Housing Market Insights: Tight Inventory, Rising New Home Sales, and Inflation Trends

Welcome to our weekly housing market review for the week of June 26, 2023. In this update, we examine the latest developments in the housing sector, including key indicators and trends that are shaping the market. Here are the highlights:

  • Inflation continues to make slow progress lower, with the Fed's preferred measure showing a decline in May.

  • Tight inventory remains a significant factor, preventing housing demand from being fully realized.

  • New home sales soar in May, indicating strong buyer interest in newly constructed homes.

  • Home prices see monthly gains, signaling a rebound in appreciation after a slower start to the year.

  • Unemployment claims show a surprising drop, although challenges persist in the labor market.

Inflation Making Slow Progress Lower

  • The Fed's preferred measure of inflation, Personal Consumption Expenditures (PCE), showed a decline in the year-over-year reading from 4.3% to 3.8% in May.

  • Core PCE, which excludes food and energy prices, also experienced a slower decline from its peak, indicating some moderation in inflationary pressures.

Tight Inventory Preventing "Housing Demand from Being Fully Realized"

  • Pending Home Sales fell 2.7% in May, with the West, Midwest, and South experiencing declines in contract signings.

  • Lawrence Yun, chief economist for the National Association of REALTORS®, attributed the decline to the persistent lack of housing inventory.


New Home Sales Soar in May

  • New Home Sales rose 12.2% from April to May, reaching a 763,000-unit annualized pace, the highest level since February 2022.

  • The surge in new home sales correlates with the low inventory of existing homes, highlighting the need for increased construction to meet buyer demand.


Spring Brings More Monthly Home Price Gains

  • The Case-Shiller Home Price Index showed a 0.5% monthly increase in home prices from March to April, marking the third consecutive month of gains.

  • The Federal Housing Finance Agency (FHFA) House Price Index also revealed a 0.7% monthly rise in prices from March to April.


Surprising Drop in Unemployment Claims

  • Initial Jobless Claims declined by 26,000 in the latest week, with 239,000 people filing for unemployment benefits.

  • Continuing Claims also decreased to 1.742 million, reflecting some improvement in the labor market.


Outlook for Mortgage Rates

Based on the current trends and indicators in the housing market, the outlook for this week's mortgage rates is as follows:

  • Expectation: Mortgage rates are anticipated to remain stable or show a slight upward trend in the coming week, influenced by factors such as inflation

  • Stability: Mortgage rates are expected to remain relatively stable in the near term, reflecting the Federal Reserve's cautious approach to monetary policy and the ongoing balance between inflation concerns and economic growth.

  • Moderate Upside Potential: While stability is projected, there is a possibility of modest upward movement in mortgage rates due to several factors:

    • Inflationary Pressures: Despite recent declines in inflation, there is still underlying pressure that could contribute to higher mortgage rates if inflation expectations rise significantly.

    • Labor Market Recovery: Continued improvement in the labor market, with declining unemployment claims, could fuel expectations of stronger economic growth and put upward pressure on rates.

    • Economic Data Releases: Key economic reports, such as GDP growth, consumer sentiment, and housing data, could influence market sentiment and impact mortgage rates.

  • Monetary Policy Considerations: The Federal Reserve's stance on interest rates remains a critical factor. While they have maintained a patient approach, any indication of a shift towards a more hawkish stance could lead to upward pressure on mortgage rates.

It's important to note that mortgage rates can be influenced by various factors, and unexpected events or developments in the economy or financial markets may impact the trajectory of rates.

For more insights and information on the housing market and mortgage rates, you may find the following resources helpful:

Stay informed and make well-informed decisions based on your personal financial goals and circumstances.