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    Mortgage Transfers Pick Up as a Way to Beat Rising Rates

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    Real estate agents are pushing sub-3 percent mortgages as an amenity, just like marble countertops or a view of the mountains.The only goal was to not lose money.When Matthew Kilboy listed the Washington, D.C., condominium that he and his husband had bought in 2017, they accepted that higher interest rates and a soft market for condos meant any dollar over the $529,000 they had paid was a dollar they would thank their lucky stars for.A similar two-bedroom and two-bath unit in the building had recently gone for just under half a million. The $549,000 price they listed in April was basically a wish.A month later, the couple closed at $565,000 — thanks to a little-known amenity that has become increasingly popular as mortgage rates have risen. Their unit came with an assumable 30-year mortgage, with a 2.25 percent fixed rate that the couple had locked in after a November 2020 refinancing. By advertising that the buyer could inherit the mortgage, the couple, who have moved to Denver, got several over-asking-price bids that seemed like a relic from the warped real estate market during the Covid lockdown.“It was the very first sentence of the listing,” said Mr. Kilboy, 39, a former Navy nurse whose loan, backed by the Department of Veterans Affairs, could be passed to the buyer. “No one could find an interest rate that low, so we were really pushing it.”The Federal Reserve might have slowed interest rate increases, but monthly mortgage costs remain more than double their levels from 18 months ago. This has significantly lowered the supply of for-sale inventory by discouraging the millions of homeowners who locked in bargain rates during the pandemic from selling their home and incurring potentially hundreds of dollars a month in extra borrowing costs on a new one.Because so little is for sale, home prices have remained stable, and even resumed their ascent, despite a huge increase in borrowing costs. The refrain among real estate agents and economists is that anyone who secured a mortgage rate of 3 percent or lower owns a valuable asset that they are loath to give up.But every asset has a price. And now an emerging cadre of investors and real estate agents are trying to, in effect, sell mortgage rates from several years ago by transferring them to new buyers.Redfin, the real estate brokerage, has seen a steep rise in listings like Mr. Kilboy’s that have comments like “beautiful home with assumable loan at 3.25 percent.” Facebook groups have popped up to find buyers for them, while new companies are pitching services to speed up the transfer.“Homeowners with mortgages that are capable of being assumed have something valuable that many home buyers want and would be willing to pay for,” said Daryl Fairweather, chief economist at Redfin. “For people who bought when home prices were near the peak but mortgage rates were still low, it may be an attractive way to get out of a remorseful purchase.”The assumable mortgage on Matthew Kilboy’s previous home had a 2.25 percent fixed rate, making it very attractive to buyers.Benjamin Rasmussen for The New York TimesInvestors are just as eager: The euphemistic “creative finance” has become a huge topic of conversation on sites like BiggerPockets, a forum where landlords trade tips on topics like operating short-term rentals and buying a first investment property. In books, seminars and YouTube videos, influencers peddle advice on how to find struggling homeowners willing to transfer a low-rate mortgage without their bank’s knowledge — a valuable but immensely risky strategy that title companies say they’ve seen more of.“It’s just too appealing,” said Scott Trench, chief executive of Bigger Pockets, adding the disclaimer that many of these strategies frequently involve extra risks and paperwork that most people are unfamiliar with.From the pedestrian to the dodgy, it all seems to underscore the manner in which the nation’s real estate market has been frozen by regret. Buyers are resentful that the low-cost mortgages are gone. Sellers are reluctant to lower their prices from the peaks of the pandemic. In lieu of acceptance, a determined few are trying to use imagination and fine print to build a portal to the cheap-money days of 2021.Most U.S. mortgages are not directly assumable. However, a host of popular government-backed mortgages — such as those insured by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture — typically are, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. These loans are frequently used by first-time buyers and account for roughly a quarter of outstanding mortgages, according to Black Knight, a mortgage technology and data provider.In theory, any of the millions of homeowners holding a assumable low-rate mortgage have a valuable perk to sell with their home. Still, real estate agents say it can be hard in practice to transfer them. For instance, homeowners who transfer a V.A.-backed mortgage can lose their ability to get another similar loan unless they can find a V.A.-eligible buyer to take their original mortgage.Or consider a homeowner who has a low-rate mortgage but has paid a chunk of it down: To assume the loan, a buyer would have to come up with a large down payment to account for the seller’s equity — something that very few people can do.Craig O’Boyle is hoping to create a business making assumptions faster and easier. Mr. O’Boyle is a real estate agent who has been selling homes in Colorado for three decades, long enough that he remembers having to read through the door-stopper contracts that buyers and sellers now just click through on DocuSign. Reading over the lines about certain loans being assumable, he said, he had long thought that if rates ever spiked those owners would suddenly discover that their debts had value.