Real Estate Market Madness: House-Hunting Frenzy Coming Soon?

Hold onto your avocado toast, folks! In a not-so-scientific, but eye-opening LinkedIn survey, a sharp-witted acquaintance of mine posed a few questions about home ownership. As a result of his survey, I found in my own research, a whopping 28 million Americans are itching to become homeowners. Meanwhile, the number of available houses for sale is as scarce as a parking spot in front of a trendy café. Even if we assume only a fraction of these eager buyers are qualified, we’re still left with a glaring shortage of properties.

So, for those of your clients waiting for prices to drop, you might consider a confab with them because it’s gonna be a while! With the demand-supply mismatch, any dream discount is probably sunbathing in a remote tropical paradise. For the hopeful few waiting for interest rates to hit rock bottom, please remind them that once those rates go down, it’ll be like ringing the dinner bell for a bunch of frenzied buyers. Remember your ECON 101: competition creates upward pressure on prices when supply is scarce. Oh, and or all the miracle-seekers out there, let’s face it, hope alone won’t make those housing dreams come true.

Now, let me hit you with a some fact sprinkles on top: Did you know that real estate is the magical ingredient behind the net worth of the wealthiest folks? Yep, those homeowners have a jaw-dropping 40 times the net worth of us mere renters. So, if you’re wondering whether the real estate business is worth sticking around for, think of those 28 million eager buyers who can’t wait to get their hands on a house. And get ready for some real excitement, because Gen Z, the millennials’ successors, are about to join the party too. It’s time to buckle up and enjoy this wild ride in the real estate market! Want to get your clients pre-approved? I would be honored to help. Call me anytime at 650-207-4364 or send me an email to:

Here’s what I wrote about his impromptu survey on LinkedIn last week (see below).

Yes, I know this is not scientific and yes, it’s a super small sample. BUT it is representative of much of what I hear when I speak to referral partners and borrowers.

SO, let me throw some FACTS at you:

28 Million people in the United States want to buy houses. TODAY!

– There are currently less than 600,000 actively listed homes in the United States.

– Even if (as a friend pointed out) only a fraction of those 28 million were qualified to purchase (let’s just use 10% for argument’s sake), there is STILL NOT ENOUGH INVENTORY TO MEET DEMAND.

Let me say this another way: The 50% of you waiting for a price drop may be waiting for a while (read: given the imbalance in supply versus demand, your discount likely isn’t coming).

– For the small percentage of you waiting for interest rates to drop, it’s possible. However, will prices remain steady or will a bunch of buyers rush in from the sidelines when rates move down?

ECON 101: – Competition creates upward price pressure when supply is short.

– For those of you waiting on a miracle? HOPE IS NOT A STRATEGY!

Here are a couple more tidbits to chew on:

Net worth is the sum of all that you own minus all that you owe. In the United States:

  • Top 1% of net worth holders have $10.8 million in net worth
  • Top 2% of net worth holders have $2.4 million in net worth
  • Top 5% of net worth holders have $1 million in net worth
  • Top 10% of net worth holders have $800,000 in net worth

Where does 60%+ of this net worth come from? REAL ESTATE

Homeowners have 40 times the net worth of renter ($255,000 on average versus $6,300)

For those of you wondering if the business is worth hanging around for, there are 28 million people that want to buy houses (see above). By the time we reach 2025, Gen Z, who currently make up 30 percent of the world’s population and are expected to account for 20 percent of the workforce. And despite what you may have heard about them and avocado toast, THEY WANT TO BUY HOUSES TOO. Hang on, it’s about to get fun.


Mortgage Rates Continue to Come Down

Primary Mortgage Market Survey® U.S. weekly averages as of June 15, 2023

Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve. As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next.

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the authors attempt to provide reliable, useful information, they do not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. ©2023 by Freddie Mac.

Multifamily starts jumped even more: 28.1% from last month and 39.6% vs a year ago.  Multifamily continues eating into the market share of single family construction, growing 2.4% faster from last month and 33.7% faster over the past 12 months.  In terms of outright levels, multi-fam starts are the highest since the 1980s.  That said, single family construction still has a bigger piece of the pie.
One striking feature of this month’s numbers is the sharp reversal from a trend negative growth to positive.  In fact, the year-over-year change in housing starts was at a 14 year low last month.  Today’s data leaves May at a 13 month high (also the first positive reading during that time).
Granted, part of the reason such things are possible is the fact that last year saw a sharp decline from April to May (i.e. today’s data is now compared against a much shorter yard stick), but even then, the outright level of starts is the 10th highest in over a decade.

