Happy Friday! Brian Manning here with your weekly update. Let’s get right to it. So, let’s see. Monday of this week, relatively quiet news day. Not a lot to talk about there. Tuesday this week, we got a new home sales. This is for new construction transactions which is down 12% for the month of July. Definitely seeing new home sales slow down. Wasn’t really surprised to see this number is kind of in line with expectations for the month of July. What’s interesting to look at there though, is that we haven’t seen prices soften. You’ve seen a reduction in sales, but you haven’t seen really a reduction in pricing, which is really great to see. Excuse me!

Wednesday this week, we got pending home sales. So, pending home sales is 90% of the market across the US. This makes up signed contracts in the month of July. Pending home sales on a month-over-month basis were down 1%. That was actually better than expected. Expectations was that pending home sales would be down 3%. What’s interesting about this report, though, is that if you look at pending home sales for the month of July, this is likely people that were looking at homes in the month of June and June was definitely the apex of interest rates, the highest that we ever got to. And since then we’ve seen mortgage rates come down. So, not surprised to see a decline of pending home sales in July, really, just because of where interest rates were at in the month of June. And yes, you know, we’re seeing a reduction in activity, but again, we’re really seeing prices hold strong, which is really great to see.

Thursday this week was a quiet news day. Not much to talk about there. But it was the starting of Federal Reserve meeting in Jackson Hole, which concluded today. We’ll talk a little bit more about that in a second. And then today we get PCE. So, PCE stands for the personal consumption expenditure. There are two main reports that come out to give us feedback on inflation in the US. One is the CPI. That’s the consumer price index. We really believe that’s the more accurate of the two. The PCE is the personal consumption expenditure. This is the Federal Reserve’s favorite gauge of inflation. The reason why we don’t think this is the more accurate of the two is because the PCE does not take into account out-of-pocket medical expenses or the cost of putting a roof over your head. And we all know when there’s a lot of expenses involved in that on a monthly basis. But, you know, perhaps, the Federal Reserve license the best because the PCE is always going to be lower than CPI.

So, if you’re trying to, you know, work with the best number possible, PCE is definitely going to be it. What’s interesting about PCE is on a year-over-year basis, it went from 6.8% down to 6.3%. So, you did see a decline there. Actually, expectations were that it was going to go down to 6.2%. So, a slight miss there, but pretty close to being in line with expectations. Then we look at the core rate. So, the core rate strips out volatile items such as food and energy.

The core rate on a month-over-month basis was up 1/10th of a percent and on a year-over-year basis went from 4.8% to 4.6%. So still, Federal Reserve target is to have inflation at 2% or less. Here we are hovering at 4.6% right now. You know, you have the conclusion of the Federal Reserve meeting. This was the annual meeting in Jackson Hole. This is the first time in two years doing in person. Always at the end of the annual meeting the Fed president does a speech. Today was Jerome Powell speech. It was at 8 am, mountain time. You know, it’s interesting because he came out and usually they’re kind of long winded. And he came out in the beginning, he said, this is going to be very short and to the point. And in the speech, he basically said the Federal Reserve is going to continue hiking interest rates.

They’re likely going to bring a little bit of pain to businesses and households. And certainly, you know, we’ve talked about this in the past. The Federal Reserve hiking rates is not a bad thing. If you look back in history, historically, when the Federal Reserve hikes rates, the purpose of this is to combat inflation. And inflation is the enemy of mortgage rates. It’s just the enemy of long term instruments. So… If what the Federal Reserve continues to do is perceived that they’re continuing to fight inflation and mortgage rates will react favorably and eventually, you’ll continue to see mortgage rates come down. So, just keep in mind, Fed rate hike, it’s going to happen in September.

When the Federal Reserve hikes rates in September, it does not mean that mortgage rates jump up. What’s most important to look at is when they hike rates, how much are they going to hike rates? Is that a half a percent or three quarters of a percent? But also really probably more importantly is when they hike the rates, what is the speech that comes behind it and how is that speech perceived? And is the Federal Reserve continuing to fight inflation? That’s something for us to take a look at.

I do want to share something here with you real quick. Bear with me for one second, please. So early this week, we had some comments from Lawrence Yun. Lawrence Yun is the National Association of Realtors Chief Economist. Really smart guy, usually extremely dialed in, slightly conservative on his approach, which I really like because it just kind of keeps everything a little bit safer. But what’s interesting on his speech is that he has some really great takeaways in his comments here. The first one, you know, he really thinks in terms of the housing market, that we’re close to seeing the bottom of contract signings, right? Of course, we’re seeing a reduction in activity once you come out of 2020, 2021, even the beginning of 2022, you know, it can’t stay on fire like that forever. You have to see a reduction at some point in time.

So… He really feels we’re almost at the bottom of that right now. He also thinks that the modest decline in interest rates is helping us, but we’re still seeing a challenge with inventory. So, there’s still limited supply out there. If you look at the supply that’s available, it’s averaging right now about a two-month supply at most. And some markets even less, down to a one-month supply. Six months of supply is considered a balanced market. So, six months supply is balance between buyers and sellers, and we’re still hovering, depending on the market, between 1 and 2%. So, still really tight inventory. He also thinks that in certain markets, you’re going to continue to see double digit appreciation. Again, inventory is still going to be really tight, so in certain markets, you’re going to see stronger appreciation.

But I really like to see, here is what he said, that he really expects appreciation to moderate and be at about 5% through the rest of this year and 2023. To me, 5% is amazing. If you ever ran an appreciation calculator, if you bought a home and you owned it for say, ten years and appreciate 5% per year from compound appreciation, it’s incredible how much your home goes up in value and you continue to pay off your mortgage every single month and you’re reducing the principal balance. So… 5% would be an amazing number for us to get to. That is not a housing collapse. That is not anything crazy. Just coming down from double digits to 5% appreciation would be amazing.

He also says that they expect mortgage rates to really stabilize in that 6% or lower range, and they’re going to start to see a rise in home sales probably end of this year, even into the beginning of next year, which would be really great. So, Lawrence Yun, I’m definitely in line with what he’s saying there and in full agreement with him. I’m available all weekend. If you have any questions, let me know. If you want to get pre-approved, give me a call. If you want to go through our strategic buyer consultation, reach out to me anytime. Call me on my cell phone, text me. Happy Friday. Have a great day.

-Brian Manning
303-500-3839
brianm@rate.com