US: Wait for a Housing Slowdown May Finally Be Over

The Federal Reserve may finally get the news it has been waiting for since it stopped raising interest rates last year.

A resurgence in consumer prices at the start of 2024 raised concerns that the last mile of the road back to the Fed’s 2% inflation target would be the most difficult.

Market participants concluded that inflation was “stuck” and pushed out their expectations for interest-rate cuts, at times entertaining the possibility of no cuts at all.

A key sticking point has been housing inflation, which is still running about 2.3 percentage points above its prepandemic pace. But April inflation data, along with leading indicators, suggest that progress on this front may be resuming.

That means the long-awaited moderation in housing inflation is probably back on track, which should be hugely reassuring to Fed policymakers. Housing carries a large weight in the key metrics for consumer inflation.

It makes up 34% of the consumer price index and 15% of the personal consumption expenditure price index, the Fed’s preferred gauge of consumer inflation. In both indexes, the weight reflects the rent paid by renters and a rental equivalent for homeowners.

The latter captures what a homeowner would pay if they were to rent their own home. Price changes are calculated from a large sample of apartment rents. Those costs have been on a wild ride over the past five years.

The pandemic radically transformed decisions about where to work and live. People wanted more and different types of living space. Many had the means to pay for it, thanks in part to fiscal support as well as a strong recovery out of the pandemic. The result was a historic surge in apartment rents in 2021 and 2022 that is still having ripple effects in official inflation statistics.

Meanwhile, the past few years have also seen a boom in apartment building. As a result, pressure on rent has abated. Most measures of rents charged on new leases—so-called market rents—stopped increasing at the end of 2022 and are now rising in line with or slower than their prepandemic pace. This slowdown in market rent increases has yet to fully show up in CPI, however.

Housing inflation in the CPI was 5.7% in April, compared with a prepandemic rate of about 3.3%. The disconnect is that the CPI tracks rents paid by all tenants (average rents) not just what landlords charge new tenants.

Over time, rents charged on lease renewals tend to converge to market rents, as landlords and their tenants renegotiate. The main reason official measures of housing inflation have remained elevated is because this convergence was still under way.

The transition to cooler rent dynamics in the CPI has taken longer than many people expected. Historically, measures of market rent lead official measures of housing inflation by about two to four quarters, suggesting that we should have seen more of a slowing by the end of 2023. Instead, increases in CPI housing indexes cooled notably in the first half of 2023 and since then have largely moved sideways.

This has led some market participants and policymakers to doubt their forecast for cooler housing inflation. There is every reason to think that we are close to a turning point.

For a period, renewing leases were still catching up to the pandemic surge in rents, but the majority of indicators show that average rent levels have now fully caught up to that surge. If the catch-up period is over, then the pace of increase in average rents should slow further in coming months.

The longer-than-usual period of convergence has led some to wonder whether the flattening out of market rents will ever fully show up in official measures of housing inflation. Skeptics point out that measures of market rents produced by the private sector are based on different samples than the CPI and may not be representative of the entire urban U.S. population.

Government researchers have started publishing a new-tenant rent index calculated from the same sample as the CPI, which confirms that average rents have caught up to market rents as of the fourth quarter of 2023. The NTR index is subject to revision, but typically the last data points undergo the largest revisions, and subsequent revisions are smaller.

It is notable that the fourth-quarter 2023 convergence still holds after a round of revision. Looking at the widest possible range of available information, it is probably only a matter of time before we see further slowing in housing inflation and overall inflation returns to the Fed’s 2% target.

The April CPI report confirmed further progress: Tenant-occupied rent increased by 0.35% from the month before, marking the slowest pace of increase since August 2021, right before we entered the period of supercharged rent growth.

Our read of the underlying detail is that the slowdown in market rents is resuming in official inflation data after a pause in the second half of 2023. The Fed has said that it “does not expect it will be appropriate to reduce [interest rates] until it has gained greater confidence that inflation is moving sustainably toward 2%.” Many areas outside of housing already show significant progress.

A move lower in housing inflation would probably be the confidence boost the Fed is waiting for.

Source: Barron's

US Home Buyers Redo Plans After Losing Hope on Rates

Prospective home buyers are giving up hope that interest rates will come down soon. They are changing their life plans accordingly. An engaged couple that had sold stocks to fund a down payment now expects to rent for another five years.

A family that was looking to trade up is considering building an extra room instead. An investor plowing ahead on a purchase is scaling back his profit projections. Persistent hope of lower rates and therefore lower monthly mortgage payments has consistently failed to bear out. It wasn’t helped on Wednesday after a government report showed stubbornly high inflation, dashing hopes that rates were about to trend lower.

Many prospective buyers, already facing high housing prices and a shortage of homes, are now planning to sit out. When Annie and Tyler Dartt moved into their three-bedroom rental with their three children in 2021, their plan was to only stay a year.

Each time their Ashville, Ohio, lease has come up for renewal, however, they determined that they still can’t afford to buy. Her sister Courtney Johnson lives down the street and is stuck in a home she bought in 2014. After spending quarantine in the 1,800-square-foot house and having a third baby, she and her husband, Brandon Johnson, were motivated to find a new place.

