Despite headwinds to economic growth, namely inflation, the housing market continues to show strength. Most recently we saw reports come out on home price appreciation. Core Logic reported a 20.6 percent increase in home prices year over year and prices are increasing in all 50 states. We haven’t seen these levels of price appreciation, this consistently, in 30 years.
So, what’s the cause? It comes down to basic economics, more demand than there is supply. Homebuilders are not able to build fast enough to keep pace as the Millennial generation – the largest pool of homebuyers – continues to flood the housing market looking to buy homes. Many of them are first-time buyers, so they’re not selling and buying, just buying.
Inflation looks to be showing up in consumer behavior as we’re now starting to see data come in showing consumer spending on durable goods is cooling off. The numbers for Durable Goods Orders are considered a leading indicator, meaning a sneak peek into the future numbers for Retail Sales and this month’s number came in lower than expected.
There are some indications that we may be seeing the first glimmers of hope that the housing market may be cooling. The most recent reports are showing New and Pending Home Sales numbers are down and we’re seeing a rise in real estate listings with reduced prices.
Keep in mind if you are considering a purchase, yes, rates are higher than this time last year, but we can always consider refinancing to a lower rate if and when rates improve so you’re not stuck with today’s rates if you don’t want to be.
What I’m watching this week…
This is a holiday-shortened week as we observed Memorial Day on Monday. We are packing a slew of important economic reports into the remainder of the week, all culminating with the monthly Jobs Report, the most important report of the week.
First up was the Case-Shiller report on home price appreciation. Forecasters have been far underestimating the strength of home prices. Case-Shiller price data the last four reports and especially February which saw 2.4 percent monthly gains and a 20.2 percent gain year-over-year. For March price gains again blew away expectations coming in at a 21.2 percent annual rate.
The ADP report on private-sector job creation comes out one day later this month, on Thursday. The consensus forecast is private payroll growth of 240,000.
On Friday we get the full employment picture with the government’s monthly Jobs Report. A more subdued 325,000 increase in job creation is the consensus for job growth in May which would compare with 428,000 in both April and March. I’m expecting to see a slight drop in the unemployment rate to 3.5 percent. Wage inflation is expected to be tempered this month but if not, we could see some volatility in markets carry over to mortgage rates.
I’ll keep an eye on all of it and report back next week.