“And then here comes this shift in the interest rate market,” Mr. O’Boyle said.Last year, he and a partner started Assumption Solutions, a consulting firm that, for a $1,100-per-deal processing fee, helps real estate agents navigate transferring mortgages between sellers and buyers. In his pitch to agents, Mr. O’Boyle argues that they push sub-3 percent rates as they do marble countertops or a view of the mountains.“You market this, and let’s say you’re competing against the house next door, your house should sell either faster or for more money,” he said.Even for the vast majority of people using a conventional mortgage that can’t be transferred, some sort of rate compensation is becoming the norm. While home prices have fallen from their all-time high last June, they haven’t come down nearly enough to make up for the increase in mortgage rates, and they’re rising again.To stimulate new loans, mortgage companies have started marketing products in which borrowers can “buy down” rates by paying several thousand dollars for a year or two of significantly lower interest. One of the more popular products is a “2/1 buydown,” in which a borrower pays for an interest rate reduction of two percentage points during the first year and one percentage point in the second.Put simply: “Most homes are unaffordable at today’s rates,” said Luis Solis, a real estate agent in Phoenix and Portland, Ore.A majority of Mr. Solis’s recent deals have had some form of interest rate compensation that is a price cut in all but name, he said. Usually it’s a lump sum at closing that buyers use to buy temporarily lower rates. Sellers with a lot of equity can cut out the middleman and finance the buyer’s purchase below prevailing rates by acting as a lender — seller financing, it’s called.Assuming mortgages, paying down rates: These are creative but straightforward solutions to rising borrowing costs. But on the margins, a rising number of investors looking to buy homes with minimal cash are trying a gray technique of finance — known as “Subject to” or “Subto” — in which they try to find people who have fallen behind on their debts and make a side agreement to take over their (low-interest) payments. (The deal is said to be “subject to” an existing loan.)The strategy has obvious appeal when interest rates are high, but it comes with a huge asterisk: Once a home has changed hands, banks typically have the right to call the loan — that is, demand that the seller’s mortgage balance be paid in full immediately. Also, if the buyer falls behind on the payments, the property can be still foreclosed on — ruining the seller’s credit, for a home that he or she no longer owns.Despite this, Bill McAfee, president of Empire Title, said he has seen an increase in customers looking to change their title under these terms, and has stock disclosures warning both sides what can go wrong.“I’m not saying I agree with doing this, but it’s a way to get into property with very little money,” he said. “They have to figure out if it’s worth the risk.” More

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    Housing Market Gridlock: Buyers Are Eager, but Sellers Are Scarce

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    Homeowners with low-rate mortgages are delaying the decision to sell until market conditions change.The housing market typically comes to life in spring, when buyers emerge in the warmer weather. This year, the market appears stuck in a deep freeze, and the biggest culprit is a lack of sellers, housing experts say.There is interest among buyers — mortgage applications were up 10 percent in March from the month before — but the number of homes for sale is low. The mismatch is caused in part by homeowners who are inclined to sell but are sitting on the sidelines, scared off by the steep prices and mortgage rates that they would face as buyers.More than three-quarters of sellers in a recent survey by Realtor.com said they felt “locked in” to their home by their own low mortgage rate, according to a recent survey by Realtor.com. More than half said they planned to wait until rates fell before putting their homes on the market.Sandy Robinson, a 71-year-old retired teacher in Fairhaven, Mass., is daunted by the market. She would like to sell her two-bedroom townhouse but is worried about being able to afford a new home. “It’s a little scary now, and you have to be careful,” she said.A stalemate has mired the housing market, when it should be more robust. Sales of existing homes in March were down 22 percent from the year before, according to the National Association of Realtors. The inventory of unsold homes on the market at the end of March totaled 2.6 months’ supply, meaning it would take that long to sell them. Inventory is typically twice that amount to balance supply and demand.“We are in a real gridlock situation,” said Robert Frick, corporate economist at the Navy Federal Credit Union. “It’s going to be a tortuous process to unfreeze the market and take a long time to get back to a normal supply-and-demand situation.”Fewer homes for sale mean more competition among buyers, which leads to bidding wars and drives up prices. Although down from recent highs, the average price of a house remains about 40 percent higher than at the beginning of 2020, according to the S&P CoreLogic Case-Shiller index, which measures prices across the nation.“Everybody is a little surprised at the level of price resilience,” said Todd Teta, chief product and technology officer for Attom Data Solutions, a real estate analytics firm.Ellen Goldman and Sam Savage are looking to downsize from the Florida home they have lived in since 2004 but are in no rush to sell.Scott McIntyre for The New York TimesMatt Berger would like to sell his three-bedroom starter home in Lebanon, Ohio, where he lives with his wife and two young children, but is holding back. “It feels tight now, and will only get tighter as the kids grow,” he said.They are looking to move closer to Cincinnati, but homes they could afford a year ago are now out of their price range. Adding to the pressure is the low mortgage rate on their current home: “We are in the mid-threes” — roughly half the national average — “and I’d hate to have to say goodbye to that,” said Mr. Berger, 42.