Housing Market Cooling

Happy Monday! So many fun Justin Fields updates we could include in today’s intro, it’s hard to pick just one.

Quick Hits: Today’s Top Stories

• There’s been a flurry of activity on the Korean peninsula in recent days, with North Korea reportedly firing four short-range ballistic missiles off its west coast on Saturday after launching as many as 23 missiles on Wednesday and six missiles on Thursday, including an intercontinental ballistic missile (ICBM) that reportedly failed in flight. One of the missiles on Wednesday reportedly crossed a disputed maritime border with South Korea for the first time, causing air-raid sirens to go off and the South Korean military to respond with three missile tests of its own. South Korea also scrambled its fighter jets on Friday after detecting as many as 180 North Korean warplanes in flight, and the United States deployed two B-1B bombers and four F-16 fighter jets to the area over the weekend. Pyongyang has said the flurry of missile activity is in response to joint military exercises between South Korea and the United States, but Western officials believe Kim Jong-un is preparing for another nuclear test.
• Xinhua, a state-run news agency in China, reported Friday that President Xi Jinping broke his relative silence on Russia’s invasion of Ukraine to issue his first major rebuke of the Kremlin and warn against using nuclear weapons. The international community, Xi said, should “oppose the use of or the threat to use nuclear weapons, advocate that nuclear weapons cannot be used and that nuclear wars must not be fought, and prevent a nuclear crisis in Eurasia.”
• The Pentagon announced a new $400 million security assistance package for Ukraine on Friday, tapping into previously approved congressional aid to send Ukraine 45 upgraded Soviet-era T-72B tanks from the Czech Republic, 1,100 Phoenix Ghost Tactical Unmanned Aerial Systems, 40 armored riverine boats, and funding to refurbish both HAWK air defense missiles and M1117 armored security vehicles. The Netherlands will provide another 45 upgraded T-72B tanks as well. The United States has now sent Ukraine approximately $18.2 billion in military aid since Russia’s invasion in late February. Citing “people familiar with the discussions,” the Washington Post reported Saturday that the Biden administration has been privately nudging Ukrainian officials to “signal an openness to negotiate with Russia” in order to “ensure the government in Kyiv maintains the support of other nations facing constituencies wary of fueling a war for many years to come.”
• The Bureau of Labor Statistics reported Friday that U.S. employers added 261,000 jobs in October, down from September’s 315,000 figure but still well above the pre-pandemic average and above economists’ expectations. The unemployment rate ticked up from 3.5 percent to 3.7 percent as the labor force participation rate remained relatively unchanged at 62.2 percent. Average hourly earnings—a key measure for hints on inflation—were up 4.7 percent year-over-year, slowing from September’s 5.0 percent annual rate.
• The Centers for Disease Control on Thursday updated its clinical guidelines for doctors prescribing pain-killing opioids, softening its “voluntary” and “flexible” recommendations after guidance issued six years ago to curb the opioid epidemic was seen as presenting a “barrier” to necessary care in certain cases. The updated guidelines still favor non-opioid therapies in many instances, but the agency no longer recommends certain dosage limits or capping opioid treatment for acute pain to three days.
• A report published by the Centers for Disease Control (CDC) last week found that the rate of alcohol-induced deaths—including liver disease, acute intoxication, harmful use, etc.—spiked 26 percent from 2019 to 2020, the fastest such increase in more than 40 years.
• One day after the FBI’s Newark office announced it had received “credible information of a broad threat to synagogues” in New Jersey, the law enforcement agency announced Friday it had identified the source of the threat and that the threat “no longer poses a danger to the community.” It’s not clear whether a suspect was taken into custody or charged with any crimes.
• The Hickory Police Department has opened an investigation after someone allegedly shot into the home of the parents of Pat Harrigan—the Republican candidate in North Carolina’s 14th congressional district—on October 18, while Harrigan’s children were in the house. No one was injured, and law enforcement officials have not disclosed any leads on suspects or motives for the shooting. Jeff Jackson—Harrigan’s Democratic opponent—pulled a campaign ad that was filmed in front of a separate home owned by Harrigan out of “an abundance of caution and concern.”
• The Houston Astros won the World Series on Saturday, defeating the Philadelphia Phillies four games to two in the best-of-seven contest. It’s Houston’s second championship in team history, and first since their 2017 title, which was tainted by a cheating scandal.

