|
Inflation and recession remained the economy’s focal points last week. Despite the Feds’ decision to remain aggressive in their rate hike move, weaker-than-expected economic growth in the second quarter prompted interest rates to decline further since the release of the latest GDP report. The average 30-year fixed rate mortgage, in fact, dipped to the lowest level since mid-April, according to Mortgage News Daily. The slightly more favorable lending environment, coupled with a higher level of housing supply, may have provided a window of opportunity for homebuyers who have been standing on the sideline for the past few months.
Sharp decline in new home sales: Consistent with the resale housing market, new home sales fell 8.1% to 590,000 in June from the prior month and dropped 17.4% from the same month of last year. Affordability has become an even bigger issue in recent months, and some would-be homebuyers simply could not afford the higher monthly payments as interest rates surged. The slowdown in demand, on the other hand, pushed new home inventory up to 9.3 months, the highest level since May 2010. Builders, in response to the softening in home sales, reduced prices and offered incentives to buy down mortgage rates. As such, the median price of a new home sold in June was down 9.5% from May but remained up 7.4% from last June.
Home builders cut back on spending in June: Developers responded to the slowdown in buyer traffic and the spike in inventories by curtailing home building activity. Overall construction spending fell 1.1% in June from the prior month and had its first month-over-month decline since September 2021. Declines were evident across most sectors, with spending in the private sector falling 1.3% and spending for public work projects dipping 0.5%. Construction outlays for new single-family homes took a hard hit, with their June’s figure plunging 3.1% month-over-month, but spending for multifamily projects continued to rise 0.4% in the latest month. With rates and home prices remaining elevated, home building activity will likely slow further in the next few months as demand continues to pull back.
GDP posts back-to-back declines: The U.S. economy contracted again in the second quarter, with real Gross Domestic Product (GDP) dropping at an annual rate of 0.9% after dipping 1.6% in the first quarter. While consumer spending, which accounts for two-thirds of total economic output, grew at a 1% annual rate in the second quarter, inventories and residential investment accounted for much of the decline. Residential investment, in fact, declined 14.0%, as builders scaled back due to concerns about homebuyers’ affordability challenges. With the strength of the labor market remaining solid, it is debatable whether the back-to-back quarters of negative GDP growth constitutes a recession. There is no doubt that the economy is cooling nonetheless, and the Fed’s tight monetary policy will keep the lid on economic growth in the short term.
Fed raised rates: The Federal Reserve hiked the federal funds rate up another 75 basis points to a range between 2.25% and 2.5% in the July Federal Open Market Committee (FOMC) meeting. With the rate hike last week, the central bank has increased rate to a level last seen since mid-2019. The increase was widely anticipated as the June’s 40-year high inflation rate reflected a level of price growth that had yet to be contained. The statement released after the FOMC meeting also suggests that more tightening is likely to come when the Committee meets again in September. The Fed Chairman, however, said that the pace “will depend on incoming data and the evolving outlook for the economy.”
Consumer confidence at 17-month low: Consumer confidence declined on a monthly basis for the third consecutive month, with the present situation dropping the most in 12 months, while the expectation index fell to the lowest level since 2013. With costs of living outpacing their wage growth, consumer optimism continues to falter. About 43% of those who responded to the latest monthly survey believed there is a greater than 50% chance that the U.S. will experience a recession in the next 12 months, while only 13% believed that would be the case in April. Consumers’ assessment of the labor market also dipped in the recent report. The difference in those reporting jobs as “plentiful” less those who report jobs as “hard to get” fell to 37.8%, its lowest reading in over a year.
If you're ready to discuss today's market and whether now is a good time for you to buy or sell, give me a call at (562) 900-9430.
|