“It’s a doubly whammy of the higher interest rates and the home values being so high, and that is scaring us off,” he added. He and his wife are hoping that mortgage rates will fall and they find a cheaper home in a year or two, before their children are settled in school.The average rate on the most popular home loan, the 30-year fixed-rate mortgage, is 6.43 percent, Freddie Mac reported on Thursday, more than twice what it was two years ago. Mortgage rates peaked above 7 percent late last year, but the decline since then has been slow and uneven.To get sellers more motivated again, rates will have to fall to the “magic mortgage rate” of 5.5 percent, according to a survey by John Burns Research and Consulting. More than 70 percent of prospective home buyers told the researchers that they were not willing to accept a mortgage above that rate.“Homeowners seem to be pretty patient right now,” said Maegan Sherlock, a senior research analyst at John Burns. “Until things get a little better, those people are going to hold out,” she added.Most industry experts believe the tipping point is still a ways off. “This is going to be a transition year,” said Danielle Hale, the chief economist of Realtor.com. “As we move into 2024, we should see more people with an appetite to buy.”The market also may thaw as demand from frustrated buyers is met by home builders, which “historically created first-time home opportunities and move-up opportunities,” said Mr. Teta of Attom.A lack of inventory of existing homes appears to be pushing buyers to newly built homes, a smaller market where sales have held up better. Sales of new single-family homes jumped nearly 10 percent in March from the month before, according to the Census Bureau.The National Association of Realtors forecasts that sales of new homes will increase 4.5 percent this year and 12 percent in 2024. It expects existing-home sales to drop about 9 percent this year and then bounce back in 2024.And there are always reasons that reluctant homeowners could be compelled to sell, like job relocations, downsizing or divorce, said Iliana Abella, executive director of sales at the Abella Group, a real estate brokerage in Miami.“If you are planning to stay in your home for longer than five years, 6 percent is not going to kill you,” she said of current interest rates.Still, many homeowners are content to wait.Ellen Goldman, a 72-year-old retired lawyer in Naples, Fla., is looking to downsize. She and her husband, Sam Savage, have lived in their two-story home since 2004, but realize that the stairs will get more difficult as they age.“We both work out, and it’s not an issue,” Ms. Goldman said, adding that “we want to make the move now before it becomes too hard.”But they are in no rush. “We don’t have to do this,” she said, as they keep an eye on local prices. “We would be fine staying, too.” More

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    Stress Builds as Office Building Owners and Lenders Haggle Over Debt

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    A real estate investment fund recently defaulted on $750 million of mortgages for two Los Angeles skyscrapers. A private equity firm slashed the value of its investment in the Willis Tower in Chicago by nearly a third. And a big New York landlord is trying to extend the deadline for paying down a loan for a Park Avenue office tower.Office districts in nearly every U.S. city have been under great stress since the pandemic emptied workplaces and made working from home common. But in recent months, the crisis has entered a tense phase that could damage local economies and cause financial hits to real estate investors and scores of banks.Lenders are increasingly reluctant to make new loans to owners of office buildings, especially after the collapse of two banks last month.“They don’t want to make new office building loans because they don’t want more exposure,” said Scott Rechler, a New York landlord who is a big player in the city’s office market and sits on the board of the Federal Reserve Bank of New York.The timing of the pullback in lending couldn’t be worse. Landlords need to refinance about $137 billion of office mortgages this year and nearly half a trillion dollars in the following four years, according to Trepp, a commercial real estate data firm. The Federal Reserve’s campaign to fight inflation by raising interest rates has also substantially raised the cost of loans still on offer.Banks’ unwillingness to lend and building owners’ desperation for credit have created a standoff. Lenders want to extend loans and make new ones only if they can get better terms. Many landlords are pushing back, and some are threatening to default, effectively betting that banks and investors stand to lose more in a foreclosure. Blackstone slashed the value of the Willis Tower in Chicago by 29 percent. Lyndon French for The New York TimesThe Willis Tower, formerly the Sears Tower, is the third tallest in the country.Lyndon French for The New York TimesHow private negotiations between lenders and building owners are resolved could have major ramifications. Defaults could heap pressure on regional banks and help push the economy into recession. Local property tax revenue, already under pressure, could plummet, forcing governments to cut services or lay off workers.