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In this Real Estate News Brief for the week ending June 18th, 2022... the Fed\\u2019s supersized rate hike, mortgage rate sticker shock, and the home equity bonanza.

Hi, I\'m Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.

Economic News

We begin with economic news from this past week, and the Fed\\u2019s biggest rate hike in three decades. The central bank hiked the federal funds rate by three-quarters of a percent which puts it between 1.5% and 1.75%. If inflation doesn\\u2019t show signs of slowing by next month, Fed Chief Jerome Powell said they might hike it by another three-quarters of a percent. He doesn\\u2019t expect that to be a common practice, but he said the Fed is determined to get inflation back down to 2%. (1)

The rate hike came after two more hot inflation reports. The Consumer Price Index shows that inflation hit an annual rate of 8.6% in May, while wholesale prices came in at 10.8%.

Economists are now looking ahead to the CPI report for June as they anticipate the size of the next rate hike and whether higher rates will tip the economy into a recession. As reported by MarketWatch, the Fed has backed off the idea of a \\u201csoft landing\\u201d and is running the risk of a recession to get inflation under control. (2)

The Fed is currently expecting the economy to slow to 1.7% over the next year-and-a-half with inflation running at 5.2% by the end of this year and 2.6% by the end of next year. It anticipates a slight rise in unemployment, but expects the job market to remain strong.

Right now, jobless claims are low while job openings are high. There have been some reports of layoffs, which is contributing to recession anxiety. Last week, real estate companies Redfin and Compass announced layoffs, in response to a slower housing market. Redfin is cutting 8% of its staff, and Compass is cutting 10% because fewer people are buying homes. Many can\\u2019t afford the high price of the home combined with a more expensive mortgage. (3)

The housing slowdown is also impacting residential construction. The Commerce Department says that housing starts dropped 14.4% in May to an annual rate of 1.55 million. That\\u2019s the biggest decline since April of last year. Multi-family starts dropped the most - by 26.8%. Single-family starts were down 9.2%. Permits also fell but only by 7%. (4)

Mortgage Rates

Mortgage rates bolted higher last week, for the largest one-week increase since 1987. Freddie Mac says the average 30-year fixed-rate mortgage rose 55 basis points to 5.78%. The 15-year was up 43 points to 4.81%. On a positive note, higher mortgage rates will help control the crazy home price growth we\\u2019ve seen lately. (5)

In other news making headlines\\u2026

Mortgage Rate Sticker Shock

The rapid rise in mortgage rates is giving some homebuyers sticker shock. Even though mortgage rates are nowhere as high as they were decades ago, they are at their highest level since about 2008. And that\\u2019s cutting into homebuyer budgets. (6)

The National Association of Realtors says that higher interest rates have chopped about 25% off the homebuyer\\u2019s budget since the beginning of the year. As an example, NAR says that the typical buyer could afford a $360,000 home with a $1,400 monthly mortgage payment in January. Now, with higher interest rates, that buyer will have to shop for a $270,000 home if they want to maintain a $1,400 a month payment because a larger portion of the mortgage will go toward interest.

Homebuyers Are Embracing ARMs

One way that homebuyers are dealing with the cost of the loan, is by choosing an adjustable rate mortgage or what\\u2019s known as an ARM. The Mortgage Bankers Association says that the number of ARMs doubled in May, to help keep initial payments lower. They were as much as a full point lower on the MAXEX exchange. (7)

According to the loan-trading platform, MAXEX is a network of 320 banks and nonbank originators, as well as 20 \\u201chigh-profile investors.\\u201d It says these lenders have been seeing explosive growth in ARMs and it expects the trend to continue.

Big Equity Gains for Homeowners

While price appreciation makes it tough to buy a home, most homeowners are feeling a whole lot richer. According to a CoreLogic report, 62% of all U.S. properties rose in value with an average gain of about $64,000. (8)

The states with the highest amount of appreciation were California and Hawaii with an average of about $140,000. Other red-hot states were Washington, Arizona, Utah, Colorado, and Nevada. The states with the lowest amount of average appreciation were Iowa at $17,000 and North Dakota at $19,000.

That\\u2019s it for today. Check the show notes for links. And please remember to hit the subscribe button, and leave a review!

I\\u2019d also like to recommend a new book called \\u201cThe Wise Investor\\u201d by RealWealth co-founder Rich Fettke. He wrote the book as an entertaining way to share what he\\u2019s learned about creating wealth both financially and personally. The protagonist is a man who realizes his life is nothing like he had planned and sets off to change that. The reader is swept along for the ride. It\\u2019s a quick read, and is currently available as a Kindle book on Amazon. The hard cover and audio versions are coming out in August but you can pre-order them now. You can also read more about the book here. (at realwealth.com/grow)

Thanks for listening. I\'m Kathy Fettke.

Links:

1 -https://www.marketwatch.com/story/fed-lifts-rates-by-most-in-three-decades-anticipates-policy-rate-rising-to-3-8-by-end-of-2023-11655316254?mod=mw_latestnews

2 -https://www.marketwatch.com/story/as-fed-aggressively-raises-rates-here-are-4-takeaways-from-jerome-powells-press-conference-11655340311?mod=economy-politics

3 -https://www.cnn.com/2022/06/17/investing/premarket-stocks-trading/index.html

4 -https://www.marketwatch.com/story/u-s-housing-starts-plunge-in-may-11655383118?mod=u.s.-economic-calendar

5 -https://www.freddiemac.com/pmms

6 -https://magazine.realtor/daily-news/2022/06/17/surging-mortgage-rates-spook-house-hunters

7 -https://www.housingwire.com/articles/maxex-report-shows-arms-doubled-in-may/?utm_campaign=Newsletter%20-%20HousingWire%20Daily&utm_medium=email&_hsmi=216674568&_hsenc=p2ANqtz--7Is5ehx6QK5u6f15i-lFl9EfIiIrNoDk029qwgACHkfo3hZfA7lCOZovmqBlflCXrRa7iSat3Dq_i5TwJHWqKqwqWlQ&utm_content=216674568&utm_source=hs_email

8 -https://magazine.realtor/daily-news/2022/06/10/homeowners-see-12-month-equity-gain-of-64k