From The Economic Experts At The California Association of REALTORS®
November 27, 2023 – Mortgage rates have declined from the recent peak by more than 50 basis points (bps) and continued to improve in the past few weeks. While housing demand remained below the historical norm, mortgage applications have been rising in the past three weeks, which is an encouraging sign to the market. Since a home sale transaction typically takes 30 days to 60 days to close, sales could see a bounce back in December or January. Meanwhile, consumer spending remains resilient as we enter the holiday season, and the economy may take longer than previously anticipated to slow down. As such, while the Fed could be done with raising rates, it may not start cutting rates until the end of the first quarter when clear signs of economic weakening are observed.
Mortgage rates slide down to the lowest level since late September: Mortgage rates declined further during the Thanksgiving holiday and have reached the lowest point in nine weeks. The average 30-year fixed rate mortgage reported by Freddie Mac last week was 50 basis points below the recent peak recorded in late October. Rates remained flat on the first day after the holiday weekend but yield on both the 10-year Treasury and the 2-year Treasury slipped as investors await for key inflation data release later this week. The Personal Consumption Expenditures index – the Federal Reserve’s preferred inflation measure – will be available on Thursday morning and will offer another clue on the Fed’s next move. Mortgage applications, meanwhile, increased last week to the highest level in six weeks. According to the Mortgage Bankers Association’s weekly mortgage application survey, total mortgage applications for the week ending November 17 climbed 3% compared to the prior week. While mortgage demand is still below the historical norm, the increase observed in the past month is encouraging and the market will hopefully see more improvement in the coming weeks if rates continue to decline.
New home sales dip as mortgage rates hit 23-year high in October: With the average 30-year fixed rate mortgage (FRM) rising more than 100 bps in the late summer, demand for newly built homes pulled back at the start of the fourth quarter. Sales of new single-family homes declined 5.6% on a month-to-month basis and registered a seasonally adjusted annual rate of 679k in October. While the sale level was lower than the consensus expectations of 725k units, it was still 17.7% higher than what was recorded in the same month of last year. The slide in new home sales should continue in November, as fewer new home sales likely opened escrow last month since rates reached their 23-year high in late October. New housing inventory continued to improve with new for-sale units climbing to 437k, the highest level since January. October inventory level is equivalent to a supply of 7.8 months at the current sales pace and remains above the historical average of 5.9 months.
New constructions hold steady as builders’ confidence dips: Despite higher rates in October, the lack of existing housing supply continues to support demand for new construction in the fall. Housing starts were up 1.9% month-over-month and reached a seasonally adjusted annual rate of 1.37 million units in October. While single-family starts were essentially flat (+0.2%) from a month ago, the number surged 13.1% from last October. Construction in the multifamily sector also climbed 6.3% month-over-month but declined year-over-year by 30% as the demand for apartment buildings wanes. At the regional level, starts for single-family homes increased 12.3% from September and surged 46% from the same month last year. And while the rise in rates between August and October might have dampened builders’ sentiment in the past few months with their confidence index dipping to the lowest level since December 2022, recent macroeconomic data suggests better conditions for home construction ahead and more units will be built in the coming months.
Black Friday spending tops last year’s level: The holiday shopping season got off to a good start, as U.S. retail sales on Friday, November 24 went up 2.5% year-over-year, according to Mastercard Spending Pulse. Online shopping was particularly strong as e-commerce sales jumped 8.5% from 2022, while in-store sales inched up 1.1% from the same time last year. Shopper visits, a measure used to assess in-person sales, also rose 4.6% compared to last year as reported by retail data firm Sensormatic Solutions. The consumers spending spree are expected to continue on Cyber Monday and U.S. shoppers are set to spend a record $12 billion to $12.4 billion online, according to Adobe Analytics. The spike in consumer spending was partly due to lower gas and food prices this year compared to last year. Shoppers are also more willing to finance their purchases in 2023. According to Adobe Analytics, $79 million of the online sales came from consumers who opted for the “Buy Now, Pay Later” flexible payment method, an increase of 47% from 2022. The spending strength, however, should taper off deeper into the holiday season as discounts weaken.
Small business owners remain pessimistic about their business outlook: Economic headwinds continue to weigh in on small businesses’ sentiment as the Small Business Optimism Index dropped slightly down to 90.7 in October, the 22nd month that the index dipped below the 50-year average. Inconsistent with the pattern of consumer spending resiliency displayed in other macroeconomic data, small business owners remain worried about deteriorating sales traffic as the net percent of small business owners who report an increase in sales plunged to -17%, the lowest reading since July 2020.
Sources: https://www.car.org/marketdata/marketminute
Photo by Marga Santoso on Unsplash
– Devin Lucas
Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate, including leasing and select local property management.
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REALTORS® and related Real Estate Law & Tax Considerations
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