Dive into the NEW "Truth in Austin's Missing Housing" report and explore the severe undersupply of housing in Austin and actionable policy recommendations aimed to help bridge the gap between residents and missing housing. https://www.abor.com/thetruth

Mortgage rates edged higher last week amid the rise in the 10-year Treasury yield. Stronger than expected economic data—including resilient consumer spending (with retail sales posting 0.7% MoM growth in July) and an upward revision to 2Q real GDP growth—have led to upheaval in the bond market. The uptick in the 10-year Treasury yield is driven by several factors, including a change in investors’ perceptions that the fed funds rate will remain higher for longer—i.e., the Federal Reserve will not cut rates in the near-term (as previously anticipated) and may in fact raise rates, a decline in investors’ fears for a recession, and an increase in the supply of Treasury securities amid growing federal budget deficits. Treasury yields (and therefore mortgage rates) will likely remain elevated over the near-term as uncertainty over the direction of the fed funds rate persists.

Download the Audio Transcript + Episode Summary: https://www.abor.com/content/uploads/2023/08/DIH-8-15-23.pdf

Download the Audio Transcript + Episode Summary: https://www.abor.com/content/uploads/2023/08/DIH-8-8-23.pdf

Did you miss the 2023 Central Texas Housing Summit? We unveiled some major announcements, heard from a stacked panel of experts, and Dr. Clare Losey presented her Buy Vs. Rent Index! Get the recording at https://www.abor.com/housingsummit and access the Buy Vs. Rent Index at ABoR.me/buy-rent.

Don't forget that Dr. Losey will present the Buy vs. Rent Index this Wednesday, July 26 at the Central Texas Housing Summit. In-person attendance is sold out, but you can still join us virtually. Save your spot here: https://www.abor.com/housingsummit

The June housing statistics depict a relatively robust market despite a continued uptick in mortgage rates. (The average mortgage rate measured 6.71% in June, up from 6.43% in May). The median sales price declined 9.7% from last June to $483,000 but rose modestly 2.7% on a seasonally adjusted basis from May. Meanwhile, the uptick in mortgage rates prompted a decline in closed sales—down nearly 9% from last June and 13% from May. Months inventory—3.7 months—indicates a more balanced market in which the supply of homes for sale is more commensurate with the demand for homes. Pending sales ticked up a considerable 18.5% from last June, signaling that buyers have become more accustomed to the higher rate environment. However, the modest increase in pending sales on a month-over-month basis of 0.5% indicates that the recent uptick in rates may continue to pose a constraint on sales activity.

On June 30, the Supreme Court rejected the Biden administration’s student loan forgiveness plan, which would have canceled over $400 billion in debt held by tens of millions of borrowers. Under the proposed plan, student loan forgiveness for individuals (households) earning less than $125,000 ($250,000) annually would have been $10,000. Low-income families who received Pell Grants would have seen an additional $10,000, or $20,000 in total, in student loan forgiveness. Student loan debt remains one of the primary constraints to homeownership among first-time and lower-income homebuyers as it generally extends the time to save for a down payment and increases the borrower’s debt-to-income ratio. For a first-time buyer who earns 80% of Austin’s median family income in 2023 ($93,450) and owes the average balance on student loan debt in Texas ($26,273), annual savings are estimated to decline between 17% and 47%, depending on the interest rate of the loan, the remaining loan balance, and the buyer’s saving rate.

Despite broader macroeconomic lags—including decelerating, albeit still-high inflation, tighter monetary policy, and recent stress in the regional banking system and dampened bank lending, the U.S. economy remained resilient over the first half of 2023. A robust labor market and strong consumer spending helped mitigate the effect of those lags, but also contributed to the Federal Reserve’s continued rate hikes, with at least one additional rate hike likely penciled in for the July meeting (i.e., the Fed funds rate will be “higher for longer”). Despite the ongoing potential for a recession—the occurrence of which will largely depend on the response of the U.S. economy to monetary policy, the magnitude of the recession appears to be lower. In other words, should a recession occur, it will likely be a milder recession than previously anticipated.

Still-elevated home prices and mortgage rates continue to dampen purchase affordability for potential buyers—particularly first-time buyers. All else equal, this raises the demand for single-family rentals, the most comparable alternative to purchasing a home. In May 2023, while the median sales price and closed sales fell 15% and 4% YoY, respectively, the median rent and closed leases measured 0% and 4% YoY, respectively. In other words, while higher rates precipitated a moderation in sales, it resulted in a rise in closed leases. As some investors and builders have at least temporarily stepped out of the market for single-family rentals (again, a factor of higher rates—investors are currently more inclined toward assets that pay higher yields, while builders face higher costs of capital), we expect the growth in the supply of new single-family rentals to moderate. All else equal, this will induce upward pressure on rent growth.