Newsletter - 10/24/2022
Week of October 17, 2022 in Review
Home sales and construction slowed in September while recession signals are flashing from the manufacturing sector. Don’t miss these stories:
- What Housing Supply and Demand Dynamics Mean for Prices
- Construction of Single-Family Homes Continues to Decline
- Builder Confidence Falls for Tenth Straight Month
- Jobless Claims Remain Volatile
- More Economic Slowdown Signals
What Housing Supply and Demand Dynamics Mean for Prices
Existing Home Sales fell 1.5% from August to September to a 4.71 million unit annualized pace, per the National Association of Realtors (NAR). Sales were also down 23.8% when compared to September of last year. This is a critical report for taking the pulse of the housing market, as it measures closings on existing homes, representing around 90% of the market.
What’s the bottom line? Activity in the housing market has certainly slowed, but home prices are still being supported by continued low inventory. Plus, the rise in inventory that occurs every summer from parents listing their homes so their kids are settled for the new school year has crested.
The number of available homes declined for the second month in a row, from 1.28 million at the end of August to 1.25 million at the end of September – equating to a 3.2 months’ supply of homes.
NAR’s chief economist, Lawrence Yun, explained how today’s dynamics are different than during the housing bubble. “Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory." He added, "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."
Construction of Single-Family Homes Continues to Decline
September also brought a slowdown in home construction as Housing Starts, which measure the start of construction on homes, fell 8.1% from August. Starts for single-family homes, which are the most important because they are in such high demand among buyers, were also down 4.7% from August and 18.5% from September of last year. Building Permits for single-family homes, which are indicative of future supply, also fell 3.1% for the month and 17.3% year over year.
What’s the bottom line? Builders have clearly slowed down production, and it appears they have learned their lesson from 2006 and 2007, when they kept building homes despite waning demand. However, the lack of new supply coupled with the fact that many existing homeowners are staying put with a 3% mortgage should provide some support for home values.
These dynamics are also reflected in Zillow’s September Home Value Index, which showed that home values increased 14.9% year over year.
Builder Confidence Falls for Tenth Straight Month
The National Association of Home Builders (NAHB) Housing Market Index, a near real-time read on builder confidence, fell 8 points to 38 in October. That’s half the level it was just six months ago. All components of the index moved lower, with current sales conditions falling nine points to 45, sales expectations for the next six months dropping eleven points to 35 and buyer traffic also declining six points to 25, its lowest level since 2012 (except for the beginning of the pandemic in the spring of 2020).
What’s the bottom line? Any reading above 50 on this index, which runs from 0 to 100, signals expansion while readings below 50 signal contraction. This month’s confidence reading is the lowest since August 2012 (again, except for the start of the pandemic) and well into contraction territory, which makes sense given that higher interest rates have led to weakening demand among buyers.
Jobless Claims Remain Volatile
The number of people filing for unemployment benefits for the first time fell by 12,000 in the latest week, as 214,000 Initial Jobless Claims were reported. This decline followed increases of 29,000 and 7,000 in the previous two weeks’ filings. Continuing Claims, which measure people who continue to receive benefits after their initial claim is filed, rose 21,000 to 1.385 million.
What’s the bottom line? While this report can be the “canary in the coal mine” to show that the job market is starting to soften, the volatility of up and down continues and we’re still waiting for that recession-indicating sustained uptick in filings for unemployment.
More Economic Slowdown Signals
Several major manufacturing indices, including those for the New York and Philadelphia regions, reported negative numbers far worse than expectations. In New York, October’s Empire State Index was more than twice as bad as anticipated, marking the third straight month below zero, while the Philadelphia Fed Index saw a second straight month in negative territory.
The International Monetary Fund cut its global growth outlook for 2023, warning that recession risks are rising and the “worst is yet to come” for the global economy. The Fed’s latest Beige Book, a summary of commentary on current economic conditions, also featured the word recession a record high thirteen times.
What to Look for This Week
More housing reports are ahead, beginning Tuesday with home price appreciation data for August from the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index. September’s New and Pending Home Sales will be delivered on Wednesday and Friday, respectively.
Ending the week, crucial inflation numbers for September will be reported Friday via the Fed’s favored measure, Personal Consumption Expenditures.
Mortgage Bonds tested support at 96.984 on Friday but were able to bounce higher. There is still plenty of room for Bonds to move higher before reaching the next ceiling at 99.031. The 10-year ended last week trading at around 4.22% after testing 4.34% earlier in the session.
Information (weekly review) was provided by Mark Hedman
Homebridge Financial Services - Sales Manager, Mortgage Loan Originator
Posted by Liza Alley