Markets in a Minute, Housing Market News August 15, 2023

This week’s financial and housing market activity update…

The Economy

• The Consumer Price Index shows inflation rose in July only 3.2% from a year ago, just slightly higher than June’s 3.0%. That was also slightly below the 3.3% forecast. In addition, inflation of prices of core goods ticked down from 4.8% in June to 4.7% in July. At 1.9%, the latest three month annualized rate of headline inflation is at its lowest level since June 2020. These developments could motivate the Fed to hold off on rate hikes in September.
• Labor Market Insights – Per the U.S. Department of Labor, in the week ending August 5, jobless claims rose by 21,000, from 227,000 to 248,000 last week. That was higher than expected, signaling some softening to the labor market.
• Recession outlook – Economists and financial experts are easing up on predictions of a coming recession. Recent economic data suggests a soft landing is more likely than previously expected. A recent piece published by Goldman Sachs explains why their economists decreased the odds of recession recently from 25 to 20%, and why their prediction is so much lower than the 61% median prediction provided by a Wall Street Journal survey of forecasters taken 4 months ago. The expectation of recession has decreased due to strong labor market reports, receding debt ceiling limit concern and banking risks, and disinflation.

Housing Market News

• Home Insurance Market – Policy options available to homeowners across the U.S. decreased by 35% in 2023 from 2022.* The overall number of home insurance policies available has decreased by a staggering 53% for the average homeowner this year. Why is this dramatic change occurring?  Increasingly destructive and frequent natural disasters and rising construction costs are eliminating profits for home insurers. Insurance companies are withdrawing from states where they are unable to increase premiums enough to offset mounting costs, and increasing premiums wherever they continue to provide coverage.
• National Housing Survey – According to Fannie Mae, consumers are growing more confident in their personal financial situations and are reporting improving job security. However, public outlook on home purchases remains pessimistic. 82% of those surveyed agreed with the sentiment that now is “a bad time to buy”. 
• Labor Market Insights – While mortgage application rates experienced an increase last week, they subsequently declined in sync with an uptick in mortgage rates, resulting in a 3% decrease in purchase applications. This marked the third consecutive weekly decline.

Thoughts for Prospective Homebuyers 

We still see a significant shortage of homes for sale as most current homeowners are locked into low rates and reluctant to finance a new home at a higher rate. However, many market experts currently expect that Fed rate increases will reverse in 2024. If the current conditions of pent up demand, hesitant sellers, and elevated interest rates reverse, home prices could rise quickly in response. It may be worth considering buying your home ahead of the next period of rapid home price inflation. There are plenty of ways to troubleshoot challenges to affordability. Reach out to a Thompson Kane loan officer today to learn about options that may work for you.