Jeff Cox of CNBC reported on the most recent November inflation data, highlighting that the consumer price index (CPI) increased only 0.1% in November and was up 3.1% year-over-year. Notably, a 2.3% decrease in energy prices helped lower inflation increases. 

Source: CNBC (December 2023)

For real estate specifically, Cox reports that “[s]helter prices, which make up about one-third of the CPI weighting, increased 0.4% on the month and were up 6.5% on a 12-month basis. However, the annual rate has showed a steady decline since peaking in early 2023. Lodging away from home fell 0.9%.”

Sarah Marx of HousingWire reports on the jobs data released last week showing that employers increased hiring, shaking investor confidence that the Federal Reserve may cut rates in the near future. November job gains grew quicker than expected, increasing by 199,000 jobs last month, up from 150,000 in October. 

The unemployment rate dropped to 3.7%, down from 3.9% in October, according to Callum Jones of The Guardian. Jones quotes Nancy Vanden Houten, lead economist at Oxford Economics, as stating: 

“Payroll gains were inflated by returning strikers in November, but the underlying pace of job growth has slowed in recent months…That’s encouraging for the Fed, which has likely ruled out further rate increases. However, the details in the rest of the report were robust enough in our view to keep rate cuts off the table for several more months.”

Nathaniel Drake of Fannie Mae comments on the economic data, highlighting that wage growth was hotter in November; other factors, such as job openings and quit rates, suggest an increasing normalization of labor market conditions. Further, the rapid rate decline has been beneficial for homebuyers; however, if the labor market continues to be stronger, the pace of rate declines will not continue and may reverse. 

Wall Street and SFRs

Democrats in both Congress and the Senate have introduced bills seeking to ban hedge funds from investing in the single-family housing market, according to Chris Clow of HousingWire. Lawmakers cited limited supply and affordability challenges as the justification for these proposed laws. Senator Jeff Merkley of Oregon introduced the “End Hedge Fund Control of American Homes Act of 2023” to the Senate, and Representative Adam Smith of Washington introduced the House version. Senator Merkley stated:

“You have created a situation where ordinary Americans aren’t bidding against other families, they’re bidding against the billionaires of America for these houses…And it’s driving up rents and it’s driving up the home prices.”

Ronda Kaysen of the New York Times reports on this development, highlighting that the bill would require hedge funds to sell off any SFRs over ten years and prohibit purchasing these assets moving forward. During the phaseout period, there would be tax penalties for funds holding SFRs, and the proceeds would be allocated to down-payment assistance for homebuyers. This proposed law could increase the supply of single-family homes for individual buyers.

Aruni Soni of Business Insider also reports on this story, noting that investors who own over 75 SFRs will face an annual fee of $10,000 per home. Soni notes that according to reports, institutional owners of SFRs account for roughly 3% of the current housing stock. 

“The bill is unlikely to pass in a divided Congress, but lawmakers have insisted the conversation needed to be started. For its part, the investor community has said lack of new housing supply is the problem and the policy should be focused on development.”

Affordability

Lily Katz and Elijah de la Campa report on Redfin data showing that 2023 was the least affordable year for homebuyers on record, but that is looking to ease in the new year. Reportedly, homebuyers with a median income would need to spend a record 41% of earnings on monthly housing costs this year, up from 39% in 2022 and 31% in 2021. Anaheim and San Francisco were noted as the least affordable markets, with Detroit and Pittsburgh being the most affordable.

Source: Redfin (December 2023)

Redfin Senior Economist Elijah de la Campa comments: “A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history…The good news is that affordability is already improving in the new year. Mortgage rates are coming down, more people are listing homes for sale, and plenty of sidelined buyers are ready to take a bite of the fresh inventory. We expect these conditions to continue to improve in 2024.”

That said, mortgage applications have been increasing due to the recent drop in interest rates, according to the Mortgage Bankers Association (MBA). Mortgage applications jumped 2.8% last week, with refinances increasing 14% week-over-week and were 10% higher than the same week a year ago. 

Jiayi Xu of Realtor.com reports on rates and affordability, highlighting that the Freddie Mac fixed rate for a 30-year mortgage dropped to 7.03% last week, down from 7.22%. Still, Fed Chairman Jerome Powell commented that it is too soon to indicate whether or not the Fed will decrease its benchmark rate in the new year.

Separately, Realtor.com released a report of the top markets for 2024 in terms of affordability. 

“We expect that housing affordability begins to turn around as mortgage rates ease and home prices dip. Although nationwide, home sales are expected to edge just slightly higher, some markets across the country are projected to fare differently. Sales growth is the main propellant for top housing markets in 2024, with price growth also contributing, but generally to a lesser degree. Affordable markets in the Northeast and Midwest are joined by Southern California markets expected to rebound from significant sales declines in 2023.”