Morning Report: Home price appreciation expected to slow

Vital Statistics:

S&P futures4,339-65.2
Oil (WTI)83.750.43
10 year government bond yield 1.76%
30 year fixed rate mortgage 3.73%

Stocks are lower this morning as the January FOMC meeting starts. Bonds and MBS are up small.

Yesterday looked like it would be a big down day on the markets, however it reversed around midday and ended up on the day. We have a similar situation this morning. Earnings season begins in earnest this week, and it seems like expectations are sky-high.

Home prices rose 1.1% in November, and are up 17.5% YOY, according to the FHFA House Price Index. It looks like the torrid pace of home price appreciation is beginning to cool off.

“House price levels remained elevated in November, but the data indicate a pivot,” said Will Doerner, Ph.D., Supervisory Economist in FHFA’s Division of Research and Statistics. “The last four months reflect average gains of 1.0 percentage point, down from the larger prior changes during the spring and summer months. This new trend is a welcome shift but still twice the monthly average we have seen in the last 20 years, which echoes concerns about access and affordability in housing markets.”

Separately, the Case-Shiller home price index showed an 18.8% gain for the year in November. They also see a deceleration in home price appreciation, and expect to see further deceleration as mortgage rates rise:

“We have previously suggested that the strength in the U.S. housing market is being driven in part by a change in locational preferences as households react to the COVID pandemic. More data will be required to understand whether this demand surge represents an acceleration of purchases that would have occurred over the next several years or reflects a more permanent secular change. In the short term, meanwhile, we should soon begin to see the impact of increasing mortgage rates on home prices

Freddie Mac also anticipates that home price appreciation will slow this year, falling to 6.5% from 15.9% in 2021. Interestingly, it raised its forecast for originations to 3.27 trillion from the 3.1 trillion it was forecasting in September. This is a 30% drop however from their estimate of 4.65 trillion in 2021.

“As mortgage rates rise, we do expect some moderation in housing demand, causing house price growth to temper,” Sam Khater, Freddie Mac’s chief economist, said in a press release. “However, the combination of a large number of entry-level homebuyers facing a shortage of entry-level inventory of homes for sale should keep the housing market competitive.” Below is a top-level summary of the Freddie’s forecast:

8 Responses

  1. If these sentiments are as widespread as they appear to be, the Democrats are in real trouble.

    Unless the Republicans save them by overreaching themselves. I think Youngkin’s approach to an anti-mask mandate in Virginia is a mistake. He should have just eliminated the old mask mandates and left it up to localities and noted that the Democrats passed a law mandating adherence to CDC guidance and until that’s repealed, his hands are tied.


    • Isn’t it an anti-mandate mandate? I don’t think anyone has forbidden the wearing of masks, but have forbidden it being mandated (and not for no reason, either, when it comes to school age children). Although I may have missed a detail, as the GOP does overreach as well. Politicians can’t help it.

      Kind of like the Contract With America. They did bits and bobs and brought up some stuff to vote as promised then went full-on Clinton-Derangement-Syndrome and afterwards got amnesia about the Contract with America. So I would count on Republicans in power to overreach–and usually at a tangent, on topics most of their voters don’t actually care about.

      There’s also the issue of Republicans taking the “cleaning house” thing seriously. Youngkin seems too, but typically Republicans leave themselves surrounded by entrenched bureaucrats who are either progressive activists are just corrupt and self-serving.

      Anyway. Accepting that the Republicans are inevitably going to fuck it up, I will say that the tweet you posted might represent serious problems, long term, for Democrats–particular if Republicans try an broadly address the concerns of minority communities directly. Because the guy is obviously conservative, and was voting Democrat for superficial reasons–which is a lot of partisans. They tend to be less ideologically aligned to whatever party they vote for than doing it out of momentum and a general feeling that the party they identify with “are the good guys”.

      People not ideologically aligned with the Democrats waking up to just how unaligned they are can lost them a lot of votes–and for a lot longer than a single election cycle.

      The worst news is that the NYT published that OpEd. That provides the permission structure for other lefty news organs to also start actively talking about the emperor’s new clothes (although lots of folks in the press has been beginning to notice Biden is not the second coming of JFK and LBJ, I think an editorial like that in the NYT portends a real sea-change in what is allowed to be covered. They will never be as hard on Biden as they were on Trump or most Republicans, but they may start actually talking about real things, even if they don’t reflect well on Biden. That the NYT would let that through and consider it worthy of publishing even though there’s a midterm election coming up in 2022 says a lot. Primarily that the Biden administration (particularly after losses on Build Back Better and voter law federalization failed) has ceased to be worth losing readers and reputation protecting.

      Which is obviously a bad sign for Biden but also a very bad sign for Democrats generally.

      Also, clearly the nay-sayers and doom-predictors on the left are winning the day, here, as well. There are a lot of folks who just want to dismiss Youngkin’s victory and call it a fluke and suggest a truck driver spending $5k and outsting the long time NJ senate president is irrelevant. But the folks who are saying: “no, you need to pay attention to the polls. You need to look at what’s happening” are apparently winning the argument.


      • I think the left is setting everything up for Kamala, and the first order of business is to marginalized Biden.

        I don’t think it is anything more than this.


        • Still some negative reportage on Harris as well, so if there is a setup involved I feel like the general though it someone other than Harris or Biden. Hillary, perhaps!


  2. Interesting piece on Schumer:

    Interesting to compare that approach to McConnell always taking the heat for his caucus.


    • While I think most of this is fantasy, and the federal government making such things their objective not desirable:

      Meet the Biden administration’s greenhouse gas emissions objectives.
      Cut child poverty by about 20%.
      Deliver two very popular items by capping insulin prices and helping the elderly with expanded Medicare coverage.
      Safeguard the country against future pandemics.
      Increase access to both preschool and Medicaid.

      … and I say that even liking the proposal to cap insulin prices …

      Even though I think he’s 98% off on what he wants the federal government to be into, I think he’s exactly right about how government actually works in terms of anybody getting anything they think they want. And it is not accomplished by focusing all your energy on trying to get as many Twitter-likes from Blue Checkmark Twitter as possible. It’s not about pandering to celebrity lefties.

      Schumer’s voting rights pivot achieved the opposite, driving media attention to an embarrassing intra-party division while placing zero pressure on any Republicans.

      I think this is true, and it’s bizarre to me that these experienced politicians can’t see that. I would assume it’s kind of accidental but I guess not, they just see some personal benefit in playing things this way . . . but I don’t see how.

      he pivoted to a doomed voting rights push, which again had the effect of making people mad at Joe Manchin rather than Chuck Schumer.

      It made people mad at Joe Manchin, except the people they should want mad at him: the people who elected him. So it may make things super-annoying for Manchin but it only supports his decision making in terms of deciding to be a maverick here. And for invested voters–and especially smart and engaged but ideologically-nuts progressives–those folks are going to blame Schumer. They are also going to blame Manchin but Schumer doesn’t get off scot free in that calculus.


  3. Good read:

    “Was Larry Summers Right All Along? How the ultimate Establishment figure became the preeminent critic of the Biden era’s economic consensus.
    By Eric Levitz”


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