Benzinga - by Natan Ponieman, Benzinga Editor.
The housing market is beginning to show minor signs of recovery. This is due to top-income earners being able to buy and sellers offering concessions. Most Americans, however, are still steering away from buying a house in 2023.
What Happened: Sellers are handing out concessions in order to bag a sale, Redfin Corp (NASDAQ:RDFN) reports.
Concessions include handing over money for repairs or mortgage-rate buy downs.
The strategy works, too. Applications for mortgages to buy a home saw an uptick of 2.5% this week, as per Redfin.
"A strong economy does mean that more people are moving for job opportunities — they feel more confident, they feel like even though rates are high, they can make it work for their budget,” said Redfin Chief Economist Daryl Fairweather to Yahoo Finance.
Who’s Buying: Indeed, it’s those who are better off financially who are shopping for homes. A recent report shows that the average income of homebuyers hit an all-time high of $107,000 annually. That’s well above the median household income of $74,580.
The Home Purchase Sentiment Index by Fannie Mae recently reported that 85% of consumers think it's a ‘bad time' to buy a home. Most respondents cited high home prices and high mortgage rates as the primary reasons."
Mortgage rates hit their highest level in 23 years during October.
With the 30-year fixed mortgage rate currently above 7%, most potential home buyers continue to hold off on purchases, on expectation that mortgages will drop once interest rates begin to come back down.
The Fed is leading a months-long campaign against inflation. This has caused the agency to raise the federal funds rate to between 5.25% and 5.5%.
However, the hike campaign appears to be at a halt. The Fed chose to pause hikes for the second consecutive time in its last FOMC meeting earlier this month.
High-interest rates appear to be having an effect on inflation: on Tuesday, the Labor Department reported that year-on-year inflation for October was 3.2%. This was a big jump from September's rate of 3.7% and well below the latest peak of 9.1% in June of last year.
Upbeat inflation data sent the markets to a rally, on an assumption that the agency will begin to cut down interest rates next year.
Yet for housing and construction, the scale moves at a slower pace. While macroeconomic signals are showing improvement, interest rates are still up. The Fed needs to begin a reverse campaign to bring interest rates back down in order for mortgage rates to decrease, and neither chair Jerome Powell nor any Fed Governor has yet expressed when that will happen.
This has also slowed the supply of available houses. Those who already own a home under a mortgage would prefer to stay with their low-rate loans than acquire a new mortgage at a worse price.
Why It Matters: The housing market will continue to be moved by those who decide not to wait anymore to buy a home, or those whose financial conditions allow a purchase under high mortgage rates.
Even if the Fed decides to cut interest rates in 2024, it'll take many months to get a 30-year mortgage rate of 3% as it was in 2021. Companies in this sector to watch include:
- Beazer Homes USA (NYSE:BZH): The Atlanta-based company is expected to release its quarterly results after the market closes. Earnings per share are expected by analysts to come in at $1.39. The company is up almost 30% in the past month alone, leading to big expectations for its earnings report.
- Home Depot Inc (NYSE:HD): The home improvement retailer saw upbeat earnings this week. Construction and home builder stocks spiked as the company reported better-than-expected results for the third quarter.
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