Source: Keys and Mulder, National Bureau of Economic Research (2024) Note: State average is shown in counties with few or no observations. Enid, Okla., surrounded by farms about 90 minutes north of Oklahoma City, has an unwelcome distinction: Home insurance is more expensive, relative to home values, than almost anywhere else in the country. Enid […] More
Owners of some rental buildings are starting to struggle because of rising interest rates and waning demand in some once booming Sun Belt cities.It might seem like a great time to own apartment buildings.For many landlords, it is. Rents have soared in recent years because of housing shortages across much of the country and a bout of severe inflation.But a growing number of rental properties, especially in the South and the Southwest, are in financial distress. Only some have stopped making payments on their mortgages, but analysts worry that as many as 20 percent of all loans on apartment properties could be at risk of default.Although rents surged during the pandemic, the rise has stalled in recent months. In many parts of the country, rents are starting to fall. Interest rates, ratcheted higher by the Federal Reserve to combat inflation, have made mortgages much more expensive for building owners. And while homes remain scarce in many places, developers may have built too many higher-end apartments in cities that are no longer attracting as many renters as they were in 2021 and 2022, like Houston and Tampa, Fla.These problems haven’t yet turned into a crisis, because most owners of apartment buildings, known in the real estate industry as multifamily properties, haven’t fallen behind on loan payments.Only 1.7 percent of multifamily loans are at least 30 days delinquent, compared with roughly 7 percent of office loans and around 6 percent of hotel and retail loans, according to the Commercial Real Estate Finance Council, an industry association whose members include lenders and investors.But many industry groups, rating agencies and research firms are worried that many more apartment loans could become distressed. Multifamily loans make up a majority of loans newly added to watch lists compiled by industry experts.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
Home building in May fell to its slowest pace in four years despite a supply shortage. That trend could put even greater strain on buyers.Construction of new homes in the United States dropped below expectations in May as builders pull back on new residential projects largely in response to high interest rates, reinforcing concerns about stubbornly high housing prices.Government data released on Thursday showed that new-home construction, or housing starts, fell 5.5 percent last month to an annualized rate of 1.28 million, a sign of more cracks in the already shaky housing market. Slower construction of both single-family and multifamily homes contributed to the overall drop. Building permits dipped 3.8 percent, pointing to less future construction.This downturn in home building comes as the average rate on 30-year mortgages, the nation’s most popular home loan, has reached highs not seen in decades, though the rate dipped slightly this week to 6.87 percent, Freddie Mac reported on Thursday.The magnitude of the decrease in construction last month underscores that high interest rates are both weakening housing demand and raising costs for builders — two dynamics that are ultimately contributing to builders’ reluctance to start projects. Home builder sentiment dropped in May to its lowest level this year before falling even further this month, suggesting relatively tepid home construction data in the coming months, Daniel Vielhaber, an economist at Nationwide, said in a statement.The weakening in construction, in turn, is only putting more strain on prospective home buyers.“If you’re a consumer, if you’re someone looking to buy a home, what you ultimately want is a lot more supply,” said Chen Zhao, who leads the housing economics team at the real estate services company Redfin. “The key to having more housing supply is that we need more building. So any time we see that there is less building, that is bad news.”The latest housing construction data, released by the U.S. Census Bureau and the Department of Housing and Urban Development, reinforces that consumers are unlikely to see home prices drop by much over the next couple of years, Ms. Zhao said. The data point, she added, represents “one more factor that would keep home price growth high” because it points to a tighter housing supply in the next year or two.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
The Housing Market Is Weird and Ugly. These 5 Charts Explain Why.Home prices have held up better than expected amid high interest rates. But that doesn’t mean the housing market is healthy. More
High rates usually pull down asset prices and hurt the housing market. Those channels are muted now, possibly making policy slower to work.More than two years after the Federal Reserve started lifting interest rates to restrain growth and weigh on inflation, businesses continue to hire, consumers continue to spend and policymakers are questioning why their increases haven’t had a more aggressive bite.The answer probably lies in part in a simple reality: High interest rates are not really pinching Americans who own assets like houses and stocks as much as many economists might have expected.Some people are feeling the squeeze of Fed policy. Credit card rates have skyrocketed, and rising delinquencies on auto loans suggest that people with lower incomes are struggling under their weight.But for many people in middle and upper income groups — especially those who own their homes outright or who locked in cheap mortgages when rates were at rock bottom — this is a fairly sunny economic moment. Their house values are mostly holding up in spite of higher rates, stock indexes are hovering near record highs, and they can make meaningful interest on their savings for the first time in decades.Because many Americans feel good about their personal finances, they have also continued opening their wallets for vacations, concert tickets, holiday gifts, and other goods and services. Consumption has remained surprisingly strong, even two years into the Fed’s campaign to cool down the economy. And that means the Fed’s interest rate moves, which always take time to play out, seem to be even slower to work this time around.