Review of the Week: September 18, 2023

Welcome to our weekly review, where we delve into the latest developments that are shaping the financial and housing markets. In this edition, we explore the decisions made by the Federal Reserve, the ongoing challenges in the housing market, and the status of unemployment claims. Let's dive in:

Federal Reserve's Steady Hand

The Federal Reserve made headlines last week by holding its benchmark Federal Funds Rate steady at a range of 5.25% to 5.5%. While this rate doesn't directly impact mortgage rates, it plays a crucial role in shaping the overall economic landscape.

Key Takeaways:

Despite no rate hike last week, there are indications that the Fed may adopt a "higher for longer" approach, suggesting that rates may remain elevated.
The Fed's dot plot projections foresee one more rate hike this year, with a potential reduction in rate cuts for 2024.
Fed Chair Jerome Powell emphasized the Fed's commitment to achieving its 2% inflation target but acknowledged the need to assess incoming data carefully.

The Bottom Line: The Fed's stance reflects a cautious optimism about the economy. However, conflicting economic indicators, such as the Leading Economic Indicators' 17-month decline, hint at the possibility of a looming recession. Historically, periods of recession are associated with lower interest rates.

Housing Inventory Crisis Persists

The housing market continues to face challenges, with record-low inventory levels and elevated mortgage rates impeding home sales. Existing Home Sales in August fell 0.7% from the previous month, with a 15.3% year-over-year decrease.

Key Takeaways:

The existing home inventory, critical for gauging the housing sector's health, needs to double to meet demand.
Low inventory levels, exacerbated by homes under contract not being genuinely available, are causing prices to rise despite lower sales.
Homes are selling quickly, with an average time on the market of just 20 days.

The Bottom Line: The severe supply-demand imbalance continues to drive home prices upward, underlining the importance of doubling the housing inventory to stabilize price growth.

Housing Starts Experience a Drop

Housing Starts, which measure the initiation of construction on new homes, dropped by 11.3% in August, marking a two-year low. This decline was observed primarily in multi-family units, with single-family home starts also decreasing by 4.3%. However, Building Permits, a sign of future supply, increased by 6.9% from July.

Key Takeaways:

Builders may have been preparing permits in anticipation of a shift in rates, potentially increasing buyer traffic.
The supply of completed homes coming to the market falls short of demand, leading to continued price appreciation.
Even considering future supply (Building Permits at 1.5 million annualized), the market remains undersupplied.

The Bottom Line: The persistent gap between supply and demand continues to drive home value appreciation, presenting opportunities for those looking to capitalize on these gains.

Home Builder Sentiment Dampened

The National Association of Home Builders (NAHB) Housing Market Index fell to 45 in September, dipping below the key breakeven level of 50 for the first time since April. This decline reflects diminishing confidence among builders.

Key Takeaways:

The decline in builder sentiment is attributed to rising mortgage rates, labor shortages, and supply chain issues.
32% of builders reported price reductions, the highest share since December, potentially benefiting buyers.

The Bottom Line: Builder sentiment reflects the impact of external factors like mortgage rates and supply chain disruptions, with pricing strategies adapting to market conditions.

Unemployment Claims: A Mixed Picture

Unemployment claims showed a mixed picture with Initial Jobless Claims falling by 20,000, reaching an eight-month low, and Continuing Claims declining by 21,000. While these numbers suggest a robust labor market, they typically lag behind other indicators in reflecting economic shifts.

Key Takeaways:

Jobless claims are often the last data point to signal a slowdown, with other indicators like job postings and hiring trends already showing signs of change.
A sustained rise in Initial Jobless Claims in the coming months could indicate a softening labor market, which the Fed closely monitors for rate hike decisions.

The Bottom Line: The employment landscape, while seemingly strong, requires ongoing scrutiny, especially as the Fed considers future rate hikes this fall.

In conclusion, the economic landscape remains uncertain, with various indicators sending mixed signals. As we navigate these challenges, staying informed and monitoring market developments is essential. For the most accurate and up-to-date information, consult reliable sources and financial professionals.

Please note that the information provided here is for informational purposes only and should not be considered as financial or investment advice. Mortgage rates and economic conditions are subject to change, and personalized guidance from financial experts is recommended for specific financial decisions.

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