Week of June 12, 2023 in Review

Following its string of aggressive rate hikes, the Fed left their benchmark Fed Funds Rate unchanged at their latest meeting. Plus, there were more signs of declining inflation and rising unemployment claims. Here are last week’s headlines:

  • Fed Skips Hike to Fed Funds Rate
  • Annual Consumer Inflation Hits 2-Year Low
  • Another Big Decline in Annual Wholesale Inflation
  • Job Search Challenges Remain

Fed Skips Hike to Fed Funds Rate

After ten rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5% to 5.25% at their meeting last Wednesday. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.

What’s the bottom line? The Fed kept the Fed Funds Rate unchanged to give themselves more time to assess incoming data. In his press conference following the meeting, Fed Chair Jerome Powell stressed that the Fed is “strongly committed” to returning inflation to their 2% target as measured by the Core Personal Consumption Expenditures Index.

Powell also noted that “nearly all Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time.” Upcoming labor and inflation data will be key factors in whether the Fed chooses to hike the Fed Funds Rate at its next meeting on July 25-26.

Annual Consumer Inflation Hits 2-Year Low

Consumer inflation rose 0.1% in May per the Consumer Price Index (CPI), with this headline reading coming in just below estimates. On an annual basis, CPI fell sharply from 4.9% in April to 4% last month, reaching its lowest level since April 2021. Core CPI, which strips out volatile food and energy prices, increased 0.4% while the annual reading declined from 5.5% to 5.3%.

Stubbornly high costs for shelter and used cars were key contributors to inflation last month, with shelter in particular accounting for over 60% of the total increase in Core CPI per the Bureau of Labor Statistics.

However, shelter costs have been falling in more real-time data. For example, Apartment List’s latest Rent Report showed that year-over-year rent growth decelerated to just 0.9% in May, the lowest level since March 2021. These declines are not fully reflected in the CPI report yet but should add more downside pressure to inflation once they are.

 What’s the bottom line? Inflation has declined sharply from the 9.1% peak seen last June and is now less than half that amount at 4% on the headline reading. While inflation is still elevated, signs of easing inflation are welcome. Declining inflation not only signifies lower costs for some goods and services, but lower inflation also typically helps both Mortgage Bonds and mortgage rates improve over time.

Another Big Decline in Annual Wholesale Inflation

The Producer Price Index (PPI), which measures inflation on the wholesale level, decreased by 0.3% in May, coming in below expectations. On an annual basis, PPI saw a sharp decline from 2.3% to 1.1%, which is the lowest level since December 2020. Core PPI, which also strips out volatile food and energy prices, rose by 0.2% with the year-over-year reading dropping from 3.2% to 2.8%.

What’s the bottom line? Annual wholesale inflation readings have also made significant improvement as they continue to move lower in the right direction. At its peak last March, PPI was at 11.7% year-over-year and it is now at 1.1%, which is a decline of 10.6%!

Job Search Challenges Remain

 jobless claims (7)

Initial Jobless Claims remained elevated in the latest week, as 262,000 people filed for unemployment benefits for the first time. This matched the number of filers reported in the previous week after that data was revised slightly higher. The number of people still receiving benefits after their initial claim is filed also remained elevated with 1.775 million Continuing Claims reported.

What’s the bottom line? There is a clear upward trend in unemployment claims, with Initial Claims remaining above 200,000 each week since February and the latest reading the highest seen since November 2021. The 4-week average of Initial Claims, which smooths out some of the weekly fluctuation, also rose to its highest level since last August at 247,000.

Continuing Claims are also nearly 500,000 higher than the low point of 1.289 million filers seen last September, reflecting the challenges many people are having as they search for new employment.

With the Fed focused on employment data, this was an important real-time report showing that the labor market is weakening. And while Retail Sales rose unexpectedly last month, it will be important to see if rising layoffs will limit consumer spending this summer.

What to Look for This Week

Housing reports will dominate this week’s calendar, starting Monday with an update on builder confidence this month from the National Association of Home Builders. May’s Housing Starts and Building Permits follow on Tuesday, while Existing Home Sales releases on Thursday.

The latest Jobless Claims will also be reported as usual on Thursday.

Technical Picture

Mortgage Bonds were able to close above support at the 25-day Moving Average last Friday. The 10-year remains in a very wide range between support at 3.65% and overhead resistance at 3.85%.

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