Happy Friday! The weekend is almost here, so you can rest easy if it’s been a stressful week. Unless, of course, you’re one of the Wordle aficionados stressed about maintaining your daily playing streaks.
Quick Hits: Today’s Top Stories
- Israeli Defense Minister Yoav Gallant said Thursday that the Israeli Defense Forces (IDF) had largely defeated Hamas in Khan Younis, a large city in southern Gaza where the IDF has been fighting Hamas for weeks. “Hamas’ Khan Younis Brigade boasted that it would stand against the IDF, now it’s falling apart,” Gallant told IDF forces in the city on Wednesday. “I am telling you here, we are completing the mission in Khan Younis.”
- The U.S. carried out strikes against the Iran-backed Houthi rebels early on Thursday, hitting a drone ground control station used to target ships in the Red Sea and Gulf of Aden. U.S. Central Command said 10 drones were also destroyed. The strikes came as U.S. forces intercepted anti-ship missiles, drones, and an unmanned explosive vessel threatening ships in the Gulf of Aden over the last two days. Meanwhile, Defense Secretary Lloyd Austin signaled that the U.S. response to the Iran-backed militia groups responsible for the attack that killed three U.S. soldiers in Jordan on Sunday would be more significant than previous retaliations. “We will have a multi-tier response,” he told reporters. “We have the ability to respond a number of times depending on the situation.” Initial plans for a response—including retaliatory strikes in Iraq or Syria—have been approved, according to CBS News.
- The European Union (EU) agreed to a $54 billion aid package for Ukraine on Thursday after Hungarian Prime Minister Viktor Orbán blocked the deal for weeks. “This locks in steadfast, long-term, predictable funding for Ukraine,” said Charles Michel, the president of the European Council. The agreement provides Ukraine with aid—disbursed as loans and grants—for the next four years with an option to review the necessity of continuing aid in two years. Across the Atlantic, a decision about renewed U.S. aid to Ukraine could come soon as Senate Majority Leader Chuck Schumer said that votes on an immigration-Ukraine aid deal would come next week—and that details of the agreement would be made public by the end of this weekend.
- President Joe Biden signed an executive order on Thursday authorizing the secretaries of the State and Treasury departments to sanction foreign nationals—largely Israeli settlers—who attack and intimidate Palestinian civilians to leave their homes in the West Bank. “The situation in the West Bank—in particular high levels of extremist settler violence, forced displacement of people and villages, and property destruction—has reached intolerable levels,” Biden said in the order. The State Department announced Thursday that it had levied financial sanctions on four Israeli settlers under the new executive order.
- The State Department approved the sale of almost $4 billion in drones to India on Thursday. The approval allows for the potential sale of up to 31 weaponized MQ-9B SkyGuardian drones along with accompanying Hellfire missiles and laser-guided bombs—India’s current fleet of drones only has reconnaissance capabilities. The purchase would be part of the country’s decade-long, $250 billion military upgrade.
Paying Down the House
Americans generally haven’t felt good about the economy since the COVID-19 pandemic began nearly four years ago. After enduring months of shutdowns and a spate of shuttering businesses, consumers then had to grapple with decades-high inflation. Now, as inflation cools, the winds of consumer confidence may be changing, with sentiments rebounding slightly since November.
But the U.S. housing market may continue to be thorn in the economy’s side in 2024, as still-high mortgage rates and home prices drive a supply shortage.
The Federal Reserve’s decision on interest rates earlier this week may help—it’s holding the federal funds rate steady between 5.25 and 5.5 percent—but Federal Reserve Chair Jerome Powell suggested no one should hold their breath waiting for future cuts (though, we will continue monitoring the color of his tie for any tells). Powell and members of the Federal Open Markets Committee are awaiting “greater confidence that inflation is moving sustainably toward 2 percent,” as they put it in their statement. That caution has led markets not to expect a rate cut at the Fed’s next meeting in March, but they’ve begun pricing in lower rates for later this year.
Even if we haven’t hit the critical mass of good economic news sufficient to please Powell and his crew, the U.S. economy has been on a pretty good run of late. GDP growth hit 3.3 percent in the last quarter of 2023 compared to the same period in 2022, blowing past Wall Street’s predictions of 2 percent. Inflation has cooled too: Down from its high of 9 percent in June 2022, the consumer price index clocked in at a 3.4 percent annual increase in December, and the Fed’s preferred inflation indicator, the personal consumption expenditures (PCE) index, came in at 2.6 percent year-over-year in December—slightly above the Fed’s 2 percent goal. And after months of reticence from Americans not sure what to think about a weird economy, consumer confidence hit its highest level in two years last month.
But even as good economic news abounded across most metrics, the housing market remained mired in a slump. At the height of the pandemic in 2020 and 2021, mortgage rates hit rock bottom, hovering in the 3 percent range. But the Fed’s moves to raise interest rates over the course of 2022 and 2023—to slow the economy and bring down inflation—led mortgage rates to shoot up too. By late 2023, they had reached a two-decade high: The 30-year fixed mortgage rate hit 8 percent in October. (That may not seem so bad to readers who remember mortgage rates in the upper teens in the 1970s, but when it comes to the economy, it’s all relative.)
The Fed has held interest rates steady since July, and mortgage rates have fallen to roughly 6.7 percent. Even with interest rate cuts predicted for later this year, most analysts expect mortgage rates to hover around 6 percent through the rest of 2024. According to Redfin, that drop alone could increase a median buyer’s purchasing power by as much as $40,000, but waiting for it to drop more before jumping in may be a fool’s errand. “Trying to time the market around mortgage rates is probably a waste of energy, as affordability is unlikely to change meaningfully in the next several months,” argued Daryl Fairweather, Redfin’s chief economist.