The Housing Market has Chilled Out (A Little)

The housing market is starting to calm down.

According to the National Association of Realtors (NAR), pending home sales fell 31 percent year-over-year in September—the fourth straight month of decline. Active listings, meanwhile, were up nearly 34 percent in October—still well below October 2019, but a sign that houses are lingering on the market longer than during the peak pandemic frenzy. Sticker prices began retreating from their stratospheric climbs in July, when the CoreLogic Case-Shiller Home Price Index notched its first month-to-month price drop since January 2019—falling a squint-to-see-it 0.3 percent.

Though the game of musical chairs is slowing, it’s still historically frenetic. Median home prices in September were up 8.4 percent year-over-year, the 127th straight month of year-over-year growth and the longest-running streak on record, per NAR. “Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” NAR Chief Economist Lawrence Yun said. 

The intense competition has elbowed out younger and first-time buyers, who are typically less able to pay cash or above the asking price. In the year ending June 2022, first-time buyers made up just 26 percent of all homebuyers—a 40-year low—and the median age of first-time buyers jumped from 33 to 36.

While sticker prices are finally starting to drop in some areas, the actual cost of buying a home has still gone up this year, thanks to the Federal Reserve’s six interest-rate increases—including last week’s 75-basis-point hike. Those moves trickle down to borrowing costs throughout the economy, and, sure enough, Freddie Mac reported last month that the average 30-year fixed mortgage rate had climbed to 7.08 percent (though that number has since dipped back to 6.95 percent). That may seem like a bargain to those of you who bought a house in the early 1980s when mortgage rates peaked at 18 percent or so, but buyers haven’t dealt with rates this high in nearly two decades. The cost of financing an average home was up 77 percent in October compared to a year ago, according to Realtor.com.

The rising borrowing cost has shut more people out of the market and made homeowners less eager to sell and saddle themselves with a new, higher-interest mortgage. “Both buyers and sellers are taking a step back to recalibrate their plans,” Realtor.com Chief Economist Danielle Hale said. “Home shoppers are looking at a monthly mortgage payment that is roughly $1,000 higher than at this time last year, and incomes are rising but not by that much. Combined with asking prices that are still climbing at a double-digit yearly pace, the average American has taken a huge hit to their home-buying power.”

This is, of course, in many ways the point of the Fed’s recent series of rate hikes. “The housing market was very overheated for the couple of years after the pandemic as demand increased and rates were low,” Fed Chairman Jerome Powell said last week. “The housing market needs to get back into a balance between supply and demand.”

Raising borrowing costs helps dampen demand, but it does little to address the supply side of the equation, which remains limited. That’s partly thanks to the pandemic: Disrupted supply chains made it harder for builders to get lumber and other materials, while people looking for more space took advantage of low interest rates to buy. But COVID-19 is far from the only contributor to low housing inventory in the United States: The 2008 housing market crash put a lot of builders out of business and drove construction workers into other professions—rendering it difficult to ramp back up when demand recovered—and restrictive permitting and zoning regulations have driven up building costs and limited density. More and more millennials reaching home-buying age has created the perfect storm: Freddie Mac estimated the U.S. had a housing supply deficit of 3.8 million homes in 2020, up 52 percent from 2018.

This low inventory—plus higher standards for who gets a mortgage—is part of why analysts aren’t worried we’ll see a 2008-style housing crash as the market cools. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today,” NAR’s Yun said.

In an effort to increase those inventory levels, a few states—including the notoriously expensive California—have tweaked regulations to allow for more density. The Biden administration has tried to pitch in, offering grants to help local governments plan for more density and increasing financing for factory-built homes and accessory dwelling units like garage apartments, backyard homes, and similar density-boosting buildings.

These efforts to increase housing stock are facing tough headwinds, as builders concerned about an imminent recession have eased up on new construction. Housing starts—instances of builders beginning construction on a new unit—dropped an estimated 8.1 percent month-over-month in September, according to the Census Bureau. Combined with the continued upward price pressure of inflation making materials more expensive, it’ll likely be a while before home prices and mortgages could come down. “Once inflation is contained, mortgage rates will start to drift lower,” Yun said. “It may be another year or two before that happens.”