“What we are seeing is this dance between lenders and owners,” said Joshua Zegen of Madison Realty Capital in New York, a firm that specializes in financing for commercial real estate projects. “No one knows what the right value is. No one wants to take a building back,” he said, adding that building owners don’t want to put in new capital, either.He added that the office sector was feeling far more stress than other kinds of commercial real estate like hotels and apartment buildings.Some industry experts are optimistic that given enough time, building owners and their lenders will hammer out compromises, avoiding foreclosures or a big loss in property tax revenue because everybody wants to minimize losses.“I don’t see it as something that is going to result in systematic risk,” said Manus Clancy, a senior managing director at Trepp. “It’s not going to bring down banks, but you could see some banks that have problems. Nothing gets resolved quickly in this market.”Loans on commercial buildings are typically easier than home mortgages to extend or modify. Negotiations are handled by bank executives or specialized finance firms called servicers, which act on behalf of investors that own securities backed by one or more commercial mortgages.But striking a deal can still be hard.Mr. Rechler’s company, RXR, recently stopped making payments on a loan it used to finance the purchase of 61 Broadway in downtown Manhattan. His company got its original investment in the building back after selling nearly half its stake to another investor several years ago, he said. He added that the lender, Aareal Bank, a German institution, was considering selling the loan and the building.“In this illiquid market, can they sell that loan? Can they sell the building?” Mr. Rechler said. Aareal Bank declined to comment.Blackstone bought Willis Tower for about $1.3 billion in 2015.Lyndon French for The New York TimesAnd it committed to spending $500 million on renovating the 50-year-old building.Lyndon French for The New York TimesEric Gural is a co-chief executive of GFP Real Estate, a family-owned firm that has stakes in several Manhattan office buildings, mostly older ones. He has been embroiled in nearly seven months of negotiations with a bank to extend a $30 million loan on a building in Union Square, and just two months are left on the mortgage.“I’m trying to get a one-year extension on an existing loan so I can see what interest rates look like next year, which is likely to be better than they are now,” Mr. Gural said. “Hybrid work has created fear in the banks.”Though many workers have returned to offices at least a few days a week, 18.6 percent of U.S. office space is available for rent, according to Cushman & Wakefield, a commercial real estate services firm, the most since it started measuring vacancies in 1995.Public pension funds, insurance companies and mutual fund firms that invest in bonds backed by commercial mortgages also have an interest in seeing problems resolved or put off. A wave of foreclosures would lower the value of their securities.Many of the mortgages that analysts are most worried about involve buildings in Chicago, Los Angeles, New York, San Francisco and Washington — cities where there is a glut of vacant space or where workers are reluctant to return to offices.One such property is the 108-story Willis Tower in Chicago — the third-tallest building in the country, after One World Trade Center and Central Park Tower, both in Manhattan. The giant private equity firm Blackstone bought it for about $1.3 billion in 2015 and committed to spending $500 million on renovating the 50-year-old building, formerly the Sears Tower, including adding retail space and a rooftop terrace.But in December, United Airlines, the building’s largest tenant, paid an early termination fee and vacated three floors; the company still occupies 16 floors. That month, about 83 percent of the building was occupied, according to KBRA Analytics, a credit data and research firm. Blackstone disputes those numbers; Jeffrey Kauth, a company spokesman, said that “approximately 90 percent of the office space is leased.”Blackstone recently notified some of its real estate fund investors that it had written down the value of its equity investment in Willis Tower by $119 million, or 29 percent, said a person briefed on the matter, who spoke on the condition of anonymity to discuss sensitive financial information. In March, Blackstone got a fourth extension on the $1.33 billion mortgage, pushing the due date to next year, according to Trepp. Under the terms of the loan, the firm can seek another one-year extension next year.The loan on the Gas Company Tower in downtown Los Angeles is in default.Tag Christof for The New York TimesA loan default sets up 777 Tower for potential foreclosure or sale.Tag Christof for The New York TimesBlackstone said only around 2 percent of the firm’s real estate funds were invested in office buildings — down a lot from a decade ago.Even streets with some of the priciest real estate in the country are not immune.In Manhattan, the owner of 300 Park Avenue, an office building across the street from the Waldorf Astoria, is seeking a two-year extension on a $485 million loan coming due in August, according to KBRA Analytics. The property is owned by a joint venture including Tishman Speyer and several unnamed investors.The 25-story building, built in 1955, is the headquarters for Colgate-Palmolive. But the consumer products conglomerate is shrinking its presence there.