What about the actual sticker prices of houses? Those went crazy, too. Since January 2020, home prices have increased by nearly 50 percent, according to the Case-Shiller U.S. National Home Price Index, though they seemed to have peaked in November before declining slightly in many major markets. While real estate prices vary across the country, the National Association of Realtors (NAR) estimates the median sales price of an existing home in the U.S. in December was $382,600, still up 4.4 percent from a year before.
This macroeconomic soup of high mortgage rates and high prices is creating supply problems. Existing home sales fell 19 percent annually in 2023 from the year prior to their lowest full-year level since 1995, according to data from the NAR. Relatively high mortgage rates have scared off sellers, some 14 million of whom refinanced during the pandemic and don’t want to let go of low rates, which adds to the supply shortage. Rising home prices have “been a massive boon for the people that already owned homes,” Tobias Peter, co-director of the American Enterprise Institute’s Housing Center, told TMD. “But of course for those that didn’t own that are now trying to get into the market, it has become much, much, much harder—and there’s really little relief in sight as far as I can see, just because interest rates are still going to be fairly high and people are locked in.”
New home sales are helping—they were up 4 percent year-over-year in December, for example—but they still haven’t kept up with demand. And at least in some markets, the supply problem may be exacerbated by the regulatory difficulty of building new homes. “We have a serious, acute housing problem,” Miro Weinberger, the Democratic mayor of Burlington, Vermont, told Politico in August. “It’s been building for decades. The problem is fundamentally a housing supply problem that is not entirely but in large part a function of Burlington and Vermont being way too hard to build homes in.”
Peter agrees: Restrictive land-use and zoning laws could, for example, limit developers’ ability to build duplexes or townhomes by requiring a single-family detached home. “We’ve artificially made buildable land scarce,” he said. Some states—Oregon, California, Washington, and Montana, among others—and dozens of municipalities are responding by eliminating single-family zoning laws to open the possibility of multi-family construction, even if it’s controversial. “In one state after another, they are loosening up the zoning and land use and over time you will see a supply response,” Peter continued.
The problem is bad enough that Congress has taken notice, leading to a flurry of potential proposals that have sprung up as a result of bartering among lawmakers trying to appease constituents. “It comes up every time we’re at home,” Republican Sen. Mike Rounds of South Dakota said this week, adding that constituent pressure is “one of the reasons why we’re trying to do some stuff in regards to housing.” A tax bill that passed the House this week with bipartisan support included provisions expanding the low-income housing tax credit, which could stimulate building in that sector. But even if lawmakers can agree there’s a problem, solutions beyond what’s in that package—which now goes to the Senate—could be a hard sell in a divided Congress.
Even if the market seems to be opening up in the short-term—interest rates dipping from the fall may push some buyers into the housing market—Peter’s analysis has home prices continuing to rise 5 or 6 percent this year. And any permanent relief on prices will require additional housing supply, which will take time. “The problem has been in the making for literally decades,” Peter said. “So the solution is also going to take—unfortunately—decades.”
Worth Your Time
- In a piece for The Atlantic, David Brooks argued that American society has swung from an emphasis on communalism in the mid 20th century to individualism from the 1970s on. But now, he argued, the pendulum is swinging back. “Twenty-first-century communalism is a peculiar kind of communalism,” he wrote. “Whether you’re on the MAGA right or the social-justice left, you define your identity by how you stand against what you perceive to be the dominant structures of society. Groups on each side of the political divide are held together less by common affections than by a common sense of threat, an experience of collective oppression. Today’s communal culture is based on a shared belief that society is broken, systems are rotten, the game is rigged, injustice prevails, the venal elites are out to get us; we find solidarity and meaning in resisting their oppression together. … In this culture, people feel bonded not because they are cooperating with one another but because they are indignant about the same things. … In this way, pessimism becomes a membership badge—the ultimate sign that you are on the side of the good. If your analysis is not apocalyptic, you’re naive, lacking in moral urgency, complicit with the status quo.”
Presented Without Comment
Defense Secretary Lloyd Austin on failing to disclose his cancer diagnosis and hospitalization:
“We did not handle this right,” Austin said. “I did not handle this right. I should have told the president about my cancer diagnosis. I should have also told my team and the American public, and I take full responsibility.”
Also Presented Without Comment
Axios: Trump Campaign Donors Footed the Bill for More Than $50M in Legal Fees Last Year
Toeing the Company Line
- In the newsletters: In the latest edition of The Collision, Mike and Sarah unpacked the scandal surrounding Fulton County District Attorney Fani Willis and what it could mean for her case against Donald Trump. And in yesterday’s Boiling Frogs (🔒), Nick wondered whether claims that conspiracy theorizing are driven by grift miss something deeper.
- On the podcasts: Sarah was joined on the Dispatch Podcast by Mike and Jonah for an extended discussion about tech CEOs’ recent appearance before Congress, immigration and the border, Taylor Swift, and more.
- On the site today: John McCormack examines whether the immigration deal being negotiated in the Senate is dead, and Jessica Melugin argues that parents, not the government, should be responsible for keeping kids safe online.
Let Us Know
If you were a first-time homebuyer—or are one currently!—would you buy a home in this market, or wait and hope to capture a lower rate?
Please note that we at The Dispatch hold ourselves, our work, and our commenters to a higher standard than other places on the internet. We welcome comments that foster genuine debate or discussion—including comments critical of us or our work—but responses that include ad hominem attacks on fellow Dispatch members or are intended to stoke fear and anger may be moderated.
You are currently using a limited time guest pass and do not have access to commenting. Consider subscribing to join the conversation.
With your membership, you only have the ability to comment on The Morning Dispatch articles. Consider upgrading to join the conversation everywhere.