Rick Seese has 47 years experience working in real estate market, and each month, he shares the latest news and outlook for Lowell-area housing market.

April 2024 Edition

-History of U.S. Inflation
-History of U.S Mortgage Rates
-Monthly Summary

Earlier last week, while reviewing real estate statistics from my most trusted source, The Greater Regional Alliance of Realtors, I noticed some discrepancies in the data. Upon consulting with our association’s IT expert, my suspicions were confirmed. As of last Friday, the glitches in the MarketStats program had not been resolved. Consequently, we find ourselves navigating this month without access to statistics. For me, it feels a like going to work without my shoes on – I must confess, I’m a bit of a statistics nerd.

Assurances have been made that the statistical functions will be restored before next month’s article. In the meantime, this month presents an opportunity to delve into the history of inflation, interest rates, and my personal “observation” as to the current status of our real estate market.

History Of U.S. inflation – Six Inflationary Episodes

Episode 1: July 1946–October 1948 Following World War II, the United States faced a period of inflation comparable to previous episodes during the Civil War and World War I. Prices surged after the war, with inflation peaking at over 20 percent in 1947. This rapid post-war inflation was driven by the elimination of price controls, supply shortages, and pent-up demand.

Episode 2: December 1950–December 1951 The outbreak of the Korean War in June 1950 led to a rebound in prices after a mild recession. Demand spiked, leading to fears causing rationing and supply shortages reminiscent of World War II.

Episode 3: March 1969–January 1971 A booming economy fueled inflation during this period, with GDP growth averaging 4.8% annually from 1965 to 1969. Inflation eased after President Nixon imposed a freeze on wages and prices.

Episode 4: April 1973–October 1982 The 1970’s saw prolonged inflation due to two oil price surges. The first was caused by an oil embargo by OPEC, while the second resulted from disruptions in oil production due to the Iranian Revolution and the Iran–Iraq War. Federal Reserve Chair Paul Volcker raised interest rates to combat inflation.

Episode 5: April 1989–May 1991 This fifth inflationary episode occurred when Iraq invaded Kuwait, leading to the first Gulf War. The price of crude oil increased significantly due to heightened uncertainty, leading to a short bout of high inflation.

Episode 6: July 2008–August 2008 In 2008, soaring gas prices caused the Consumer Price Index (CPI) to exceed 5% for two months, with crude oil prices reaching over $140 per barrel.
Inflation Today

After decades of stable inflation, the U.S. experienced a sharp rise in prices starting in 2021. The annual inflation rate, measured by the CPI, climbed from 1.7% in February 2021 to over 5% in June 2021, peaking at around 9% in June 2022.

This increase has been attributed to various factors, including federal responses to the COVID-19 pandemic, which boosted consumer and business demand, along with tightened labor markets that led to wage and price pressures. Throughout the pandemic, supply chain disruptions added to consumer’s willingness to pay more for many items.

Currently, the CPI hovers around 3-3.5%, well below its peak of 9%. The Federal Reserve aims to bring it down to 2%. Until inflation shows signs of heading towards this target, interest rates may remain unchanged. Therefore, monitoring the CPI is crucial for policymakers and economists alike. We are all keeping an eye on the CPI.

History Of U.S. Mortgage Interest Rates

In the early 1980s, the median price of homes in the U.S. stood at $63,700, as reported by the Department of Housing and Urban Development (HUD). By 1990, this median had nearly doubled, reaching $123,900. Fueled by escalating inflation, the 30-year fixed mortgage rate soared to a peak of 18.4% in October 1981. Subsequently, as the Federal Reserve successfully tackled inflation, the 30-year rate gradually declined to the 9% range, ending the decade at 9.78%.

The 1990s witnessed a significant shift in the 30-year mortgage rate, plummeting to an average of 6.91% by 1998. However, in the latter half of the 2000s, amidst the housing market collapse triggered by the subprime mortgage crisis, the average 30-year fixed mortgage rate plummeted from approximately 8% at the decade’s outset to 5.4% by 2009. To stimulate economic recovery, the Federal Reserve implemented measures such as bulk purchases of mortgage bonds, further driving down interest rates.

Throughout the 2010s, the 30-year mortgage rate continued its downward trajectory, commencing in the 4% range, dipping below the 4% mark, and concluding the decade within that range. These historically low rates were partly attributed to the Federal Reserve’s reduction in bond purchases.

In 2020, mortgage rates reached new lows, with the 30-year fixed rate dropping to just under 3%, averaging 3.38%. Amid the COVID-19 pandemic, apprehensive investors sought refuge in safer assets like Treasury and mortgage bonds, pushing yields and mortgage rates lower. Although rates began to rise in 2021, the ongoing pandemic tempered their ascent.

However, in 2022 and 2023, determined to quell surging inflation, the Federal Reserve initiated a series of interest rate hikes, leading mortgage rates to follow suit. By October 2022, the 30-year rate surpassed 7%, eventually settling into the 6% range in the first half of 2023. However, by July 2023, rates reversed course, and by October, the 30-year rate breached 8%. Presently, the average 30-year fixed rate hovers between 7.0% and 7.5%.

April 2024 Monthly Summary

Without the availability of local and West Michigan statistics to analyze this month, the overall sentiment remains similar to that of last month. As we approach the typical demand surge of the spring market, there is a noticeable increase in inventory, more “for sale” signs dotting neighborhoods, and a heightened interest from potential buyers. However, a notable difference may be the slight decrease in demand, possibly due to fewer first-time homebuyers entering the market, signaling ongoing affordability challenges.

While preparing the information to align with the historical graphing, it’s calming to observe that inflation is nearing normal levels seen since the early 1980s, and mortgage interest rates are not far from the range observed between 1990 and around 2008. One undeniable trend is the significant escalation in home values over the years, enabling generations to accumulate equity and fulfill the American Dream of homeownership.

Looking ahead, there’s hope that interest rates will decline in the coming months, ensuring that future generations can also embrace the same American Dream of owning a home.

 

 

Rick Seese works with buyers and sellers of residential, commercial, and industrial real estate. He is an Associate Broker with Greenridge Realty, Inc. and has been licensed full-time for over 40 years. If you’re interested in reaching out to Rick for more information, or have a question for the monthly article, you can contact him via email ([email protected]), visit his website at www.rickseese.com or Facebook page or call/text him at 616-437-2576.