“We requested that our loan be transferred to the special servicer well in advance of its maturity so that we can work together on a mutually beneficial extension,” said Bud Perrone, a spokesman for Tishman Speyer.Portions of a bond deal that includes the 300 Park Avenue loan were downgraded last fall by Fitch Ratings because some tenants had left the building, and a lower-rated slice of the bond now trades at about 85 cents on the dollar.Across the country, an investment fund connected to the real estate giant Brookfield Properties defaulted on $750 million of loans for the Gas Company Tower and a nearby building, 777 Tower, in downtown Los Angeles, setting up a possible foreclosure or a sale of the properties, according to the fund.Andrew Brent, a spokesman for Brookfield, said in an emailed statement that office buildings suffering financial challenges were “a very small percentage of our portfolio.”Even as building owners struggle with vacancies and high interest rates, some have found a way to put their properties on a more solid footing.The owners of the Seagram Building in Manhattan have been working to refinance a portion of a loan that comes due in May.Haruka Sakaguchi for The New York TimesNew tenants are needed to fill several floors that Wells Fargo occupied in the Seagram Building.Haruka Sakaguchi for The New York TimesRFR Holding, an investment group that bought the Seagram Building in 2000, is trying to lure tenants back to the office.Haruka Sakaguchi for The New York TimesThe owners of the Seagram Building at 375 Park Avenue in Manhattan have been working to refinance a $200 million portion of a loan that comes due in May while finding new tenants to fill several floors previously occupied by Wells Fargo.RFR Holding, an investment group led by Aby J. Rosen and Michael Fuchs, bought the 38-story building in 2000 for $379 million. To entice employees back to the office, RFR last year built a $25 million “playground” in an underground garage that’s equipped with a climbing wall and pickleball and basketball courts. Four new tenants signed leases in the past few months, according to Trepp.Even with all the vacant space, some landlords like Mr. Rechler’s RXR still want to build new towers. RXR is moving ahead with plans to build what could be one of the tallest buildings in the country at 175 Park Avenue.“It’s one of a kind in what is and will always be one of the best office markets in the world,” he said, referring to the tower. More

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    When It’s Easy to Be a Landlord, No One Wants to Sell

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    Locked in at historically low interest rates. Platforms that make managing rentals a breeze. Homeowners have little incentive to put a house on the market.I’m part of the problem.Selma Hepp was talking about the housing market: how house prices remain wildly expensive compared to where they were a few years ago, how the inventory of homes for sale is still low. As the chief economist for CoreLogic, a real estate data and consulting firm, Ms. Hepp’s day job is to predict the course of rent and home sales with the math of charts and data. But instead of hard numbers she was describing her weekend home search.Ms. Hepp lives in Los Angeles, where she and her partner rent an apartment in the Mid City neighborhood. They are looking to buy, and despite making a barrage of offers they keep getting outbid on homes in the area.Their problem has an obvious remedy: Ms. Hepp owns a house in Burbank that she rents to other tenants. She could sell if she wanted, and use the cash to spruce up the next bid. Asked why she doesn’t do this, Ms. Hepp answered: “Why would I?”The rental income more than covers the mortgage, she explained, which carries a 2.8 percent interest rate that despite the recent dip is still less than half current rates. Besides, she added, the homes she’s seen on the market are so unremarkable that it doesn’t seem worth walking away from a stream of income.“I’m part of the problem — and the solution,” she said. “I don’t want to give up my inventory until I see other inventory available.”After three years of rapid price increases during the pandemic, the housing market is experiencing what economists are calling “a correction.” Monthly sales have fallen. Construction activity has slowed, and home builders are offering steep discounts and other concessions to attract buyers.As mortgage rates edge down slightly from the 20-year high of late last year, homebuilders and real estate agents both report a thaw in sales and buyer interest. But economists like Ms. Hepp are still predicting a much slower year.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Why It’s Hard to Predict What the Economy Will Look Like in 2023

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    Historical data has always been critical to those who make economic predictions. But three years into the pandemic, America is suffering through an economic whiplash of sorts — and the past is proving anything but a reliable guide.Forecasts have been upended repeatedly. The economy’s rebound from the hit it incurred at the onset of the coronavirus was faster and stronger than expected. Shortages of goods then collided with strong demand to fuel a burst in inflation, one that has been both more extreme and more stubborn than anticipated.Now, after a year in which the Federal Reserve raised interest rates at the fastest pace since the 1980s to slow growth and bring those rapid price increases back under control, central bankers, Wall Street economists and Biden administration officials are all trying to guess what might lie ahead for the economy in 2023. Will the Fed’s policies spur a recession? Or will the economy gently cool down, taming high inflation in the process?With typical patterns still out of whack across big parts of the economy — including housing, cars and the labor market — the answer is far from certain, and past experience is almost sure to serve as a poor map.