary tightening,” Realtor.com’s Chief Economist George Ratiu said in a statement.

The Federal Reserve is expected to hike rates again another .75 of a percentage point when it meets next week.

“The outlook for future economic growth remained generally weak with… expectations for future softening of demand over the next 6 to 12 months,” the report reads.

The report, based on interviews among such sources as bank directors, business and community organization leaders and economists, notes that the drop-off in housing demand has led to a drop-off in construction activity as builder sentiment sours.

“Construction activity weakened somewhat, as construction starts slipped,” the report reads. “Industry contacts characterized the general business climate as quite negative and worsening, and contacts are somewhat pessimistic about the near-term outlook.”

The report also notes the contrast between the residential sales and rental market — while sales have slipped over the summer rental prices have continued their upward trajectory.

“The home sales market has softened over the summer, while the rental market has continued to strengthen,” it reads. “Home prices appear to have leveled off across most of the region and the prevalence of bidding wars has receded noticeably. In contrast, residential rental markets strengthened further.”

The following are summaries based on reports on the housing market in each of the 12 districts covered by the Federal Reserve. The report is released eight times a year, with September’s report covering the period before Aug. 29.

Boston — High-interest rates have led to a cooling off of home sales, while home prices continue to increase. The year-over-year increase for single-family homes was smaller than the previous year; however, and contacts interviewed anticipate a leveling off of prices by Fall.

New York — While the home sale market has softened, the rental market has continued its unabated growth. In New York City, the availability of homes has edged slightly higher compared to the previous year but remains low overall.

Philadelphia — Contacts told the Federal Reserve that while contract signings for new homes have continued to fall, sales traffic has rebounded in recent weeks on the heels of new incentives and lower-priced options being introduced. Existing home sales continued to fall slightly; however, while prices continued to rise on a yearly basis.

 Cleveland — Demand for both homes and residential real estate remained much lower than levels seen earlier this year, according to the report. Contacts attributed the drop in demand to higher interest rates and high construction costs due to inflation.

Richmond — Richmond saw residential real estate activity decline moderately, according to the report. Sales volume was slightly lower and there was a slight reduction in buyer traffic. Demand remained strong, but some buyers found themselves suddenly unqualified to buy a house as elevated mortgage rates stretched their budgets to the breaking point.

Atlanta — The housing market remained challenged as mortgage originations and pending home sales both declined, while the share of homes on the market with a reduced asking price rose. Homebuyers reported an increase in contract cancellations as high mortgage rates priced more buyers out of the market.

Chicago — Both the construction and real estate activity declined modestly, with builders anticipating a continued decline in coming months. Contacts reported that the number of offers on homes had declined, and homes were taking longer to sell.

St. Louis — Contacts reported a significant decrease in demand since the Federal Reserve’s previous report. While St. Louis remains a seller’s market, it is no longer a “multiple offer” market. Prices remain elevated; though, and demand for rentals has continued to increase, especially in the single-family sector.

Minneapolis — Higher interest rates reportedly caused some builders and buyers to pause projects, while year-over-year sales declined between 10 and 30 percent in some sections.

Kansas City — Kansas City charted a rapid growth in sales prices, along with a large increase in rental prices. Housing affordability challenges grew slightly for both renters and owners in both rural and urban areas, particularly for low- and moderate-income households. Contacts pointed to an increase in investor activity resulting in increased prices in rentals, with some investors reportedly less willing to accept housing vouchers or negotiate rents.

Dallas —Home prices were flat to down in Dallas and incentives became more widespread, according to the report. Sales were off in July but rebounded slightly in August due to a small retreat in mortgage rates. An insufficient stock of affordable housing combined with rent hikes and diminishing federal assistance has made housing security a chief cost among lower-income residents, with evictions and first-time homelessness both increasing.

San Francisco — While high mortgage rates cooled demand for existing and new single-family homes, demand remained strong for multifamily housing units and rental prices continued to grow, with a Northern California banker reporting an increase in financing requests for multifamily housing projects. Homebuilder confidence continued to decline; however, while the sector remains held up by supply constraints.

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