“Household finances broadly still look pretty good, though there is a group feeling the pain of high interest rates,” said Karen Dynan, an economist at Harvard and a former chief economist at the Treasury Department. “There are a lot of households in the middle and upper part of the distribution that still have a lot of wherewithal to spend.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
The Federal Reserve still expects to cut rates this year, and a change in selling practices could shake up home shopping. Here’s the outlook.Federal Reserve officials are planning to cut interest rates this year, real estate agents are likely to slash their commissions after a major settlement and President Biden has begun to look for ways his administration can alleviate high housing costs.A lot of change is happening in the housing market, in short. While sales have slowed markedly amid higher interest rates, both home prices and rents remain sharply higher than before the pandemic. The question now is whether the recent developments will cool costs down.Economists who study the housing market said they expected cost increases to be relatively moderate over the next year. But they don’t expect prices to actually come down in most markets, especially for home purchases. Demographic trends are still fueling solid demand, and cheaper mortgages could lure buyers into a market that still has too few homes for sale, even if lower rates could help draw in more supply around the edges.“It has become almost impossible for me to imagine home prices actually going down,” said Glenn Kelman, the chief executive of Redfin. “The constraints on inventory are so profound.”Here’s what is changing and what it could mean for buyers, sellers and renters.Interest rates are expected to fall.Mortgages have been pricey lately in part because the Fed has lifted interest rates to a more-than-two-decade high. The central bank doesn’t set mortgage rates, but its policy moves trickle out to make borrowing more expensive across the economy. Rates on 30-year mortgages have been hovering just below 7 percent, up from below 3 percent as recently at 2021.Those rates could come down when the Fed lowers borrowing costs, particularly if investors come to expect that it will cut rates more notably than what they currently anticipate.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
The president and his team are seeking ways to help Americans afford to rent and buy homes, as high borrowing costs dampen views of the economy.President Biden and his economic team, concerned that elevated mortgage rates and housing costs are hurting Americans and hindering his re-election bid, are searching for new ways to make housing more available and affordable.Mr. Biden’s forthcoming budget request will call on Congress to pass a raft of initiatives to build more affordable housing and help certain Americans afford to purchase a home. The president is also expected to address housing affordability for both homeowners and renters in his State of the Union address next week, according to people familiar with the speech planning.On Thursday, administration officials announced a handful of relatively modest executive actions, including steps to increase the supply of manufactured homes. White House officials said this week that they would announce “additional actions we are taking to lower housing costs.”The increased focus on housing affordability comes as congressional Republicans assail Mr. Biden over high mortgage rates and housing costs, and as allies of the president warn that those costs are hurting working-class voters he needs to win in November.There is little Mr. Biden can do immediately and directly to affect mortgage rates. Those are heavily influenced by the Federal Reserve’s interest rate policies, and the White House is careful not to appear to be pressuring the central bank to cut rates. Fed officials have signaled that they expect to begin cutting rates this year.New research from economists at Harvard University and the International Monetary Fund — including Lawrence H. Summers, the former Treasury secretary — suggests high mortgage rates and other borrowing costs are contributing to Americans’ relatively gloomy mood about the economy, despite low unemployment and healthy growth. By weighing on consumer confidence, those costs could be depressing Mr. Biden’s re-election hopes.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
The Federal Reserve is poised to cut rates in 2024 while moving away from balance sheet shrinking. Yet a key event looms in the backdrop: the election.This year is set to be a big one for Federal Reserve officials: They are expecting to cut interest rates several times as inflation comes down steadily, giving them a chance to dial back a two-year-long effort to cool the economy.But 2024 is also an election year — and the Fed’s expected shift in stance could tip it into the political spotlight just as campaign season kicks into gear.By changing how much it costs to borrow money, Fed decisions help to drive the strength of the American economy. The central bank is independent from the White House — meaning that the administration has no control over or input into Fed policy. That construct exists specifically so that the Fed can use its powerful tools to secure long-term economic stability without regard to whether its policies help or hurt those running for office. Fed officials fiercely guard that autonomy