“I don’t think anyone knows whether we’re going to have a recession or not, and if we do, whether it’s going to be a deep one or not,” Jerome H. Powell, the Fed chair, said during a news conference last week. “It’s not knowable.”Doubt about what comes next is one reason the Fed is reorienting its monetary policy approach. Officials are now nudging borrowing costs up more gradually, giving them time to see how their policies are affecting the economy and how much more is needed to ensure that inflation returns to a slow and steady pace.As policymakers try to guess what lies ahead, the markets that have been most disrupted in recent years illustrate how big changes — some spurred by the pandemic, others tied to demographic shifts — continue to ricochet through the economy and make forecasting an exercise in uncertainty.Housing is strange.The pandemic era has repeatedly upended the housing market. The virus’s onset sent urbanites rushing for more space in suburban and small-city homes, a trend that was reinforced by rock-bottom mortgage rates.Then, reopenings from lockdown pulled people back toward cities. That helped push up rents in major metropolitan areas — which make up a big chunk of inflation — and, paired with the Fed’s rate increases, it has helped to sharply slow home buying in many markets.The question is what happens next. When it comes to the rental market, new lease data from Zillow and Apartment List suggests that conditions are cooling. The supply of available apartments and homes is also expected to climb in 2023 as long-awaited new residential buildings are finished.The Biden PresidencyHere’s where the president stands after the midterm elections.A New Primary Calendar: President Biden’s push to reorder the early presidential nominating states is likely to reward candidates who connect with the party’s most loyal voters.A Defining Issue: The shape of Russia’s war in Ukraine, and its effects on global markets, in the months and years to come could determine Mr. Biden’s political fate.Beating the Odds: Mr. Biden had the best midterms of any president in 20 years, but he still faces the sobering reality of a Republican-controlled House for the next two years.2024 Questions: Mr. Biden feels buoyant after the better-than-expected midterms, but as he turns 80, he confronts a decision on whether to run again that has some Democrats uncomfortable.“The frame I would put on 2023 is that we’re really going to enter the year back in a demand-constrained environment,” said Igor Popov, chief economist at Apartment List. “We’re going to see more apartments competing for fewer renters.”Mr. Popov expects “small growth” in rents in 2023, but he said that outlook is uncertain and hinges on the state of the labor market. If unemployment soars, rents could fall. If workers do really well, rents could rise more quickly.At the same time, existing leases are still catching up to the big run-up that has happened over the past year as tenants renew at higher rates. It is hard to guess both how much official inflation will converge with market-based rent data, and how long the trend will take to fully play out.“It could resolve in months, or it could take a year,” said Adam Ozimek, the chief economist at the Economic Innovation Group.Then there’s the market for owned housing, which does not count into inflation but does matter for the pace of overall economic growth. New home sales have fallen off a cliff as surging mortgage costs and the recent price run-up has put purchasing a house out of reach for many families. Even so, new mortgage applications have ticked up at the slightest sign of relief in recent months, evidence that would-be buyers are waiting on the sidelines.Demographics explain that underlying demand. Many millennials, the roughly 26- to 41-year-olds who are America’s largest generation, were entering peak home-buying ages right around the onset of the pandemic, and many are still in the market — which could put a floor under how much home prices will moderate.Plus, “sellers don’t have to sell,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association, who expects home prices to be “flattish” next year as demand wanes but supply, which was already sharply limited after a decade of under-building following the 2007 housing crash, further pulls back.Given all the moving parts, many analysts are either much more optimistic or very pessimistic.“It’s almost comical to see the house price growth forecasts,” Mr. Popov said. “It’s either 3 percent growth or double-digit declines, with almost nothing in between.”The car market remains weird, too.The car market, a major driver of America’s initial inflation burst, is another economic puzzle. Years of too little supply have unleashed pent-up demand that is spurring unusual consumer and company behavior.Used cars were in especially short supply early in the pandemic, but are finally more widely available. The wholesale prices that dealers pay to stock their lots have plummeted in recent months.But car sellers are taking longer to pass those steep declines along to consumers than many economists had expected. Wholesale prices are down about 14.2 percent from a year ago, while consumer prices for used cars and trucks have declined only 3.3 percent. Many experts think that means bigger markdowns are coming, but there’s uncertainty about how soon and how steep.The new car market is even stranger. It remains undersupplied amid a parts shortages, though that is beginning to change as supply chain issues ease and production recovers. But both dealers and auto companies have made big profits during the low-supply, high-price era, and some have floated the idea of maintaining leaner production and inventories to keep their returns high.Jonathan Smoke, chief economist at Cox Automotive, thinks the normal laws of supply and demand will eventually reassert themselves as companies fight to retain customers. But getting back to normal will be a gradual, and perhaps halting, process.Still, “we’re at an inflection point,” Mr. Smoke said. “I think new vehicles are going to be less and less inflationary.”Labor markets are the most important question mark.Perhaps the most critical economic mystery is what will happen next in America’s labor market — and that is hard to game out.Part of the problem is that it’s not entirely clear what is happening in the labor market right now. Most signs suggest that hiring has been strong, job openings are plentiful, and wages are climbing at the fastest pace in decades. But there is a huge divergence between different data series: The Labor Department’s survey of households shows much weaker hiring growth than its survey of employers. Adding to the confusion, recent research has suggested that revisions could make today’s labor growth look much more lackluster.