Housing Market Trends and Economic Insights

Welcome to our comprehensive review of the housing market and key economic indicators for the week of May 22, 2023. In this update, we analyze recent data and trends to provide you with valuable insights into the real estate landscape and the broader economy. Throughout the week, uncertainty surrounding the debt ceiling and surprising inflation figures affected market volatility. Additionally, tight housing supply continued to be a major factor impacting home sales. Let's delve into the headlines:

Outlook for This Week's Mortgage Rates

As we look ahead to the coming week, the outlook for mortgage rates remains uncertain. The market experienced volatility due to various factors, such as inflation concerns and fiscal policy debates. It's advisable to consider locking in the short term as volatility will continue with domestic and international conflicts continuing.

Better Progress to Come on Inflation

In April, headline inflation, as measured by the Personal Consumption Expenditures (PCE) index, exceeded expectations with a 0.4% increase. The year-over-year reading rose from 4.2% to 4.4%, while core PCE, excluding food and energy prices, also increased by 0.4%, with the year-over-year change reaching 4.7%. These figures were influenced by rising energy prices and the impact of used car prices on inflation.

The bottom line is that inflation poses challenges to fixed investments like Mortgage Bonds, as it erodes the purchasing power of a Bond's fixed rate of return. Throughout last year, rising inflation led to higher interest rates. However, in the coming months, progress is expected in lowering inflation rates. As the calculation of inflation is based on a rolling 12-month basis, lower readings in the following months may contribute to a decline in year-over-year inflation, offering some relief.

“Sizeable Increase" Needed in Housing Inventory

Pending Home Sales, an important indicator of the housing market, remained at the same level from March to April. While the West, Midwest, and South saw increases, a significant decrease in the Northeast region affected the overall index. Pending Home Sales were also 20.3% below the sales recorded in April of the previous year. The tight supply of existing homes continues to hinder signed contracts this spring.

The bottom line is that an increase in housing inventory is crucial to meet the demand and support further growth in the housing market. Experts emphasize the need for a substantial rise in housing inventory to facilitate more Americans' transition into homeownership and overcome affordability challenges.

New Home Sales Hit 13-Month High

New Home Sales experienced a positive trajectory, rising 4.1% from March to April, reaching a 683,000-unit annualized pace. This marks the highest level in thirteen months, with a year-over-year increase of 11.8%. The median sales price saw a slight decline from the previous month, but it's important to note that this figure represents the mid-price range and can be influenced by the composition of sales among different price tiers. Reports from Case-Shiller, CoreLogic, and the Federal Housing Finance Agency suggest rising home prices.

The bottom line is that the rise in signed contracts for new homes reflects the limited supply of existing homes. Homebuilders' confidence remains strong, indicating a positive trend as more new homes are needed to meet the growing buyer demand. However, the current disparity between high demand and tight supply will continue to support home prices, offering opportunities for buyers prepared to take advantage of appreciation gains.

Unemployment Claims Reflect Challenges for Job Seekers

In the latest week, Initial Jobless Claims increased by 4,000, with 229,000 individuals filing for unemployment benefits for the first time. It's important to note that a negative revision was made to the previous week's data, subtracting 17,000 claims. The net number of claims over the past two weeks is lower, but this decline is partly attributed to fraudulent filings in Massachusetts and Kentucky, which artificially inflated the previous week's numbers.

Continuing Jobless Claims decreased by 5,000 in the latest week, but they remain elevated at 1.794 million. This figure is significantly higher than the pre-pandemic low of 1.289 million seen in September. The persistent high level of continuing claims underscores the challenges faced by individuals in their job search.

First Quarter GDP Revised Higher but Still Disappointing

The second reading of the first quarter 2023 Gross Domestic Product (GDP) showed an improvement from the initial estimate but still fell short of expectations. The economy grew at a rate of 1.3%, up from the initial 1.1% estimate. However, this figure is significantly lower than the robust 2.6% growth witnessed in the fourth quarter of the previous year. It's worth noting that GDP data is subject to further revision when the final report is released on June 29. Nevertheless, the disappointing reading suggests that the economy experienced a faster-than-expected slowdown in the first three months of this year.

Looking ahead, mortgage rates remain uncertain, given the volatility in the market. It is essential for potential homebuyers and refinancers to stay informed and consider locking in the short term as volatility will continue with domestic and international conflicts continuing. As the market and economic landscape evolve, staying knowledgeable about the latest trends and indicators will be vital for making informed decisions in the housing market and beyond.