Financial Report

U.S home price growth slowed for the second consecutive month in August according to S&P Case-Shiller’s national home price index. National home price growth fell by -9.8 percent year-over-year as compared to July’s year-over-year reading of  -5.3 percent. Home price growth slowed by -1.1 percent month-to-month from July to August.

Rising Mortgage Rates and Recession Worries Dampen Homebuyer Interest

The Mortgage Bankers Association forecasted a recession in 2023 and expects mortgage rates to fall to approximately 5.40 percent by the end of 2023. Mike Fratantini, senior vice president and chief economist at the MBA, said: “The upside of [a potential recession] for the industry is that it’s likely going to bring rates down a little bit.” Current rates for 30-year fixed-rate mortgages are near seven percent; the MBA expects 30-year fixed mortgage rates to fall to approximately 5.40 percent by the end of 2023.

Rising mortgage rates coupled with high home prices created affordability concerns and challenged would-be buyers in meeting mortgage approval requirements. Less demand for homes caused home price growth to slow nationwide.

S&P Case-Shiller 20-City Home Price Index: August Home Price Growth Slows in All Cities

Home price growth peaked in April with a  national home price growth rate of 21.2 percent year-over-year, but slowed to a pace of 16.0 percent in July and 13.1 percent in August. The top three cities in the 20-City Index were Miami, Florida with 28.6 percent home price growth. Home prices rose by 28.0 percent in Tampa, Florida, and were 21.3 percent higher in Charlotte, North Carolina.

In related news, the Federal Housing Finance Agency released its House Price Index for August. Home prices for homes owned or financed by Fannie Mae and Freddie Mac fell by -0.7 percent in August. This was the first time since March 2011 that the FHFA HPI decreased for two consecutive months.

Inventories of newly-built homes were higher than normal at a 9.2 months supply. Real estate pros typically consider a  six- months supply of homes for sale reflective of a balanced housing market.  Rising materials costs caused home builders to raise home prices; the median home price of a new home in August was $470,600 and 13.90 percent higher year-over-year, but some builders are reducing prices and offering buyer incentives on new homes as sales falter. 

Last week’s economic reporting included readings from the National Association of Home Builders on national and regional  U.S. housing markets. The National Association of Realtors® reported on sales of previously-owned homes, and the Commerce Department released readings on building permits issued and housing starts. Weekly readings on mortgage rates and jobless claims were also released.

NAHB: Home Builder Confidence in Housing Market Falls for 10^th Consecutive Month

The National Association of Home Builders reported that home builder confidence in the U.S housing market fell for the 8^th consecutive month in October; the organization described the situation as “unsustainable.” The NAHB Housing Market Index, which is based on index readings from 1 to 100, fell to an index reading of 38 in October as compared to the expected reading of 44 and September’s reading of 46. NAHB index readings below 50 indicate that most builders are less confident about housing market conditions than are positive about the U.S  single-family housing market.

NAHB’s regional U.S housing market readings were mixed with the Northeast region reporting a one-point increase in homebuilder confidence in housing market conditions from an index reading of  47 to 48. Home builder confidence in the Midwest fell to a reading of 38 in October from September’s index reading of 42. Homebuilder confidence in housing markets in the South fell by 11 points to an index reading of 41 in October. Homebuilder confidence in housing market conditions lagged in the West from September’s reading of 34 to October’s index reading of 25. Rising mortgage rates and high home prices combined to quash homebuilder enthusiasm.

Existing Home Sales Fall in September

The National Association of Realtors® reported slower sales of previously-owned homes in September as compared to August. 4.71 million sales were reported in September on a seasonally-adjusted annual basis. Previously-owned homes sold at a seasonally-adjusted annual pace of 4.78 million sales in August. 

The Commerce Department reported that 1.56 million building permits were issued on a seasonally-adjusted annual basis in September Analysts expected a reading of 1.54 million permits issued, which was unchanged from August’s reading. In related news, 1.44 million housing starts were reported on a seasonally-adjusted annual basis in September. Analysts expected a seasonally-adjusted annual pace of 1.47 million housing starts based on August’s seasonally-adjusted annual reading of 1.57 million housing starts.

Mortgage Rates Rise, Jobless Claims

Freddie Mac reported higher average mortgage rates last week, but they rose at a slower pace than in recent weeks. Rates for 30-year fixed-rate mortgages averaged 6.94 percent and were two basis points higher than in the previous week. Rates for 15-year fixed-rate mortgages averaged 6.23 percent and were 14 basis points higher. The average rate for 5/1 adjustable rate mortgages fell by 10 basis points to 5.71 percent. Discount points averaged 0.90 percent for 30-year fixed-rate mortgages and 1.10 percent for 15-year fixed-rate mortgages. Discount points for 5/1 adjustable rate mortgages averaged 0.40 percent.

Initial jobless claims fell last week with 214,000 new claims filed as compared to 226,000 first-time claims filed in the previous week. Analysts expected 230,000 new jobless claims to be filed. 1.39 million ongoing jobless claims were filed last week as compared to 1.36 million continuing claims filed in the previous week.

What’s Ahead

This week’s scheduled economic reporting includes readings on U.S home prices, new and pending home sales, and inflation. The University of Michigan will issue its monthly reading on consumer sentiment and weekly readings on mortgage rates and jobless claims will also be released.

Last week’s economic reporting included readings on month-to-month and year-over-year inflation and the minutes of the most recent meeting of the Federal Reserve’s Federal Open Market Committee. The University of Michigan published its preliminary consumer sentiment reading and weekly reports on mortgage rates and jobless claims were also released.

September Inflation Readings Provide No Relief

Inflation rose by a month-to-month pace of  0.40 percent in September as costs for staples including rent, food, and medical care increased. The Fed raised its target interest rate by 0.75 percent. Year-over-year inflation rose by 7.20 percent; this was the highest growth reading since 1982. The Federal Reserve considered a year-over-year rate of two percent inflation to be normal before the pandemic. September grocery prices were 13 percent higher year-over-year and reached their highest growth pace since 1979. Rents rose by 0.80 percent in September and the increase concerned economists who predicted no immediate end to high inflation. Rising rents are particularly significant as rent represents the largest component of most tenants’ budgets.

Core inflation, which excludes volatile food and fuel sectors, reached a 40-year high in September after increasing by 0.60 percent in August. Analysts expected a month-to-month increase of 0.40 percent based on August’s core inflation reading of 0.60 percent.

Year-over-year core inflation dipped to 8.20 percent in September. Analysts expected a reading of 8.10 percent; the year-over-year inflation reading for August 2022 was 8.30 percent. By comparison, the year-over-year core inflation readings for September 2021 were 6.60 percent with an expected reading of 6.50 percent and an August 2021 reading of 6.30 percent.

Mortgage Rates, Jobless Claims Rise

Freddie Mac reported higher average mortgage rates last week as the rate for 30-year fixed-rate mortgages rose by 26 basis points to 6.92 percent. Rates for 15-year fixed-rate mortgages averaged 6.09 percent and were 19 basis points higher. The average rate for 5/1 adjustable rate mortgages rose by 45 basis points to 5.81 percent. Discount points averaged 0.80 percent for 30-year fixed-rate mortgages and 1.10 percent for 15-year fixed-rate mortgages. Discount points for 5/1 adjustable rate mortgages averaged 0.80 percent.

Initial jobless claims rose to 228,000 first-time claims filed as compared to the previous week’s reading of 219,000 initial claim filings. The University of Michigan released its October consumer sentiment index with an index reading of 59.8; analysts expected a reading of 59.0 and September’s index reading was 58.6. Readings over 50 indicate that most index participants surveyed had a positive outlook on current economic conditions.

What’s Ahead

This week’s scheduled economic news includes readings on U.S. housing markets, building permits issued, and housing starts. Sales of previously-owned homes will be reported along with weekly readings on mortgage rates and jobless claims.