Worth Your Time

• For the Wall Street Journal, Julie Jargon reports on a boarding school in northwest Massachusetts that is conducting a fascinating social experiment: banning smartphones for all students and faculty. “Many students thought that the school wouldn’t actually do it—and that stripping phones from teens was unrealistic. But it happened,” she writes. “Students can still have tablets and smartwatches under certain circumstances. Digital cameras are allowed. All students can have laptops, from which they’re allowed to access social media. The idea, Mr. Kalapos says, wasn’t to cut off students entirely from the outside world, but to make it harder to have online drama accessible at all times from their pockets.” Is it working? “‘There are some things that are annoying about not having your phone, like watching videos,’ says Emilio Martinez Buenrostro, a 16-year-old sophomore. Still, he says, he’s gotten used to not being glued to his screen all the time. It’s nice to see other students walking around campus without looking down at their phones, he adds. Bea Sas, an 18-year-old senior at Buxton, says it has been a relief. Now, she can go on strolls or study without being bombarded by notifications and the pressure to respond to texts.”
• Tim Alberta’s latest work in The Atlantic is on Democrats’ slipping hold on the Hispanic vote. “It’s evident that Republicans are poised next week to win their biggest share of Hispanics in the modern era,” Alberta predicts. Per Danny Ortega, a prominent Democratic organizer in Arizona, Hispanics are increasingly suspicious of the Democratic Party. “They question whether Democrats want to solve a problem like immigration; whether they would rather continue to wield themes of racism and xenophobia to mobilize voters against the GOP; whether moral outrage is simply the means to a political end,” Alberta writes. “In his view, the Democratic Party has a credibility crisis, and it’s not specific to immigration. Ortega said that so many adjacent Democratic causes—voting rights, LGBTQ rights, abortion rights—are viewed skeptically, particularly by younger Hispanics, who perceive Democrats as manipulative at worst and tone-deaf at best. Even if their social-justice efforts are regarded as genuine, Democrats are pushing an agenda that doesn’t resonate with a wide array of voters during this time of economic uncertainty.”

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Toeing the Company Line

• On the site over the weekend, Alec reviewed See How They Run, a new whodunit that pays tribute to Agatha Christie. “If you’ve seen one whodunit you may have seen them all,” he writes. “But, then, why wouldn’t you want to see them all?”
• Nick was busy on Friday, pumping out two editions of Boiling Frogs (🔒): one on President Biden’s defense-of-democracy speech, and one pondering three (and a half) questions he doesn’t have a good answer to ahead of the midterms. Why didn’t Trump spend more on the candidates he endorsed? Why hasn’t Kyrsten Sinema campaigned for Democrats in Arizona? Why did Democrats make abortion the centerpiece of their campaign? And will Ron DeSantis run in 2024?
• Republicans are on the verge of retaking control of the House. What are they planning to do with it? “[They’ll] focus almost entirely on investigations, oversight, and the messaging bills to fulfill campaign promises early on,” Haley writes in Friday’s Uphill. “But could they find any areas of common cause with the Biden administration?”
• Jonah has had enough of the doomsayers for democracy—on both the left and the right. “Have some faith in your country and your stated ideals. Have some faith in the Constitution and your fellow Americans,” he writes in Friday’s G-File. “Despair is a sin because it forecloses any notion that you can do anything to climb out of it. That’s not the American way. That’s not the democratic way.”
• The hostility that practicing Christians face in today’s world is nothing new, David writes in Sunday’s French Press. “Why is it so important to rebut the idea that we live in uniquely dreadful times?” he writes. “In part because of the temptation that it presents the church. The idea that we can shape our nation to restore a misremembered or misunderstood past presents its own dangers.”
• In a rare Sunday episode of The Dispatch Podcast, producer Adaam takes the reins and interviews Tomer Persico about the election in Israel last week and why Benjamin Netanyahu’s government might look different this time around. 
• If you have any questions for Charlotte—about her reporting from Turkey, NATO’s response to the war in Ukraine, and/or concerts she’s been to—be sure to drop them in the comments of November’s Monthly Mailbag. She’ll answer as many as she can in the next few weeks!
• On the site today, Harvest reports on threats of political violence against election officials, and Chris Stirewalt ponders how Democrats might respond to midterm losses after Tuesday.

Let Us Know

As we’re planning our midterms coverage for the rest of the week, what election-related themes/trends are you most interested in?