With the Federal Reserve anticipated to take more aggressive steps to fight inflation, interest rates rose further in the past week and hit the highest level since late 2018. Despite the increase, the California housing market has remained solid so far this year, and there are signs that point to a decent homebuying season in the upcoming months. The supply situation, for example, should improve in the near term as many potential sellers indicated that they will put their properties up on the market in the next six months. Home prices, meanwhile, are also expected to rise but at a more moderate pace than earlier this year. For the economy, there are increasing concerns that the central bank’s balancing act will trigger a recession in 2023. It is, however, still too early to tell whether the Fed’s move will lead to an economic soft landing or a downturn.
Mortgage Rates Continue to Rise: Mortgage rates continue to climb as the market expects the Feds to be aggressive in raising rates in the coming months to combat inflation. The average 30-year fixed-rate mortgage inched up to 4.72% last week from 4.67% in the prior week, reaching the highest level since December 2018. With unemployment rate near a record low and the supply constraint in raw materials continue to put upward pressure on prices, the Federal Reserve is expected to deliver two back-to-back half point interest rate hikes in May and June, which will keep rates elevated in the foreseeable future.
Potential Sellers Expect to List by Summer’s End: Over two-thirds of homeowners who plan to sell in 2022 expect to list in the next six months or by August, according to a new Realtor.com® survey. In fact, nearly half (45.4%) of them plan to put their house up on the market within the next three months. As such, the housing market will hopefully see an increase in the number of for-sale properties as it moves through spring and into summer. With the market remaining competitive though, four out of ten (42%) homeowners who plan to sell this year said that they will ask for more than they think their house is worth. Over a quarter of them (28%) do not plan to pay for repairs or improvements that may come up during the inspection process, and nearly one-fifth of them (19%) will not accept some contingencies.
Short-Term Inflation Expectations Increase, along with Home Price Growth Expectations: Consumers fears over inflation reached a record high in March, with the median one-year-ahead inflation expectations hitting a new series high of 6.6% in the latest New York Fed’s survey, an increase from 6.0% in February. Consumers saw the fastest price increases coming from rent (10.2%), medical care (9.6%), gas prices (9.6%), and food (9.6%). Home prices were also expected to grow faster, with the median year-over-year growth expectation reaching 6.0% from 5.7% in the prior month. The measure remains well above the pre-pandemic level of 3.0% in February 2020.
Rising Inflation Forces Many to Exit Retirement: Rising inflation – and wages – prompted many older workers to exit retirement and reenter the labor market. The share of people aged over 55 either working or active looking for a job increased to 38.9% in March from 38.4% in October, according to the Department of Labor. Over 480,000 people in that age group entered the work force during that six-month period, much higher than the 180,000 who entered the labor force in a similar time frame before the pandemic hit. COVID-19 vaccinations, reopenings of schools and day-care centers, and an end to pandemic-era government financial assistance are factors that motivated more people to go back to work. The rise in prices, however, is another key reason for older people to either postpone retirement or reverse it. With the low-interest rate and low inflation environment suddenly disappearing, many older workers are reassessing their options and decide to put off their retirement plan for a little longer.
Recession Risk is Rising: The risk of recession is growing as the Fed lifts rates to address inflation. According to a survey conducted by the Wall Street Journal this month, economists on average put the probability of the economy being in recession in the next 12 months at 28%, a jump from 18% in January and more than doubled the 13% a year ago. The latest assessment is lower than the recession probability at the last expansion’s peak of 34.8% in September 2019.
If you're ready to discuss today's market and whether now is a good time for you to buy or sell, give me a call at (562) 900-9430.
