Recession? There will continue to be a lot of media commenting on a recession as the Bureau of Economic Analysis (BEA) released their advance estimate of -0.9% GDP for Q2. Remember that Real Estate is an excellent hedge against recessionary periods (with the notable exception of the ’08 recession) and mortgage rates drop during recessions. This could create refinance opportunity and help with housing affordability.
Mortgage Rates Improved this week as the price of Mortgage Backed Securities increased nicely after the Fed hiked their rate by 0.75% on Wednesday and the first look of GDP for Q2 was negative. Rates are up approximately 2.5% from this time last year.
Inflation – the Fed’s favorite Index for inflation, the PCE, increased by 1% in June. The year over year increase is up 0.5% to 6.8%. The Core rate – which strips out food and energy – is up 4.8% year over year.
Rents – Apartment List reported a 1.1% increase in rents during July. Rents are up 12.3% year over year. While the pace of increase in rents has slowed from last year it is still extremely hot.
GDP – the Bureau of Economic Analysis (BEA) released it’s Advance estimate of GDP for Q2 showing a 0.9% retraction. During Q1 the economy retracted 1.6%. The Wallstreet definition of a recession is two consecutive quarters of negative GDP. The BEA won’t release their final numbers until late September but it’s looking like we will be in that territory. Remember that the National Bureau of Economic Research has a different definition for recession: “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” They treat the three criteria – depth, diffusion, and duration somewhat equally, so even though the 2020 recession was really short it impacted most sectors of the economy and had an extremely significant impact.
Home Values – increased 1.5% during May and are up 19.7% year over year. This is down slightly from last month’s report of 20.6% appreciation but is still ridiculously hot.
Fed – on Wednesday the Fed increased their Fed Funds rate 0.75% to a range of 2.25% to 2.5% in an effort to slow down inflation. As a reminder the Fed funds rate is the overnight rate that commercial banks lend each other money at. This rate impacts HELOCs, Autoloans, Credit Cards, and other short term loans. Fed Chair Powell also noted that it will be appropriate to slow the pace of rate increases as the impact on the economy and inflation is observed.
Mortgage Applications to purchase homes declined by 1% last week and are now down 18% year over year. Refinances declined another 4% last week down 83% year over year.