The housing market was the focus of attention in what was a light week for economic data. For the most part, the residential sector has been in a slump since the Federal Reserve started to tighten monetary policy in 2022. A higher fed funds target rate pushed up mortgage rates sharply, which exerted significant pressure on affordability for buyers already dealing with scarce supply and elevated home prices. As the summer wound to a close, green shoots began to sprout for the housing sector as mortgage rates began to decline in anticipation of less-restrictive monetary policy nearing on the horizon. After rising to almost 7% in early July, the average 30-year mortgage rate dropped to almost 6% in the final week of September, according to Freddie Mac.
The summer slide in mortgage rates does not appear to have had a material effect on home sales. Total existing home sales declined 1.0% during September, falling short of expectations for a modest gain. The 3.84 million-unit pace hit during the month marks the slowest pace since 2010 in the aftermath of the housing bust and Great Recession. Digging deeper into the details sheds light on why decreased financing costs have not yet meaningfully pulled buyers off the sidelines. Existing median home prices rose 3.0% on a year-to-year basis in September, pushing prices up nearly 50% since the same month in 2019. The main driver behind the rapid home price appreciation has been low supply. Resale inventory has been rising modestly over the past year alongside a slower pace of sales. That noted, the "lock-in" effect, where prospective sellers are unwilling to give up their low mortgage rate largely continues to prevail. The count of existing single-family homes for sale at the end of September stood at 1.21 million, nearly 25% below the low levels hit just before the pandemic.
Not every segment of the residential sector has faired as poorly as the existing home market. New home sales jumped 4.1% during September, easily topping consensus expectations. On balance, sales have drifted higher this year, even with the various swings in borrowing costs. The upward trend reflects better affordability conditions in the new home market, which is relatively replete with supply and where builders are able to offer a menu of price incentives for increasingly cost-conscious buyers. Builders' newfound ability to insulate themselves from changes in interest rates has supported sales and also appears to be instilling confidence that market conditions will remain buoyant moving forward. The NAHB Housing Market Index rose for the second consecutive month in October, driven by across-the-board improvements in buyer traffic, current sales and future sales expectations.
The Federal Reserve ultimately decided to reduce the fed funds target rate by 50 bps at the September meeting. Further cuts appear to be coming, which should help mortgage rates descend and eventually seed a stronger housing market recovery. The road ahead is not without obstacles, however. The recent move up in long-term Treasury yields alongside increased uncertainty regarding future monetary and fiscal policy has spurred a leg higher in mortgage rates. Freddie Mac reported this week that the average 30-year mortgage rate rose to 6.5% in the week ended Oct. 24, the highest since early August. The rise in financing costs already appears to be pouring cold water on the fledgling recovery in mortgage demand. Mortgage applications, both for purchase and refinancing, have declined in each week so far in October, retrenching after generally tracking higher in August and September.
Additional signs the U.S. economy continues to grow at a sturdy pace may be another factor behind the backup in Treasury yields. A strong labor market has been a major support for economic growth, and evidence continues to mount that conditions are not approaching a cliff. Initial jobless claims fell to 227K in the week ended Oct. 19. Zooming out, the level of initial claims remains low and not indicative of a jobs market deteriorating in a non-linear and worrisome fashion. That noted, continuing claims rose modestly, which suggests the labor market is indeed softening. As we outline in the U.S. Outlooksection, we expect this trend to continue in the near term. Elsewhere, the Leading Economic Index again fell during September. This once-widely followed gauge has "cried wolf" of a nearing recession for the better part of the past two and half years, and we recommend not putting too much weigh on the index readings.
This Week's State Of The Economy - What Is Ahead? - 01 October 2021
Wells Fargo Economics & Financial Report / Oct 10, 2021
Economic data this week indicated that the ongoing expansion still has some momentum despite some familiar headwinds, though this week\'s releases were largely overshadowed by a busy week on Capitol Hill.
This Week's State Of The Economy - What Is Ahead? - 15 November 2019
Wells Fargo Economics & Financial Report / Nov 16, 2019
Retail sales beat expectations and rose 0.3% in October, reflecting the ongoing strength of the consumer. Control group sales, a major input to GDP, also increased 0.3%.
This Week's State Of The Economy - What Is Ahead? - 16 April 2021
Wells Fargo Economics & Financial Report / Apr 17, 2021
Data released this week continue to show that the economic recovery has gained momentum in March. The much anticipated consumer boom has arrived.
This Week's State Of The Economy - What Is Ahead? - 28 June 2024
Wells Fargo Economics & Financial Report / Jul 04, 2024
According to the Federal Reserve\'s preferred gauge, core inflation cooled to its softest pace in more than three years in May against a backdrop of measured consumer spending and still-strong personal income.
This Week's State Of The Economy - What Is Ahead? - 24 July 2020
Wells Fargo Economics & Financial Report / Jul 25, 2020
Initial jobless claims rose to just over 1.4 million for the week ending July 18. Continuing claims fell to about 16.2 million. Initial claims edging higher suggests that the resurgence of COVID-19 may be taking a toll on the labor market recovery.
This Week's State Of The Economy - What Is Ahead? - 16 August 2024
Wells Fargo Economics & Financial Report / Aug 22, 2024
Inflation continues its gradual descent, and business optimism has trended higher amid cooler input price growth and steady consumer spending.
This Week's State Of The Economy - What Is Ahead? - 01 November 2024
Wells Fargo Economics & Financial Report / Nov 06, 2024
The unemployment rate, which is derived from the household survey and counts those not working due to a strike or severe weather as employed, held steady at 4.1%. A 25 bps rate cut at next week\'s FOMC meeting remains highly likely.
This Week's State Of The Economy - What Is Ahead? - 23 September 2020
Wells Fargo Economics & Financial Report / Sep 22, 2020
European activity is surging. Germany and Italy are leading the way, but France is close behind despite an ongoing rise in cases. The Google data are a bit outdated, but are hard to reconcile with today’s weak Eurozone services PMI figures.
This Week's State Of The Economy - What Is Ahead? - 28 October 2022
Wells Fargo Economics & Financial Report / Oct 31, 2022
Headline GDP continues to send mixed signals on the direction of the U.S. economy. During Q3, real GDP rose at a 2.6% annualized rate, ending the recent string of quarterly declines in growth registered in the first half of 2022.
This Week's State Of The Economy - What Is Ahead? - 26 July 2024
Wells Fargo Economics & Financial Report / Jul 30, 2024
Economic growth defied expectations in the second quarter. Real GDP expanded at a 2.8% annualized rate, a sizable acceleration from 1.4% in Q1.
