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Sales of previously owned homes fell 3.4% to a three-month low in April. This was the 15th monthly decline out of 17 months and the second month in a row at a time when housing sales should be picking up. The demand for housing remains strong, but low inventory, high mortgage rates and stubbornly high home prices are putting a damper on sales. Even with inventory up 1% from a year ago, the current measure of inventory is 2.9 months, well below the five months that is considered normal. The average median price is 1.7% lower from a year ago but that is mostly due to fewer homes above $500,000 being sold.
Homebuilders are trying to quickly fill in the gap of available homes. Homebuilder sentiment jumped this month to the highest level in 10 months as limited existing supply is driving homebuyers to consider new construction. The demand for housing is finally allowing builders to limit the amount of price cuts and added incentives to lure buyers. Builders are still working through backlogs caused by the pandemic, but the number of new homes listed for sale that were in some stage of construction is almost three times the average in more than a decade.
Key Indicators this Week
Retail Sales – Consumer spending rebounded in April after two months of declining activity. Retail sales rose 0.4% last month, not as much as expected, but a welcome improvement from the 0.7% decline in March. Seven of the 13 major categories in the index rose with the biggest gains in online sales, dining out, health and personal care stores, and general merchandise retailers. Restaurant and bar sales, the only service sector in the index, increased 0.6%. The report suggests the consumer is holding in there, despite higher interest rates and still-high inflation. Retailers have noticed a shift in how consumers are spending to compensate for higher costs, with more focus on less-expensive items and choosing services over goods. Home Depot reported its first annual revenue decline since 2009 as the home rebuilding and renovation pandemic surge fades, while the luxury product company Tapestry noted seeing a “more cautious customer.”
While spending continues to be the national pastime, more people are turning to credit cards to survive. A report from the Federal Reserve, released this week, revealed credit card debt rose almost 20% in the first quarter from a year ago. Total credit card balances were just under $1 trillion at $986 billion. The average balance rose to $5,733. With the rise in debt comes a rise in delinquency. The Fed’s report showed that 4.57% of credit card debt transitioned to serious delinquency last quarter, up from 3.04% in Q1 of 2022. For credit card holders aged 18–29, 8.3% of balances were in serious delinquency.
Market and Fed Update
What a difference one week makes. The closer politicians get to resolving the debt ceiling crisis, the more optimistic equity investors become, and thus, the higher bond yields move. Yields jumped 20 to 30 basis points across the curve this week, pushing the two-year and 10-year notes above key levels, 4.00% and 3.50% respectively. Comments from Federal Reserve officials dispelled the markets’ expectations for rate cuts this year. There is a better chance the Fed will pause at the June meeting, but recent remarks made it clear the Fed is not finished with its inflation-fighting strategy for some time to come and another hike could happen.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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