Newscasts - Market Insight: 'Higher for longer' hits housing too ....

First American Financial

01/05/2024 16:00

Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_4gcv3qxt&referenceId=1_4gcv3qxt&pageId=Newscasts
Source: 'Reuters - Business videos'

Description: With 30-year fixed term mortgage rates hitting 7.29%, the U.S.
housing market is under pressure as sellers back away from selling their
homes. That in turn is keeping inventory short and pushing prices higher,
according to First American's deputy chief economist, Odeta Kushi.
Short Link: https://refini.tv/4dwJ7qO

Video Transcript:

30-year mortgage rates hit 7.29% ahead of today's Fed meeting. Welcome to
Market Insight. I'm David Pollard. The Federal Reserve is widely expected to
keep rates unchanged later today, and while inflation remains sticky, and the
job market remains tight. The housing market remains under strain with no end
in sight to pressure on mortgage rates. Data today, showed the rate on the
average 30-year fixed rate was 7.29%. Well, to discuss how this is impacting
the economy and housing market, I'm now joined by Odeta Kushi, Deputy Chief
Economist at First American. Welcome Odeta. Many thanks for joining us. Let's
look at the big question today. What do you expect from the Fed this year and
why?


Well, the Fed thus far seems to be taking a wait and see higher for longer
approach and that's really because in their dual mandate of stable inflation
and full employment, the full employment piece is going quite well, whereas
the inflation has proven to be stickier than expected. And so, the Fed is
really sort of monitoring those risks and looking to keep rates unchanged,
likely at today's meeting and maybe even only one or two rate cuts in the
second half of the year at most at this point is what the markets telling us.


Now Powell, Jerome Powell is known to be very guarded in his comments, usually
at his press conferences. What do you expect he'll be saying today?


I think the markets are looking for Powell to give any insight into the
trajectory of monetary policy for the remainder of the year, but I think that
Powell will stick to the script, maintain a data-driven stance, and really
highlight that. It's all about the incoming inflation and labor market reports
that will really drive the Fed’s decision from here on out.


Now, amidst all these worries over inflation and high rates, the US consumer
has remained remarkably resilient. Do you expect that to go on like that? Can
the US consumer, keep on being so strong?


Well, you know, US consumer as consumer spending is the bulk of economic
growth in our country. So that the health of the consumer is everything. Now
the labor market remains robust, so that works in the favor of the consumer.
They're gainfully employed, wages are increasing, but certainly there are
headwinds. I mean, excess savings have declined significantly that savings
cushion that's been robust is dwindling and so that's a headwind and the
consumer is taking on more debt to finance that spending. So, there are
certainly headwinds for the US consumer for the rest of the year.


So, what does that all mean for the housing market? Are things looking a
little bit better this year or a little bit worse?


The housing market is so interest rate sensitive that this higher for longer
mortgage rate environment really impacts the seller and the buyer in the
housing market. The seller is rate locked into historically low mortgage
rates. And so, as rates drift higher, they lose the incentive to sell and then
the buyer of course with higher mortgage rates faces lower purchasing power.
Now, with that said, the decision to buy and sell and transact is more than
just a financial decision. There are lifestyle decisions that come into play
as well, and we do know that the largest generation in US history, the
millennial generation continues to age into their prime home buying years,
continue to age into these key lifestyle decisions that are highly correlated
with buying that home. So, we'll certainly see those buyers still try to get
into the market. And of course, sellers who have held off listing their homes
over the last two years will also feel the need to enter the market for
lifestyle choices as well. And so, we'll still see transactions, we're seeing
higher listings in the market. So, we might see an uptick in activity, but
certainly higher for longer mortgage rates dampen any momentum in the housing
market.


So, would you care to put a time frame on when the housing market might
normalize amidst all those lifestyle decisions that you've just mentioned?


I think there's still quite a bit of demand on the sidelines and so this year
will still be sort of a year of transition. We still have a lot of uncertainty
about the future of the economy and monetary policy. And so, you know, we'll
start to get more used to the idea of higher mortgage rates and the market
will adjust. So, I think this year will be a year of transition, but I'm
cautiously optimistic about next year.


Okay Odeta, we'll leave it there. Odeta Kushi, Deputy Chief Economist at First
American. Many thanks for sharing your thoughts with us today. That is your
Market Insight