The U.S. economy once again showed resilience despite mounting headwinds. The labor market remains remarkably tight and continued expanding at a solid pace. That said, prices at the pump are flaring back up and likely will keep inflation elevated, which will only reinforce the Fed’s battle to get inflation under control. Mortgage interest rates remain very volatile and are well above last year’s reducing purchasing power for buyers at all levels. This has caused demand to pull back and, as a result, builders are scaling back production and lowering their spending budgets – especially in residential.
U.S. employment expands at a solid clip, but growth eases in September: While the U.S. economy added 263K jobs in September, the monthly improvement reflects a slowing pace of job growth – the second consecutive. The unemployment rate slipped back down to 3.5% on par with its 50-year low level and the household survey showed a solid rise in employment, but a slight dip in the labor participation rate – to 62.3% – just below pre-pandemic averages. The deceleration in job growth will help to alleviate some of the inflationary pressures, but the labor market remains tight.
Construction spending slips in August: While still running ahead of last year by 10.9% year-to-date, total construction spending decreased 0.7% in August and was revised down slightly for July as well. Growing economic uncertainty, persistent inflation, and higher interest rates continue to weigh on construction and builders across the board have begun scaling back. Both residential and nonresidential construction spending fell in August, by 1.0% and 0.4% respectively. Although, single-family construction posted the largest declines in the residential sector, falling 2.9% from the previous month. However, construction spending for multi-family continues to grow (0.4%).
Mortgage applications fall back to slowest pace since 1997: According to the latest data from Freddie Mac, the average rate on a 30-year, fixed-rate mortgage dipped slightly to 6.66%. Despite the modest decline from 6.70% the previous week, rates are up from last year’s level by more than 300 basis points and have climbed almost 130 basis points just in the last 7 weeks. The steep increase in rates has caused overall mortgage applications to dip to the slowest pace in over two decades. Refinance activity has ground to a near halt and purchase applications have fallen more than 33% behind last year’s pace.
Pending sales decline as rates rise again: After a brief respite, rates during July and early August that caused home sales to rise from the decade-low hit in the summer, pending sales have resumed their downtrend. In September, existing single-family pending sales dipped almost 30% from last year’s levels. That is down 15% from August, which had bounced back 14% from July putting the state close to that previous low hit a few months ago. The Bay Area saw the largest pullback in pendings last month, falling 33% from last year. Southern California followed with a 31% decline in pending sales. Every price segment saw a decline in pending sales in September as well. The top end continues to outperform the bottom end of the market with homes priced $5M and above falling by 21%, while homes priced under $300,000 fall by roughly 33% from last year.
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