Three Things to Know About Weathering The Storms Battering Our Housing Market
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By Ryan Casey Stephens, FPQP®
Special Contributor
I love spring weather, but likely not for the reasons that first come to mind. Bluebonnets and warm afternoons are great, don’t get me wrong, but it’s a mighty thunderstorm I love most. This time of year they result from cold air from the northwest clashing with warm air, locked in a battle for domination. Ultimately, we know the warm air will win out, but the stormy process is thunderous and bumpy.
Markets are quite similar right now — knowing relief is on the horizon but constantly being battered along the way. We can expect a few more rounds of storms before the sun will shine for days on end. Let’s check the forecast in this week’s Three Things to Know.
The Media Vs. Reality
Nothing sells papers like a disaster, were quick to report the lack of inventory the U.S. is facing following the release of last week’s Existing Home Sales report. While current sales are down more than 22 percent over last year, they improved 14.5 percent over last month. New Home Sales also outperformed expectations, posting a 1.1 percent improvement instead of the 3 percent decline that was predicted.
Things are stormy, however, all is not lost. Ending February, only 980,000 existing homes were available nationwide. That’s higher than last year but is up from a record low level, and supply is still lower than in a balanced market. On the other hand, there were 436,000 new homes for sale at the end of February, which equates to 8.2 months of supply at the current sales rate.
First Thing to Know:
Don’t immediately swallow dire headlines about inventory shortages. Stubbornly high mortgage rates have slowed shopping in many markets, and builders are cranking up construction in anticipation of greater demand this year.
Fed Rate Hikes Don’t Work … Until They Do
When the Federal Reserve raises its key rate, its goal is to increase the cost of most things in the economy to deter spending. Slower spending will ideally mean lower inflation. Slower spending also means fewer goods are sold, which usually translates to labor weakness (AKA unemployment). Jerome Powell openly states his desire to see worsening jobs data, but he’s not seeing it. Initial jobless claims were basically flat last week, leaving the Fed and markets dissatisfied.
At the same time, Durable Goods Orders fell 1 percent last month, much worse than expectations. That report measures products meant to last more than 3 years, such as cars, appliances, and computers. The sudden weakness in this report is a sign that consumers like you and I are feeling the effects of the rate hikes and are slowing big purchases.
Second Thing to Know:
Like cold and warm air battle for dominance, sectors of our economy feel rate hikes differently. The job market might be holding in there for now, but weakening orders on big-ticket items show regular Americans are joining in the fight against inflation.
More Trouble in The Five-Day Forecast
We’ll have several opportunities for rough weather this week with the arrival of several key reports. The Case-Shiller Home Price Index and FHFA House price index will give us a much clearer picture of the state of home prices nationwide. Pending Home Sales will further reveal the supply and demand for existing single-family residences on Wednesday. Thursday brings the final result of GDP for the 4th quarter of last year, and Friday book-ends the week with the Fed’s favorite inflation measure — Personal Consumption Expenditures.
Third Thing to Know:
The up-and-down mortgage bond market is not likely to settle this week thanks to the sheer volume of important data we’ll receive. The overall trend for mortgage rates is in the downward direction, but week to week we’re likely to see it rise and fall in response to headlines.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