“It’s a huge mystery,” said Mr. Ozimek from the Economic Innovation Group. “You have to figure out which data are wrong.”That confusion makes guessing what comes next even more difficult. If, like most economists, one accepts that the labor market is hot right now, Fed policy is clearly poised to cool it down: The central bank has raised interest rates from near zero to about 4.4 percent this year, and expects to lift them to 5.1 percent in 2023.Those moves are explicitly aimed at slowing down hiring and wage growth, because central bankers believe that inflation for many types of services will remain elevated if pay gains remain as strong as they are now. Dentist offices and restaurants will, in theory, try to pass climbing labor costs along to consumers to protect their profits. But it is unclear how much the job market needs to slow to bring pay gains back to the more normal levels the Fed is looking for, and whether it can decelerate sufficiently without plunging America into a painful recession.Companies seem to be facing major labor shortages, partly as a wave of baby boomers retires, and Fed officials hope that will make firms more inclined to hang onto their workers even if the broader economy slows drastically. Some policymakers have suggested that such “labor hoarding” could help them achieve a soft landing that bucks historical precedent: Unemployment could rise notably without spiraling higher, cooling the economy without tipping it into a painful downturn.Typically, when the unemployment rate rises by more than 0.5 percentage points, like the Fed forecasts it will do next year, the jobless rate keeps rising. Loss of economic momentum feeds on itself, and the nation plunges into a recession. That pattern is so established it has a name: the Sahm Rule, for the economist Claudia Sahm.Yet Ms. Sahm herself said that if the axiom were to break down, this wacky economic moment would be the time. Consumers are sitting on unusual savings piles that could help sustain middle-class spending even through some job losses, preventing a downward spiral.“The thing that has never happened would have to happen,” she said. “But hey, things that have never happened have been happening left and right.” More

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    Federal Reserve Makes Another Supersized Rate Increase to Tame Inflation

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    The central bank raised rates by three-quarters of a percentage point and suggested additional large increases could be warranted.The Federal Reserve chair, Jerome H. Powell, spoke to reporters after officials met to raise rates.Jim Lo Scalzo/EPA, via ShutterstockWASHINGTON — The Federal Reserve continued its campaign of rapid interest rate increases on Wednesday, pushing up borrowing costs at the fastest pace in decades in an effort to wrestle inflation under control.Fed officials voted unanimously at their July meeting for the second supersized rate increase in a row — a three-quarter-point move — and signaled that another large adjustment could be coming at their next meeting in September, though that remains to be decided. The decision on Wednesday puts the Fed’s policy rate in a range of 2.25 to 2.5 percent.The central bank’s brisk moves are intended to slow the economy by making it more expensive to borrow money to buy a house or expand a business, weighing on the housing market and economic activity more broadly. Jerome H. Powell, the Fed chair, said during a news conference after the meeting that such a cool-down was needed to allow supply to catch up with demand so that inflation could moderate.Mr. Powell acknowledged that the Fed’s policy changes were likely to inflict some economic pain — in particular, weakening the labor market. That has made the central bank’s rate increases unwelcome among some Democrats, who argue that crushing the economy is a crude way to lower today’s inflation rate. But the Fed chair stressed that the economic sacrifice today was necessary to put America back on a sustainable longer-term path with slow and predictable price increases.“We need growth to slow,” Mr. Powell said. “We don’t want this to be bigger than it needs to be, but ultimately, if you think about the medium- to longer term, price stability is what makes the whole economy work.”Stocks surged after the Fed’s decision and Mr. Powell’s news conference. Some rates strategists asked why, because Mr. Powell’s comments aligned with the message Fed officials have consistently sent: Inflation is too high, the central bank is determined to crush it, and interest rates are likely to further increase this year.“There’s a lot of information between now and the September meeting, and I think markets will reassess,” said Priya Misra, head of Global Rates Strategy at TD Securities. “This is an even more data-dependent Fed — and it is going to come down to whether inflation gives them the space to slow down.”The Fed began raising interest rates from near-zero in March, and policymakers have picked up the pace sharply since in reaction to incoming economic data, as price increases have continued to accelerate at an alarming rate.After making a quarter-point move to start, the central bank raised rates by half a point in May and by three-quarters of a point in June, which was the largest single step since 1994. Officials could keep raising rates briskly in September, or they could ease off the pace, depending on how the economy evolves.“We might do another unusually large rate increase,” Mr. Powell said on Wednesday. “But that is not a decision we have made at all.”What the Fed’s Rate Increases Mean for YouCard 1 of 4A toll on borrowers. More

