A Comprehensive Economic Review

The second week of January 2024 brought forth significant developments in the housing market, retail sales, and jobless claims. As we delve into these key indicators, it's essential to keep an eye on the trends that may shape the economic landscape in the coming months.

Mortgage Rate Outlook: Anticipating Stability

Before we dive into the economic review, let's consider the outlook for this week's mortgage rates. As of now, mortgage rates are expected to remain relatively stable in the near term. Here's what you should know:

• Current Rates: Mortgage rates have seen a meaningful decline compared to just two months ago, making homeownership more affordable for prospective buyers.

• Inventory: The housing market continues to grapple with a shortage of available homes for sale, which has contributed to rising demand and stable home prices.

• Spring Market: As we approach the spring buying season, more inventory is expected to enter the market, potentially offering additional options for homebuyers.

• Builder Confidence: Home builders are showing optimism for 2024, indicating that the supply of new homes could increase, providing more opportunities for buyers.

December’s Existing Home Sales Likely a “Bottom”

Existing home sales experienced a 1% decline from November to December, with an annualized pace of 3.78 million units. This figure fell short of estimates and was 6.2% lower than December 2022. Here's what you need to know:

• Timing Factors: The December report reflects closings on existing homes and likely mirrors the period when prospective buyers were actively searching for homes, primarily in October and November.

• Mortgage Rates: Lower mortgage rates compared to two months ago are expected to stimulate housing market activity in the new year.

• Supply Challenge: The housing market continues to grapple with limited inventory, with just a 3.2 months’ supply of homes at the current sales pace.

Home Builders Optimistic About 2024

Home builders' confidence saw a positive uptick in January, rising seven points to reach a score of 44. While this figure remains below the key threshold of 50, indicating contraction, it's a promising sign for the upcoming spring buying season. Key takeaways include:

• Rate Impact: Lower interest rates have improved housing affordability, prompting some buyers to re-enter the market.

• Price Adjustments: Many builders are still reducing prices to encourage sales, creating opportunities for buyers.

“Solid Showing” for Single-family Construction

Housing starts experienced a 4.3% decline in December, marking the first drop in four months. However, single-family starts remained above the one million mark, reflecting robust performance. Key points to note:

• Rate Impact: Falling mortgage rates below 7% in December contributed to keeping single-family production above one million units.

• Supply Dynamics: Building permits, an indicator of future construction, increased by 1.9% in December, with permits for single-family homes reaching a one-year high.

Holiday Shopping Season Stronger Than Expected

Retail sales for December surpassed expectations, rising by 0.6% compared to November. This strong performance was driven by spending at department stores, car dealerships, clothing stores, and online retailers. Key insights:

• Discounts: Retailers likely enticed shoppers with holiday discounts, contributing to the robust sales figures.

• Economic Resilience: The strength of the holiday season suggests economic resilience, with consumer spending playing a pivotal role.

Initial Jobless Claims Fall Below 200,000

In the latest report, initial jobless claims saw a decline of 16,000, with 187,000 individuals filing for unemployment benefits. This figure marks the lowest reading since September 2022. Additional insights include:

• Seasonal Trends: The decline in jobless claims can be attributed to the typical reduction in layoffs during the holiday season.

• Labor Market Dynamics: While initial claims are relatively low, continuing claims, although decreasing, remain elevated compared to earlier in the year, signaling challenges for job seekers.

As we navigate the ever-evolving economic landscape, it's essential to consider the nuanced trends in the housing market, retail sector, and jobless claims. These indicators not only reflect current economic conditions but also provide valuable insights into the potential trajectory of the economy in the coming months.