and insist that politics do not factor into their decisions.That doesn’t prevent politicians from talking about the Fed. In fact, recent comments from leading candidates suggest that the central bank is likely to be a hot topic heading into November.Former President Donald J. Trump, the front-runner for the Republican nomination, spent his tenure as president jawboning the Fed to lower interest rates and, in recent months, has argued in interviews and at rallies that mortgage rates — which are closely tied to Fed policy — are too high. It’s a talking point that may play well when housing affordability is challenging many American families.Still, Mr. Trump’s history hints that he could also take the opposite tack if the Fed begins to lower rates: He spent the 2016 election blasting the Fed for keeping interest rates low, which he said was giving incumbent Democrats an advantage.President Biden has avoided talking about the Fed out of deference to the institution’s independence, something he has referenced. But he has hinted at preferring that rates not continue to rise: He recently called a positive but moderate jobs report a “sweet spot” that was “needed for stable growth and lower inflation, not encouraging the Fed to raise interest rates.”The White House did not provide an on-the-record comment.Such remarks reflect a reality that political polling makes clear: Higher prices and steep mortgage rates are weighing on economic sentiment and turning voters glum, even though inflation is now slowing and the job market has remained surprisingly strong. As those Fed-related issues resonate with Americans, the central bank is likely to remain in the spotlight.“The economy is definitely going to matter,” said Mark Spindel, chief investment officer at Potomac River Capital and co-author of a book about the politics of the Fed.Fed policymakers raised interest rates from near zero to a range of 5.25 to 5.5 percent, the highest in 22 years, between early 2022 and summer 2023. Those changes were meant to slow economic growth, which would help to put a lid on rapid inflation.But now, price pressures are easing, and Fed officials could soon begin to debate when and how much they can lower rates. Policymakers projected last month that they could cut borrowing costs three times this year, to about 4.6 percent, and investors think rates could fall even further, to about 3.9 percent by the end of the year.Officials have also been shrinking their big balance sheet of bond holdings since 2022 — a process that can push longer-term interest rates up at the margin, taking some vim out of markets and economic growth. But officials have signaled in recent minutes that they might soon discuss when to move away from that process.Already, the mortgage costs that Mr. Trump has been referring to have begun to ease as investors anticipate lower rates: 30-year rates peaked at 7.8 percent in late October, and are now just above 6.5 percent.While the Fed can explain its ongoing shift based on economics — inflation has come down quickly, and the Fed wants to avoid overdoing it and causing a recession — it could leave central bankers adjusting policy at a critical political juncture.Jerome H. Powell, the Fed chair, was nominated to the role by former President Donald J. Trump, who quickly soured on Mr. Powell, calling him an “enemy.”Pete Marovich for The New York TimesFormer and current Fed officials insist that the election will not really matter. Policymakers try to ignore politics when they are making interest rate decisions, and the Fed has changed rates in other recent election years, including at the onset of the pandemic in 2020.“I don’t think politics enters the debate very much at the Fed,” said James Bullard, who was president of the Federal Reserve Bank of St. Louis until last year. “The Fed reacts the same way in election years as it does in non-election years.”But some on Wall Street think that cutting interest rates just before an election could put the central bank in a tough spot optically — especially if the moves occurred closer to November.“It will be increasingly uncomfortable,” said Laura Rosner-Warburton, senior economist and founding partner at MacroPolicy Perspectives, an economic research firm. Cutting rates sooner rather than later could help with those optics, several analysts said.And Mr. Spindel predicted that Mr. Trump was likely to continue talking about the Fed on the campaign trail — potentially amplifying any discomfort.Since the early 1990s, presidential administrations have generally avoided talking about Fed policy. But Mr. Trump upended that tradition both as a candidate and then later when he was in office, regularly haranguing Jerome H. Powell, the Fed chair, on social media and in interviews. He called Fed officials “boneheads,” and Mr. Powell an “enemy.”Mr. Trump had nominated Mr. Powell to replace Janet L. Yellen as Fed chair, but it did not take long for him to sour on his choice. Mr. Biden renominated Mr. Powell to a second term. Mr. Trump has already said he would not reappoint Mr. Powell as Fed chair if he was re-elected.Of course, this would not be the first time the Fed adjusted policy against a politically fraught backdrop. There was concern among some economists that rate cuts in 2019, when the Trump administration was pushing for them, would look like caving in. Central bankers lowered rates that year anyway.“We never take into account political considerations,” Mr. Powell said back then. “We also don’t conduct monetary policy in order to prove our independence.”Economists said the trick to lowering rates in an election year would be clear communication: By explaining what they are doing and why, central bankers may be able to defray concerns that any decision to move or not to move is politically motivated.“The key thing is to keep it legible and legitimate,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “Why are they doing what they are doing?” More