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    Highest Mortgage Rates Since 2008 Housing Crisis Cool Sales

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    As the Federal Reserve tries to fight high inflation, costly mortgage rates have begun to price people out of the housing market.For the past two years, anyone who had a home to sell could get practically any asking price. Good shape or bad, in cities and in exurbs, seemingly everything on the market had a line of eager buyers.Now, in the span of a few weeks, real estate agents have gone from managing bidding wars to watching properties sit without offers, and once-hot markets like Austin, Texas, and Boise, Idaho, are poised for big declines.The culprit is rising mortgage rates, which have spiked to their highest levels since the 2008 housing crisis in response to the Federal Reserve’s recent efforts to tame inflation. The jump in borrowing costs, adding hundreds of dollars a month to the typical mortgage payment and coming on top of two years of home price increases, has pushed wishful home buyers past their financial limits.“We’ve reached the point where people just can’t afford a house,” said Glenn Kelman, chief executive of Redfin, a national real estate brokerage.Weekly average 30-year fixed mortgage rate

    Source: Freddie MacBy The New York TimesMore than any other part of the economy, housing — a purchase that for most buyers requires taking on huge amounts of debt — is especially sensitive to interest rates. That sensitivity becomes even more pronounced when homes are unaffordable, as they are now. As a result, home prices and new construction are a central component of the Federal Reserve’s efforts to slow rapid inflation by raising interest rates, which the central bank has done several times this year. But the Fed’s moves come with an inherent risk that the economy will spiral into a recession if they stifle home purchases and development activity too much.While housing does not account for a huge amount of economic output, it is a boom-bust industry that has historically played an outsize role in downturns. The sector runs on credit, and new home purchases are often followed by new furniture, new appliances and new electronics that are important pieces of consumer spending.“We need the housing market to bend to rein in inflation, but we don’t want it to break, because that would mean a recession,” said Mark Zandi, chief economist at Moody’s Analytics.Home prices are still at record levels, and they are likely to take months or longer to fall — if they ever do. But that caveat, which real estate agents often hold up as a shield, cannot paper over the fact that demand has waned considerably and that the market direction has changed.Sales of existing homes fell 3.4 percent in May from April, according to the National Association of Realtors, and construction is also down. Homebuilders that had been parsing out their inventory with elaborate lotteries now say their pandemic lists have shriveled to the point that they are lowering prices and sweetening incentives — like cheaper counter and bathroom upgrades — to get buyers over the line.Understand Inflation and How It Impacts YouInflation 101: What’s driving inflation in the United States? What can slow the rapid price gains? Here’s what to know.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.An Economic Cliff: Inflation is expected to remain high later this year even as the economy slows and layoffs rise. For many Americans, it’s going to hurt.Greedflation: Some experts say that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. “There was this collective belief that housing was invincible — that it was so undersupplied and demand so high that nothing could stop price growth,” said Ali Wolf, chief economist with Zonda, a housing data and consulting firm. “A very rapid increase in interest rates and home prices has proven that theory to be false.”It is a stark change for a market that blossomed soon after the initial shock of the pandemic, which for many people turned out to be a perfect time to buy a home. Rock-bottom mortgage rates lowered borrowing costs, while the shift to home offices and Zoom meetings opened up new swaths of the country to buyers who had been struggling to penetrate the market near the jobs they once commuted to.That caused prices to explode in far-flung exurbs and once-affordable places like Spokane, Wash., where a crush of new home buyers decamped from pricey West Coast cities. People became so willing to move long distances to buy a home that “the normal laws of supply and demand didn’t apply,” Mr. Kelman said.After two years of swift price increases, however, places that once seemed cheap no longer are. Home values have risen about 40 percent over the past two years, according to Zillow, forcing buyers to stretch ever further in price even as they run out of geography.Now add in mortgage rates, which have nearly doubled this year. And inflation, which is eating into savings for some families as it increases household expenses. And a wobbly stock market, which has reduced the value of portfolios that many buyers intended to tap for a down payment.Larisa Kiryukhin and her husband are renting a home in Sarasota, Fla., after higher interest rates thwarted their purchase of a house.Todd Anderson for The New York TimesLarisa Kiryukhin and her family were long ago priced out of the San Francisco Bay Area, where they had lived for decades. Ms. Kiryukhin, 44, is a medical assistant who was tied to her hospital, but the pandemic gave her husband, who works in information technology, the flexibility to move to a more affordable city. So Ms. Kiryukhin switched jobs, and this year the couple and their two children moved to Tampa, Fla., in hopes of buying a home.Inflation F.A.Q.Card 1 of 5What is inflation? More