Maximize returns.

Get Started For Free

Good news soft landing, bad news housing

Good news soft landing, bad news housing
by Brad Cartier, posted in Newsletter

Fannie Mae reported economic data last week suggesting we may be in for a soft landing. 

Adjusted for inflation, GDP growth increased by 2.4% in Q2 2023, an acceleration of four-tenths from Q1. Further, personal consumption expenditures (PCE) grew 1.6%, and business fixed investment jumped 7.7%.

Economy is improving

Source: Fannie Mae (July 2023)

“Large improvements in consumer confidence and slightly weaker-than-expected inventory building, when combined with stronger sales, also point to an upgrade to Q3 growth. The details of the GDP report have increased the likelihood of a “soft landing,” though we continue to believe there are multiple headwinds facing the economy that will likely act to slow growth through the second half of the year.”

Ruth Simon and Sarah Chaney Cambon of the Wall Street Journal report on the soft landing discussion, noting that the economy appears to be cooling, albeit averting a long-awaited recession. Data shows that economic output accelerated in recent months, inflation cooled to 3% in June, and wage growth slowed, all signs of a softer landing. 

According to Dylan Scott of Vox, the economy looks good, and decreased inflation without a recession indicates we are entering a soft economic landing. “All of its structural inequities largely persist, of course, but wages are strong, unemployment is low, and the economy is still growing.” As such, the Federal Reserve no longer projects a recession in the near term.

Connie Kim of Housing Wire reports on the soft landing, noting that although the Fed doesn’t expect a hard economic landing in the form of a recession, we will see tough times ahead for housing. “Housing activity, however, will be limited as the impact of tighter policy continues to reverberate through the economy, housing experts and economists projected following the Fed’s decision to raise interest rates by 25 basis points on Wednesday.”

White House announcements

Last week, the White House released a statement titled Biden-⁠Harris Administration Announces Actions to Lower Housing Costs and Boost Supply. In it, they detail initiatives to lower housing costs. The plan seeks to tackle “challenges that have stifled affordable housing for decades, as well as seizing immediate opportunities.” Here are some of the key points the new plan aims to address:

  • Reducing barriers to build housing like restrictive and costly land use and zoning rules;
  • Expanding financing for affordable, energy efficient and resilient housing; and
  • Promoting commercial-to-residential conversion opportunities, particularly for affordable and zero emissions housing.

Chris Clow of Housing Wire reports on this announcement, highlighting that the White House aims to improve interagency cooperation on the above matters, including allowing greater flexibility for lenders when underwriting multifamily properties, allowing more accessory dwelling units (ADUs), and facilitating more commercial-to-residential conversions.

The White House at the same time also released FACT SHEET: Biden-⁠Harris Administration Takes Action to Protect Renters. This proposal aims to achieve three outcomes:

  • Ensuring all renters have an opportunity to address incorrect tenant screening reports;
  • Providing new funding to support tenant organizing efforts; and
  • Ensuring that renters are given fair notice in advance of eviction.

In conjunction with the first announcement, the White House notes that “many of the systemic inequities in rental markets that existed prior to the pandemic persist today and are compounded by our nation’s housing affordability challenges. That is why the Biden-Harris Administration has taken bold action to address issues of housing supply and lower costs through its Housing Supply Action Plan, including actions also announced today, and is announcing new actions on renters protections here.”

Doug Cunningham of Yahoo! News reports that the above renter projection announcement comes with it private-sector partnerships with companies like Zillow, who have agreed to “launch the ability for users to search for affordable rental units that qualify for programs like Housing Choice Vouchers and income-restricted affordable housing.”

Bank loans

According to Courtenay Brown of Axios, the Federal Reserve reported in a survey that the share of America’s banks that said they’re making it harder for consumers and companies to get a loan is increasing. Over the last three months, 50% of banks said they had tightened lending standards for all businesses. Further, consumer credit loans are also being tightened, with a higher net share of banks increasing standards for credit card loans (36%).

Banks tightening lending standards

Source: Axios (July 2023)

The survey results show businesses have a higher bar to clear to get a loan to buy equipment or hire more workers than they’ve had in years. For everyday Americans, it could be more difficult to get a loan to buy goods — with ripple effects for companies that sell them.

Connie Kim of Housing Wire reports on the Fed survey, revealing that 33.3% of banks experienced decreased demand for Home Equity Lines of Credit (HELOCs). Furthermore, over 40% of all U.S. banks reported weaker demand for Real Estate-Related (RRE) loans, excluding subprime mortgage loans. Regarding subprime mortgage loans, around 36% of banks observed a moderate decrease in demand.

This comes amidst an increase in home-selling intentions among consumers, according to Treva Tam of Zillow. In June of 2023, their survey revealed that 23% of homeowners plan to sell their homes within the next three years or are currently listing them for sale. This percentage has increased from 19% in the first quarter of the year and 15% compared to the previous year. Among those homeowners, four out of every ten individuals stated that they are considering selling their homes within the next year.

Owners considering selling

Source: Zillow (July 2023)

“Homeowners with a mortgage rate above 5% are nearly twice as likely to say that they plan to sell their home than those paying a rate below 5%. About 90% of mortgage holders surveyed reported having a rate below 6%, while almost a third reported a rate less than 3%.”

Finally, according to the Mortgage Bankers Association (MBA), mortgage payments flatlined in June 2023, highlighting a possible deceleration of debt payment growth due to rising interest rates. The median mortgage payment sat at $2,162 in June, down from $2,165 the previous month. This is up $269 year-over-year, a 14.2% increase. Edward Seiler, MBA’s Associate VP of Housing Economics comments:

“Homebuyer affordability is still strained this summer, with mortgage rates remaining high and volatile, and home prices high because of low inventory…The median purchase application amount fell from $330,000 to $326,000 in June, which is one positive sign that home prices are stabilizing. An ongoing combination of flattening home prices and lower rates would offer reprieve for households who are looking to buy a home.”

Find this content useful? Share it with your friends!