🏁🚨Brace For Heightened Volatility As Inflation Figures Are On The Horizon 🚨🏁
LET'S REVISIT THE EVENTS OF LAST WEEK
November 13, 2023
CoreLogic's Home Price Index revealed a continuous surge in home prices, setting a new record high for the fifth consecutive month between August and September. Both CoreLogic and Black Knight updates affirm an enduring upward trajectory in home prices, underscoring the resilience of the real estate market and emphasizing the potential of homeownership as a valuable wealth-building asset. Here's a concise summary of the key points:
CoreLogic Home Price Index:
Recent Trend: Noted a 0.3% increase in home prices from August to September.
Record Highs: Achieved a new all-time high for the fifth consecutive month.
Future Forecast: Anticipates a modest 0.1% rise in October and a 2.6% increase over the next year, with a historical note on CoreLogic's conservative forecasting.
2023 Projection: Based on the year's monthly readings, CoreLogic's index is on course for an 8% appreciation in 2023.
Black Knight Index:
Recent Growth: Reported a 0.4% increase in national home values in September.
Continued Peak Values: Marks the fifth straight month of reaching new all-time highs in home values.
Current Status: Home prices are nearly 3% above the 2022 peak.
2023 Outlook: Based on observed monthly gains, Black Knight's index is on track for a 7% appreciation this year.
These findings align with robust growth in other major indices like Case-Shiller, Zillow, and the Federal Housing Finance Agency. The data from CoreLogic and Black Knight reinforce the prevailing trend of escalating home prices, signaling a positive outlook for the real estate market, especially for those considering homeownership as a strategic long-term investment.
Recent Developments in Jobless Claims:
The latest reports on the U.S. labor market present a nuanced scenario. Initial Jobless Claims have slightly decreased by 3,000 in the latest week, totaling 217,000 new filings for unemployment benefits. This suggests a relatively stable job market on a historical scale, indicating employers' commitment to retaining their workforce.
However, a contrasting trend is evident in Continuing Claims, which have surged by 22,000. Currently, 1.834 million individuals continue to receive benefits after their initial claim, a level not seen since April. The persistent increase in Continuing Claims for seven consecutive weeks signals a growing challenge in the job market, particularly for those seeking new employment after layoffs—a reminder that finding a job post-layoff can be increasingly challenging.
Insights from ZipRecruiter’s third-quarter earnings call contribute additional perspectives. Ian Siegel, the company's Cofounder and CEO, highlighted the impact of the Federal Reserve's rapid rate hikes on hiring practices. Increased borrowing costs have led businesses to adopt a more cautious hiring approach, resulting in a decline in job openings and hiring rates. This, in turn, extends job search durations for seekers and reduces job switching among employed individuals. Interestingly, the quit rate has returned to pre-pandemic levels, indicating a shift in workforce dynamics.
Assessing Recession Indicators:
The Bureau of Labor Statistics’ latest Jobs Report revealed an unemployment rate of 3.9% in October, a rise from the April low of 3.4%. Historically, such an increase has often foreshadowed a recession. Since 1970, a rise of 0.5% or more typically indicates an ongoing or imminent recession within two months.
The Sahm Rule, named after former Fed economist Claudia Sahm, is another recession indicator. This rule is triggered when the three-month moving average of the unemployment rate rises by 0.5% or more compared to its lowest point in the preceding 12 months. A rise to 4.2% in November would activate this indicator, with the next report due on December 8.
A significant metric from the Bureau of Labor Statistics reports a 19% year-over-year increase in individuals unemployed for 15 weeks or longer in the November 3 report.
While current labor market trends and recession indicators present a complex picture, it's crucial to note that recessions often bring lower interest rates. Although a recession can strain the economy, this aspect could provide relief, particularly in sectors sensitive to borrowing costs. Key recession indicators suggest a potential economic slowdown, necessitating close monitoring in the coming months.
Why Does It Matter?
Rising unemployment may lead to improved mortgage rates, signaling that the Fed's policies are stabilizing the market. The desire to see a slowdown in the economy for price stabilization and maximum employment could prompt a positive market response to news supporting no further rate hikes in 2023.
INFLATION UPDATE ON THE WAY
This week, keep an eye out for crucial economic reports. On Tuesday, the Consumer Price Index (CPI) for October, reflecting changes in retail prices, will be released. Wednesday brings the Producer Price Index (PPI), indicating shifts in wholesale prices. These reports are significant, with expectations of a decrease in CPI.
