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The housing market continues to be a tale of no supply, rising prices and high interest rates – even as demand remains strong. It is also a story of split dynamics where new home activity is trouncing existing home sales. Existing home sales fell 2% in September to the lowest level since 2010 as affordability worsens. The median selling price rose 2.8% from a year ago to the highest on record. Homes are once again selling above asking price, a phenomenon we saw during the pandemic. Pending home sales, a measure of signed contracts, rose 1.1% in September but remains near the lowest sales pace on record. Stagnant mortgage rates in September likely pushed people to sign a contract before rates moved higher. With the average 30-year mortgage rate currently hovering near 8%, September could be the last month for any gains in signed contracts.
New home sales, on the other hand, surged 12.3% in September. The pace of sales was the fastest since early 2022. The new home sales report counts the number of contracts signed, and like existing home sales, the stagnant rates brought buyers to the table. To spur buyers and reduce high inventory levels, homebuilders are offering financial incentives from lower prices to buying down the mortgage rate. The price of a new home is down 12% from a year ago but still above pre-pandemic levels. Buyers are being pushed toward the new market because of availability and pricing. Despite already high inventory levels, permits to build single-family homes increased 1.8% in September to the highest level since May 2022.
Key Indicators this Week
GDP – Despite the ongoing view that the U.S. economy should be slowing down, economic growth surged 4.9% in the third quarter, more than double the second quarter’s 2.1% activity. Personal consumption also outperformed expectations, increasing 4.0% versus 2Q’s 0.8% increase. Both measures of activity were the best since 2021. Spending was strong for both goods and services, rising 4.8% and 3.6% respectively. As one economist summed it up, “the consumer went nuts in Q3, spending tons of money on vacation, entertainment and recreation experiences.” Expenditure on luggage alone rose 22%. The two weak spots in the economy were business spending, which fell for the first time in two years, and net exports that subtracted from GDP. Surprisingly, residential investment rose for the first time in two years. The core price index, a measure of inflation, increased 2.4%, lower than the previous reading of 3.7%. As of now, the economy appears to be moving forward while inflation pressures seem to be easing, or at least not rising.
Spending & Income – Given the strong 3rd quarter GDP data, it is no surprise that spending rose 0.7% in September. Incomes were up 0.3%, pulling the savings rate lower to 3.4%. This is the lowest rate in almost a year. Clearly people are dipping into their savings to maintain their spending habits. There are two explanations for this: people are feeling confident in their job situation and the economy, or they are having to dip into savings just to keep up with basic expenses.
Upcoming – The FOMC begins its two-day meeting on Tuesday, October 31. The outcome of the meeting, including a decision on interest rates, will be announced at 2pm EDT on Wednesday November 1. Expectations are for the committee to leave the benchmark rate at the current range of 5.25% to 5.50% while leaving its options open for future rate increases.
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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