The cost deterred them. Instead, they refinished their basement to make enough space for now. “We thought the situation would have improved by now,” says Annie Dartt, a 30-year-old nurse. “Interest rates were predicted to go down, but they haven’t.”

A conundrum

A median-income household could afford to buy a house for no more than $416,000 in March, assuming a 20% down payment and a mortgage at going rates whose payments take up a third of pretax income. Three years earlier, that household could afford a price of up to $561,000, according to First American Financial.

A January survey of 2,000 U.S. renters by property management firm Entrata found that 20% don’t expect to ever own a home, a 33% increase from 2021. Roughly half of the 2,092 U.S. renters surveyed by Opendoor brokerage in February said they would wait until interest rates were under 5% before considering buying.

A potential drop in rates would benefit many buyers, but it could be years before they get some relief from builders expanding supply of more-affordable options, according to Daryl Fairweather, chief economist at real-estate company Redfin.

Buying out of necessity

Most of the house shoppers in the market are buying because they need to, said David Schlichter, a real-estate broker in Denver. He said he is busy finding new homes for clients looking to move after new babies, new jobs or divorces. People in those situations can only wait so long for rates to fall. “The longer that they stay at this level, the more life events will happen that will cause people to move by necessity,” Schlichter says.

The prolonged high rates mean home buyers are learning what economists have long grappled with: It is near impossible to time the market. It can pay to buy a home when it is least popular to do so, said Michelle Maldonado, a real-estate broker in the Nashville, Tenn., area. When rates fell early in the pandemic, fierce competition pressured some buyers to make impulsive choices.

Marcus Knox, a 38-year-old natural- gas product manager in Colorado, is moving forward with his plan to buy his first investment property in Memphis, Tenn., this year. He initially expected rate cuts this fall, so he wanted to close on a home before the summer to beat other investors to the market. He still thinks the investment will be profitable long-term, especially if he refinances in a few years. “If the first three years are kind of rocky, that’s not really the end of the world,” he said. “Uncle Jerome is making it really complicated right now,” he added, referring to Federal Reserve Chair Jerome Powell.

Staying put for now

Patrick Waring and Emily Allen had gotten preapproved for a $1 million mortgage, and he sold some of his stock investments to fund a down payment. Now, they don’t think they will buy before 2029 unless rates fall. The engaged couple recently resigned their New York City lease. After two years of holding out for lower interest rates and home prices, Waring said he is leaning into what he can control: his attitude toward renting. The couple says the $4,125 they pay for their one-bedroom in the Financial District is considerably less than what they would be spending to own the same property.

They are no longer convinced owning real estate with a typical mortgage in the era of high rates will pay off in the long-term. “This is not the baby boomer life plan,” says Waring, a 33-year- old product director at a consulting firm.

The rent vs. buy calculation often comes down to where you live, says Richard Green, an economics professor and director of the University of Southern California’s Lusk Center for Real Estate. The faster rents rise, the more quickly buying pays off. Many still can’t make the math work. Emily Ferrell had to withdraw an offer on a house in Erie, Colo., last week after the final rate from her lender changed to 8.9% from the 7.5% she was quoted earlier in the week.

The new rate would mean paying an extra $1,000 a month. Her house hunt is on pause until at least January, she said. For now, she and her husband are staying in the 1,600-square-foot home they purchased in 2018. They both work from home and commute two hours daily to take their 2-year-old daughter to daycare. Trying to buy—and holding off buying—have both been stressful, she said. “I think about how we’re missing out on that lifestyle we could have right now,” she said. 

Source: WSJ

Pag-IBIG Housing Loan Interest Rates Per Fixing Period — A GUIDE

In the Philippines, one of the most popular housing loans is the Pag-IBIG Housing Loan which is offered by the Pag-IBIG Fund to qualified members. It is open for application for members who are below 65 years old and have posted at least 24 monthly contributions with a good account standing.

The Housing Loan offer of the Fund has helped countless Filipinos acquire a residential property for their family. Truth be told that it is a whole lot different to be living in a house that you can call your own – you have control over the rules and management and yours and your family’s safety comes as the top priority.

The creation of the Fund was anchored with the government’s pursuits to help most especially the low-income Filipinos acquire a residential property.

Under its loan offer, it provides its qualified members not only with an option of up to 30 years repayment for low monthly installments but also a wide array of fixing periods that they can choose from. It will determine the interest rate that will be implemented in your loan constantly in a given period.

It is best to know the interest rate that your loan may incur so you can compute how much of the monthly amortization will be deducted from the principal balance. The implementation of the interest is under a diminishing principal balance.

Thus, the lower the principal balance is, the higher the chance that a bigger part of the monthly due will be deducted from your outstanding loan. If you want advanced payments, it must clearly be indicated in your receipt that the payment will be deducted in advance from the principal balance.

Here is a guide on the fixing period and the Pag-IBIG Housing Loan interest rate implemented under each period:

The Pag-IBIG Fund allows a maximum repayment of the loan of up to 30 years, however, the maximum loan term per application should not exceed the difference between 70 and the present age of the principal borrower. Thus, the 30-year repayment is open for those who are 30 years old and below at the time of the loan application.

Source: Philnews