The market anticipates headline inflation to be at 3.3%, down from 3.7%, while the Cleveland Fed projects a slight increase in Core inflation from 4.1% to 4.2%. With rent (shelter costs) showing a downward trend, there's hope that the CPI report will align with real-time observations. The median U.S. asking rent in October decreased by 3.7% from the record highs set in August 2022. Positive outcomes from these results could lead to an improvement in mortgage rates. It's important to remember that higher borrowing costs aim to cool down the economy during periods of excessive growth.
Thursday will bring an update on home builder sentiment for November from the National Association of Home Builders, followed by reports on Housing Starts and Building Permits for October on Friday. These reports serve as crucial indicators for understanding new inventory trends.
While no rate cuts from the Fed are expected this year or in Q1 2024, a pause in rate hikes is seen as a positive signal. The absence of further hikes in 2023 suggests a slowdown in the economy, indicating that peak rates are behind us. This provides some relief for both homebuyers and sellers.
Mark Zandi offers an intriguing perspective, highlighting a shift from the consensus a year ago that predicted an imminent recession due to historical patterns of high inflation and Fed rate increases. Contrary to expectations, the current scenario seems different, with inflation moderating without triggering a recession or even a slowdown.
INVENTORY UPDATE
The primary challenge confronting the housing market is affordability, impacting both demand and supply. However, a notable shift is occurring in terms of supply: the number of active home listings is gradually increasing. This trend signifies a significant departure from the past few years, where we typically observed a decline in supply around this time of year. Currently, we have a 3.6-month supply; a balanced range is considered to be 4-5 months. Despite this, demand continues to outpace supply, a situation that can change rapidly as rates improve.
During the holiday season, a decline in new listings entering the market is typically expected. However, this year presents a departure with a 1.5% nationwide increase. Price cuts are on the rise, showing a 6.8% increase compared to previous years.
Builders initiated this trend, with 31% of homes for sale being new constructions. Builder incentives play a significant role in offsetting high mortgage costs.
Kim Lotz comments, 'Sellers are facing tough competition from homebuilders, who sometimes offer buyers up to $30,000 worth of concessions. With that kind of money, a buyer can cover closing costs, home upgrades, and buy down their mortgage rate. In some cases, people who purchased a house from a builder a year ago are selling and competing against that same builder for buyers.'
News of rate improvement spread quickly, leading to a 3% increase in purchase loan applications. Building confidence in both buyers and sellers is crucial for informed decisions. Increased inventory, coupled with lower buyer demand, directly relates to mortgage rate dynamics.
Take a look at the charts below for a more in-depth understanding:
According to Redfin, it's currently the best time to buy since September. The surge in supply, coupled with lower demand, is generating opportunities for price negotiations. While market timing is unpredictable, the present conditions suggest favorable timing for potential buyers.
WHAT PRICE MAKES SENSE?
Buying a home is a deeply personal process, often shared with friends and family who contribute valuable feedback to the excitement. However, it's crucial to be cautious about excessive advice, as there's no one-size-fits-all solution in real estate.
The initial step in the home-buying process involves getting approved for a mortgage. It may surprise you to discover that you're approved for more than you initially thought. Mortgage approvals are based on gross income, but daily living relies on net income. To create a plan that suits your needs, we carefully review your budget, net income, credit, and debt.
Obtaining pre-approval for a home loan before embarking on your home search holds several key advantages:
Budget Clarity: Pre-approval provides a clear understanding of your affordability, enabling you to focus your search on homes within your budget. This sets parameters with your realtor accordingly.
Seller Confidence: Sellers are more likely to take your offer seriously with a pre-approval, showcasing financial readiness and reliability. In many markets, it is a requirement for showing a home.
Speed: Pre-approval accelerates the buying process as a substantial portion of the financial paperwork is already in place. We pre-underwrite, positioning you for non-contingent offers, with closing times ranging between 10-20 days depending on the loan program.
Negotiation Leverage: Armed with pre-approval, you gain a stronger position in negotiations. Sellers often prefer dealing with buyers who have secured financing.
Reduced Risk of Disappointment: Knowing your loan amount in advance prevents the disappointment of falling for a home that exceeds your price range.
Prepare for the process and secure your approval today!
