Friday Market Update: May 19th 2023

April Existing Home Sales + Where Are Home Sales Heading?

Happy Friday! Brain Manning here on this rainy spring day in Colorado.

I know a lot of people poopoo therein, but man, I do love it. I think coming from South Florida is just, I do love the rain and it just makes everything so green and beautiful. So… I’m not upset about it. It is just great to see and we need the moisture anyway. But here we are, happy Friday!

So, let’s see. Monday this week, we have Black Knight giving us some feedback on homes across the country and saying that the average loan-to-value is 42%. What that means is that the average homeowner has 68% of equity in their home, which is unbelievable. It’s definitely something that’s helping\ keep the housing market strong because of the amount of equity that’s out there across the country.

Tuesday this week, we got retail sales. This is for the month of April, retail sales were up 4/10th of a percent. We’re still seeing continued softening in retail sales. This was stronger than expected, but just overall we’re still seeing general softening in retail sales.

We also got some feedback from CoreLogic on their rental index. So, Core Logic looks at new rents and renewals and this is going up 4.3% on a year-over-year basis. This is down from 5% in the prior report. So, we’re continuing to see declines in the rental market here.

If you look at Apartment List, Apartment List only looks at new rents and Apartment List says new rents are going up at 1.7% year-over-year. This really leads us back to, you know, looking at the CPI report, the inflation data that we’re getting, CPI has 43% component of shelter costs. Right now, CPI has shelter going up at like 8% per year, but all the data that we’re seeing has rents coming down. So, there’s still a disconnect. We’ll talk about that more next week because we’re going to get some more inflationary data.

But… Here we are with just some continual softening in the rental market. We got the Cass Freight Shipping Index as well on Tuesday. We’ve talked about this in the past. So, Cass Freight looked at goods being moved around the US.

So, if you buy a product on Amazon and it gets shipped from a Seattle warehouse to Boulder, Colorado, that’s tracked in the Cass Freight Shipping Index because that’s goods moving around the US. So, Cass Freight Shipping on a month-over-month basis was down 1.3%, year-over-year, down 2.4%. And what this really shows is less consumer spending because there’s less goods moving around the country.

Wednesday this week, we got NAHB. This is National Home Builder Association. That gives us feedback on builder sentiment and just confidence from builders in the market. This is at 50. So, this is a scale on 1 to a 100. 50 is considered or 50 or above is considered expansion. Below 50 is considered contraction. It’s good to see this come back to an expansion number. This just means that builders across the country are more positive. They’re selling product, they have more positivity in the housing market. So, it’s really good to see this. And this does say, you know, that new construction sales are looking strong.

Thursday this week, we got existing home sales. This is for the month of April. So, existing home sales were down 3.4%. I was not surprised to see this lower. The challenge that we’re seeing right now across the country is inventory. From the prior month into April, inventory only increased by 20,000 homes. That’s like nothing for inventory across the country.

If you look at inventory and you look at homes that are already under contract, so pending sales, and you look at actual available inventory, in the month of April, that was only 563,000 homes. So, that’s still, unfortunately, record low inventory. That’s still impacting an imbalance of supply and demand because, right now, we only have 2.9 months’ supply across the country. So, still a seller’s market out there and still an imbalance of supply and demand.

Today, we just have some movement in the bond markets. We’ve had Fed speakers all week talking about their opinions of what’s going on in the markets, what they think should be done with interest rates. If we should continue hiking, then we had Jerome Powell talking today. You know, there’s still… instability in the markets, unfortunately. It’s like the Federal Reserve is driving this car right now, looking in the rearview mirror, they’re looking at data from the past.

What I’m interested to see though, is that next time the Fed speaks and they have a monetary meeting that would indicate a potential rate hike or doing nothing, I think that’s on June 13th or 14th. But what’s interesting is that the CPI report is going to come out one day before that. So… I think we’re going to see a really good CPI report in the month of June.

Hopefully, that’s going to be favorable and that’s going to impact the Fed decision, which I think it definitely could. We’re going to have to keep a very close eye on that going forward.

The last thing for today, we got what’s called the Leading Economic Indicators. This is from a panel throughout the world. They look at what’s happening in the economy and then, also US economy in April would drop by 6/10th of a percent as a Leading Economic Indicator. So, right now, we’re 13 months in a row of contraction of Leading Economic Indicators.

Typically, if you look at this and you look at their reports in the past, right at 13months of contraction is when there’s a recession. So, you know, it’s hard to tell if we’re in a recession right now, if we’re going to see recessionary activity in the next quarter. But if you look at the Leading Economic Indicators, you look at the past, you look at where we are, certainly is all signs pointing to recessionary factors.

But… Keep in mind, recessions are not necessarily bad for interest rates because when you have recessions, inflation comes down and mortgage rates come down and they’re usually really good for housing. So, here we are, only 563,000 homes available across the country. If you do feel recessionary pressures, inflation comes down, mortgage rates come down, housing will likely still main strong and robust through these times.

I’m around a weekend. If you have any questions, let me know. If you want to learn how we’re closing purchase transactions in 10 days, give me a call. I’d love to go through our strategic homebuyer session with you.

Happy Friday. Hope you have a great day.



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