Week of September 25, 2023: A Review of Economic Trends

As we wrap up the week of September 25, 2023, it's essential to take a closer look at the economic trends that have shaped the past few days. From inflation to housing market dynamics and employment statistics, here's a comprehensive overview of the key developments that could impact your financial decisions.

Inflation Makes Progress Lower

• PCE Data: August's Personal Consumption Expenditures (PCE) data revealed a headline inflation increase of 0.4%, which was lower than expected. The year-over-year reading inched up from 3.4% to 3.5%, primarily due to revisions in prior reporting.

• Core PCE: The Federal Reserve's preferred measure, Core PCE, which excludes volatile food and energy prices, showed a more modest 0.1% increase in August. The year-over-year reading dipped from 4.3% to 3.9%, marking the lowest level in two years.

Bottom Line: While inflation remains elevated, the current data suggests a significant improvement from the peak of 7.1% observed last year. Core PCE, annualized over the last six months, indicates a drop to 2.9%. This may influence the Fed's decision on further rate hikes, with their next meeting scheduled for November 1.

Pending Home Sales Tumble in August

• Pending Home Sales: In August, pending home sales experienced a notable decline of 7.1% from July. Furthermore, sales were a staggering 18.7% below the levels observed a year earlier. This metric, which measures signed contracts on existing homes, serves as a forward-looking indicator for future home sales.

Bottom Line: The housing market is facing headwinds due to high mortgage rates and limited inventory. Chief economist for the National Association of REALTORS®, Lawrence Yun, emphasized the need for increased housing inventory and more favorable interest rates to stimulate the market.

New Home Sales Hit Slowest Pace Since March

• New Home Sales: August saw a sharp 8.7% decline in new home sales compared to July, with a seasonally adjusted annualized pace of 675,000 units. However, there was a positive revision to the number of signed contracts in July, and sales remained higher than the previous year.

Bottom Line: Buyers are turning to the new construction market due to a shortage of existing homes for sale. Still, the data highlights the need for more available supply of new homes to meet the growing demand.

Record High for Home Prices

• Home Price Index: The Case-Shiller Home Price Index, considered a benchmark for home price appreciation, indicated a 0.6% increase in home prices from June to July. This marked the sixth consecutive month of gains. The Federal Housing Finance Agency's (FHFA) House Price Index also reported a 0.8% rise in July.

Bottom Line: Home values have reached all-time highs, rebounding from the downturn experienced in the latter half of 2022. Various indexes forecast price appreciation between 5-9% for this year, demonstrating the potential for wealth accumulation through homeownership.

Initial Unemployment Claims Remain Tame

• Jobless Claims: Initial Jobless Claims increased by 2,000 in the latest week, just above the previous week's eight-month low. A total of 204,000 individuals filed for unemployment benefits for the first time. Continuing Claims also rose by 12,000, with 1.67 million people still receiving benefits after their initial claims.

Bottom Line: The labor market continues to show resilience, with employers retaining workers. The Federal Reserve is closely monitoring employment data as they consider future rate hikes, with the next decision slated for November 1.

Mortgage Rate Outlook: Expected Stability

Amidst these economic developments, what can we expect for this week's mortgage rates? The outlook suggests stability, despite fluctuations in the broader financial landscape:

• Market Dynamics: Mortgage rates are influenced by various factors, and while economic trends play a role, their immediate impact on mortgage rates remains limited.

• Economic Factors: While broader economic indicators will continue to shape mortgage rates, the current data points towards a relatively stable environment.

• Fed Policy: The Federal Reserve's intentions to raise the Fed Funds Rate do not necessarily translate to immediate mortgage rate hikes. Mortgage rates are influenced by other factors, including long-term Treasury yields and investor demand for mortgage-backed securities.

• Supply and Demand: The balance between housing supply and demand will also impact mortgage rates. Current market conditions indicate a relatively stable environment with steady demand.

Monitor Market Updates: As mortgage rates can change rapidly, staying informed and monitoring market updates from reputable sources is crucial. Consulting with mortgage lenders or financial professionals will provide the most accurate and up-to-date information specific to individual circumstances.

For additional resources and references on mortgage rates and market insights, consider exploring the following links: