Markets in a Minute, Housing Market News, October 5, 2023

This week’s financial and housing market activity update…

The Economy

• The number of job openings rose more than anticipated in August. Labor market strength continues despite the Fed’s rate hikes. 
• Manufacturing data showed improvement for the 3rd straight month in September, a sign that the worst may be over for the sector.
• The services sector slowed in September, as new orders fell to a 9-month low. However, the pace was consistent with solid economic growth.

There are several reasons experts believe we have a stronger economy today than was anticipated as the Fed sustained a hawkish interest rate hike policy [as reported by PBS NewsHour].

• Many supply disruptions that played a significant role in driving inflation have largely dissipated. Rising supply of goods and materials have helped to ease inflation. 
• While many businesses are seeking fewer new employees, there has also been a common focus on avoiding layoffs.
• Savings from stimulus checks and enhanced unemployment benefits have bolstered consumer spending. However, rapidly rising credit card debt suggests this effect is likely to reverse at some point. 
• Low interest rates in 2020-21 enabled businesses to refinance large amounts of debt without raising costs. They benefit from those lower payments which are still locked in today. When corporate borrowing eventually has to be refinanced at higher interest rates, however, there will likely be intensified layoffs as profits suffer. 
• Government efforts to subsidize and boost investments in infrastructure and businesses that engage with renewable energy and semiconductor manufacturing have contributed to a supply-side revival.

The Federal Reserve has revised its economic projections. They now expect core inflation closer to 2.6% by the end of 2024, down from a current rate of 4.2%. They also expect slightly lower unemployment than previously projected, and appear to be gaining confidence that a recession may be avoided.

Housing Market News

• Residential construction spending increased 0.6% in August.
• Private sector spending for single-family homes rose 1.7%.
• Climbing interest rates led to a 6% drop in mortgage applications last week. Mortgage applications reached their lowest level since 1996. 
• According to NASDAQ.com, the CFPB says mortgage applications were declined due to “insufficient income” more often last year than any time since tracking began in 2018.
  
• Many U.S. homebuyers continue to wait for the fed to start cutting interest rates. However, there doesn’t seem to be a consensus among financial experts regarding when that is most likely to happen. One recent article cited 9 experts whose estimates for when rate-cuts may begin ranged from “as soon as year-end” to as far out as late 2024.