Economic Concerns for Real Estate

• For the first time in decades, fiscal and monetary policy will likely remain easy during an accelerating expansion. A significantly different backdrop from the low growth – low inflation period following the 2008 financial crisis…keep an eye on inflation, however, as the climate could change quickly.
• US consumers are positioned to unleash their pent-up demand as our economy reopens. They have accumulated roughly $1.7 trillion in excess savings since the beginning of the pandemic due to a decline in spending and other fiscal stimulus measures. It’s already happening in the Lakes Region. Look at our real estate market.
• Can you believe that surging asset prices have pushed households’ net worth above $120 trillion, an all-time high!
• The government is expecting the second quarter to boom and the jobs report to increase each month. However, the fed’s consensus is that there will be no rate hike through the end of 2023! Can you feel the vibrations of inflation… it’s on its way.
• There’s a problem growing…as many as 1.7 million borrowers in the USA are expected to exit mortgage forbearance programs in September 2021. The consumer financial protection bureau proposed a rule to prevent a wave of foreclosures this fall when covid-era protections are set to expire. The proposal would extend and prohibit foreclosures until December 31, 2021.
• The 1.7 million borrowers is a figure that dwarfs anything mortgage servicers have seen in history. Let’s hope many of them can get back on their feet and get their jobs back.
• Patricia McCoy, a professor at Boston College Law School and the CFPB’s former assistant director for mortgage markets, commented, “At some point, the cliff will happen…forbearance will go away, and 1.7 million borrowers are at instant risk of foreclosure.”
• Here’s some good news: the pandemic may be shifting consumers’ preferences about what makes the best investment. A new study from the Federal Reserve Bank of New York concluded 90% of respondents chose owning a primary residence over investing in the stock market. Americans are increasingly bullish about housing! The belief is that real estate offers more comfort and stability.
• A new national survey of 2,000 residents shows that American’s are increasingly factoring climate change into their decisions on where to live. 75% of respondents would be hesitant to buy a home in an area with climate risk.
• Are ‘sight unseen’ offers to stay? Clients are more and more relying on virtual tours and matterport® 3D tour walkthroughs from their real estate agents. It’s a trend that will only grow. A large national company reported 45% of its consumers who purchased a home in the past year made an offer on a property without seeing it in person. Roche Realty Group was the first real estate company in the Lakes Region to produce in-house Matterport® 3D tours. Our company purchased this innovative technology over two years ago, and it has been a game-changer.
• As the rollout of COVID19 vaccines continues, American’s are now feeling the most upbeat about the economy. The housing market will continue to surge, Stimulus checks, job growth, and vaccine doses boost optimism.
• Home remodeling has become one of the most popular hobbies since the COVID19 pandemic began. Look at the lakes Region…52% of respondents say they’ve spent more on their homes since the pandemic.
• Let’s look at home mortgage rates since the 1970s when I started in real estate over 10 year periods of time:
  • The 1970s — 8.86% average.
  • The 1980s — 12.70% average.
  • The 1990s — 8.12% average.
  • The 2000s — 6.29% average.
  • The 2010s — 4.09% average.
  • The 2020s — 2.81% average.
• What do you derive from the above? We are at record low rates, and at some point in the near future, we must be prepared for higher rates. The Federal Reserve faces a tenuous balancing act trying to tame inflation and balancing interest rates.
• The 1980s showed average rates at 12.70%. I remember 1981 when the annual average was 17-18%. Back then, these were variable rates with a 5 cap over the life of the mortgages, and you could not get a fixed-rate mortgage. Granted, the 1980s were an expensive time to borrow money because the Federal Reserve was waging a war with inflation in an effort to tame double-digit inflation. As a result, affordability dropped to an all-time low, pricing most Americans out of the market.
• Have you noticed lately that 10-year treasury yields have been rising on economic optimism, expectations for inflation, and stimulus spending that should boost the economy? The benchmark 10-year treasury, which includes mortgages, was at 1.71% Monday, gaining about 90 basis points in the first quarter…not a good statistic.
• This past Friday, the jobs report showed a surge in new jobs at 916,000, nearly 250,000 more than expected, and the stock market reacted with some nice gains. Economists expect the second quarter to grow by more than 9%. They are projecting more than 1 million in New Payrolls in each of the next several months. This again will stimulate real estate demand.
• First quarter statistics for New Hampshire are out and here are the results for the Lakes Region:

• At Roche Realty Group, our closed sales volume for the first quarter was up 50.8% compared to the first quarter of 2020. This reflects the strong demand for housing in the Lakes Region.
• I mentioned earlier that treasury yields have risen on optimism expectations for inflation and stimulus spending that should boost the economy. Think about it, we received $3 trillion of emergency stimulus in 2020, plus we received an additional $1.9 trillion relief package signed into law in March. Now the government had unveiled a $2+ trillion infostructure plan plus even more stimulus payments on the way with even the remote possibility of some student debt forgiveness on top of all of this.
• Nobody’s been down this path of outrageous spending. What happens if inflation goes significantly above 3%? The fed will be in hot water, and only time will tell how fast interest rates will increase.

This article was written by Frank Roche. Frank is president of Roche Realty Group with offices in Meredith and Laconia, NH, and can be reached at (603) 279-7046. New Hampshire County data is from nhar.org and is subject to change. Please feel free to visit www.rocherealty.com to learn more about the Lakes Region and its real estate market.