2023's Story of Resilience | Guest Post
"We are stubborn on vision; flexible on details." Jeff Bezos could have been talking about the current housing market instead of Amazon. Homeownership is a long game. It protects fixed debt costs and rising wages against massive rate hikes and stubborn inflation. The market by which we've gotten there has varied tremendously over the past 20 years, but the vision remains the same. It is more than the American Dream or a politician's platform; ownership provides stability, certainty and safety wherever you lay your head.
The vision takes hold as you listen to the story of a beautiful woman striving for a finger hold on financial stability after a tragic accident forced her to lose everything but her strength. A family of five living paycheck to paycheck, yearning for better as they look into their children's eyes and down the road at colleges, weddings and retirement. A young adult passionate and driven to give her mom the home and stability lost after an early divorce.
My vision to be the catalyst of wealth creation for every homeowner and a path for all who want to become one has gifted me with thousands of these conversations over the years, no matter the market. Each one reignited into a more intentional path of homeownership.
So far in 2023, there have been 13 positive and 12 negative prints of mortgage purchase applications for a total of a 7 percent YTD gain in buyer demand, all while mortgage rates bounced between 6 percent and 7.15 percent, the highest since July 2001. This speaks to the determination of the homebuyer, no matter the circumstances. While 64 percent of buyers wait on the sidelines for rates to drop, 21,534 others have bought in the Denver Metro this year, despite the incredible odds against them.
Purchases in 2023, however, continue to remain seasonally low as 4,109 homes were bought in June, down 310 from May on an early descent towards summer. Those who did buy found homes priced 2 percent lower than a year ago for a median price of $600,000. While the median price does not reflect the ongoing increase we are seeing in appreciation, it captures the homes available to go under contract. A 2 percent discount offers little against the backdrop of a 44 percent rise in Denver's home prices during the pandemic. The rise of mortgage rates from 5.5 percent a year ago to 7 percent today adds an additional $418/mo in principal and interest mortgage payments, plus the 44 percent rise in property taxes just assessed. Yet 30 percent of the purchases this month were under $500,000. Buyers who see the vision, even when challenged, are staying strong!
A quiet tug-of-war is playing out in the economy as well.
In May, the University of Michigan Consumer Sentiment Index dropped to a 6-month low as the fear of a debt ceiling default rocked the economy. The index then turned to finish the 1st half of 2023 with a striking upswing from a 6-month low to a 4-month high, reflecting a recovery in attitudes generated from the early-month resolution of the debt ceiling crisis and softening inflation.
While headline inflation continues its rapid descent, the Core, which strips out food and energy, remains sticky. June's PCE Core, the Fed's preferred measure of inflation, came in at 4.6 percent, down from its 2022 high of 5.3 percent but stuck at 4.6 percent to 4.7 percent since December. This has put the Federal Reserve on its continued quest to beat stubborn inflation into a 2 percent submission, announcing two more rate hikes and a higher for longer Fed rate.
While softening inflation will benefit households, these rate hikes will hit them in other ways. Those who took advantage of incredible equity gains by taking out Home Equity Lines of Credit (HELOCs) face increasing minimum payments because the prime rate on which all HELOCs are based is directly tied to the Fed rate. Consumers who could not break the spending habit after Federal stimulus packages were exhausted or spent (because they felt the wealth effect of the stock market's biggest six months rally since 1983) are facing today's higher credit card interest rates, car loan rates and personal loan rates.
Yet, we continue to be resilient despite the Fed's determination. Personal Savings Rate is up 4.6 percent from a 3.0 percent low in Fall 2022. Consumer Spending edged up 0.1 percent in May after a rise of 0.6 percent in April. Spending makes up 70 percent of the GDP, which was just revised up 2 percent for the 2nd quarter of 2023. Because of this stronger-than-expected consumer spending in the first half of 2023, Consumer Confidence jumped 7 points in June, delaying the Conference Board's call for a recession by another quarter.
Baby Boomers have a net worth of $74.8 trillion. $19 trillion is held in real estate, and $8.9 trillion in bank deposits and money market funds. Gen X has a net worth of $39.9 trillion, and Millennials $7.8 trillion. These stashed-away savings will enable them to keep spending even in a slowing economy.
On another note of strength and resilience, Personal Income rose 0.4 percent as there were 10.1 million job openings in April and 1.6 jobs per unemployed person. After three weeks of much-anticipated increases, Initial jobless claims also did an about-face and posted their biggest drop in 20 months at the end of June.
Strong, resilient and determined have become the calling card of Americans in the face of high inflation, a frustrated Fed and an uncertain market. This will bode well for buyers in this market. As Inventory creeps up over the summer months, close-to-list slides back down towards 100 percent, and Days-in-MLS edges slightly upward, buyers secured with the vision of homeownership will gain an advantage.
Well that’s a wrap. Until next time, this is Nicole Rueth with the Rueth Team. It's my pleasure to keep you updated.
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