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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.

Inflation continued to decelerate last month—in May, headline inflation moderated to +4% YoY and +0.1% MoM, while core inflation—which strips the more volatile categories of food and energy—measured +5.3% YoY and +0.4% MoM. However, inflation remains well above the Federal Reserve's long-term target of 2%. The Federal Open Market Committee, or FOMC, opted to pause its rate hike cycle, although at least one—if not potentially two—more rate hikes to the tune of 25 basis points each prove likely amid stubbornly high inflation and a still-robust labor market. The majority of FOMC participants signaled that the Fed funds rate, which currently hovers between 5% and 5.25%, will need to reach between 5.5% and 5.75% before monetary policy is sufficiently tight. In the wake of the Fed’s decision, mortgage rates remained steady, ending last week at an average of 6.69%. That’s down slightly from a recent high of 6.79%, but still elevated. Until economic activity declines or the Fed signals sufficient price stability, it's unlikely that mortgage rates will meaningfully decrease.

This week ABoR Deputy Director of Communications, Danielle Hammett, joins Dr. Clare Losey to bring you the latest market info!

It's time for another Driving It Home episode with Emily Chenevert and Dr. Clare Losey, where they dive into a job report and explore the connection between the labor market and the housing industry. 

In this Driving It Home episode, Emily Chenevert and Dr. Clare Losey chat about the recently proposed debt ceiling deal and how it will affect real estate if it passes both the house and senate. Listen in now.

In this Driving It Home episode, Emily Chenevert and Dr. Clare Losey dive into the state of new construction in the Austin MSA. Here's what you can look forward to hearing more about:

Last week, we saw the release of some important economic indicators along with April's housing statistics. Inflation remains high. Slowing consumer spending indicates a cooling economy despite persistently high consumer inflation and a strong labor market. Consumer sentiment also took a hit, falling to a six-month low in May. Looking ahead, we can expect turbulence in the mortgage market due to stress in the regional banking system and the decision on the debt ceiling affecting the bond market, which closely tracks the 30-year fixed mortgage rate. However, if the yield on the 10-year Treasury falls, we may see mortgage rates follow suit. Our April housing statistics show the market adjusting to current conditions, with both sales and home prices contracting on a YoY basis. We remain optimistic about the long-term as the moderation in home prices reduces the drag of high mortgage rates on affordability.

Last week, the Federal Reserve raised the federal funds rate again - marking its tenth consecutive rate hike since March 2022. Ultimately, this increased the effective rate to hover between 5-5.25% which is the highest level pre-Great Recession. Although this seems like it could result in significant mortgage rate increases, the market has likely already priced in this anticipated change - meaning we shouldn't see a material rise in rates over the near term. Instead, we may experience a slight decline in mortgage rates due to the ongoing banking sector turmoil and decelerating inflation.

Today, we're proud to formally announce Dr. Clare Losey as ABoR's first Housing Economist.