Signed Contracts Show Housing Is Standing Strong

Signed Contracts Show Housing Is Standing Strong.

Consumer inflation is trending lower in the right direction, while data shows the housing market is stronger than media reports suggest. Here are last week’s highlights:

-Annual Consumer Inflation Continues to Move Lower

-Signed Contracts Show Housing Is Standing Strong

-Media Cries Housing Crash but Appreciation Data Says Otherwise

-Significance of Elevated Continuing Jobless Claims

-What Do GDP Forecasts Signal?

Annual Consumer Inflation Continues to Move Lower

Personal Consumption Expenditures (PCE), the Fed’s preferred inflation gauge, revealed that headline inflation jumped 0.3% in February but the year-over-year reading decreased from 5.3% to 5%. These readings fell somewhat short of market expectations. Core PCE, which excludes volatile prices for food and energy, increased by 0.3% as well, with the annual growth falling from 4.7% to 4.6%.

What’s the bottom line? Inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. If inflation is rising, investors demand a rate of return to combat the faster pace of erosion due to inflation, causing interest rates to rise like we saw throughout much of last year.

Inflation continues to trend lower in the right direction, though last month’s reading would have been even lower if the decelerating shelter costs seen in the real world were better reflected in the PCE report. Once this lagging shelter data catches up in the PCE report, it should cause additional downside pressure to inflation.

Signed Contracts Show Housing Is Standing Strong

The increase in pending home sales from January to February was 0.8%, which was significantly higher than forecast and the third consecutive month of gains. Although this was an improvement above the 24.1% yearly fall in the January report, sales were down 21.1% from a year earlier. A crucial report for determining the state of the housing market is Pending House Sales. Since that it measures signed contracts for existing properties, which account for about 90% of the market, it is regarded as a forward-looking indication of home sales.

What’s the bottom line? Lawrence Yun, chief economist for the National Association of REALTORS�, noted, “After nearly a year, the housing sector’s contraction is coming to an end. Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.”

Housing activity should continue to rebound during the spring buying season, especially if home loan rates move lower and hibernating buyers are motivated to resume their home search.

Media Cries Housing Crash but Appreciation Data Says Otherwise

House prices decreased 0.5% from December to January, according to the Case-Shiller Home Price Index, which is regarded as the “gold standard” for appreciation, but they were still 3.8% higher than they had been in January 2022. In comparison to the 5.6% growth reported in December, this yearly number is down.

The Federal Housing Finance Agency (FHFA) also made its House Price Index available, which showed that from December to January, home prices increased by 0.2%. Notwithstanding the fact that prices increased by 5.3% between January 2022 and January 2023, this was less than the 6.6% yearly increase noted in

The FHFA report analyzes home price appreciation on single-family homes with conforming loan amounts, thus it more likely represents lower-priced properties. This is one reason why these numbers diverge. Jumbo loans and cash buyers are not included in FHFA.

What’s the bottom line? Home prices have been softening nationwide, but S&P DJI Managing Director Craig J. Lazzara noted that they are only down 5.1% from their peak

last June. Plus, when you adjust for seasonal factors, prices are only down 3% from the peak. This is a far cry from a housing crash of 20% that some in the media have been predicting.

Significance of Elevated Continuing Jobless Claims

In the most recent week, 198,000 initial jobless claims were filed, which resulted in an increase of 7,000 in the number of people claiming for unemployment benefits for the first time. A 4,000 increase brought the total number of people receiving unemployment benefits after filing their initial claim to 1.689 million. It should be noted that the quantity of Ongoing Claims may vary from week to week. Although they have already increased by about 350,000 since the low point in September of last year, the overall trend has been higher.

What’s the bottom line? While it’s true that Initial Jobless Claims remain under 200,000, which is a relatively muted level, it’s important to understand that this is a lagging indicator regarding the strength of the labor market. Think of it this way. As the economy slows, companies don’t typically hold layoffs right away. Instead, they usually slow their pace of hiring first, potentially implementing hiring freezes before making the difficult decision to let people go. The elevated level of Continuing Claims suggests companies have reduced their pace of hiring and it’s harder for people who are let go to find new employment.

What Do GDP Forecasts Signal?

The final reading of fourth quarter 2022 Gross Domestic Product (GDP) showed that the U.S. economy grew by 2.6%, which is a downward revision from the first (2.9%) and second (2.7%) readings. Still, seeing GDP turn positive in the third and fourth quarters of last year was a welcome sign, since it was negative for the first two quarters of 2022.

What’s the bottom line? Given that GDP functions as a scorecard for the country’s economic health, the big question now is what will GDP be for the first quarter of this year? The initial reading will be released April 27 and as of now the markets are expecting a reading of 3.2%. However, the Fed’s estimate for full year 2023 GDP is just 0.4%. If the Fed’s forecast is accurate, GDP would likely turn negative for the remainder of the year, which could signal recession.

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