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Recent housing data is sending mixed signals just as the real estate market is gearing up for its busiest season of the year. Sales of new homes unexpectedly rose 9.6% in March to the highest volume in over a year. The gain in sales is in stark comparison to the 2.4% drop in existing home sales in the same time period. Homebuyers are being driven to the new home market due to the lack of existing inventory. A temporary drop in mortgage rates in late February pushed buyers to new homes even though prices were higher. The median price of a new home rose 3.2% from a year ago to $449,800, while the median price of an existing home fell 0.9% to $375,700.
Builders are using incentives and price reductions to grab buyers’ attention. Buyers may be waiting a long time to move into a new home as the number of homes sold but awaiting construction is the highest in more than a year. As for what to expect going forward for home sales, the number of contracts signed for existing homes, known as pending home sales, fell 5.2% in March. Not only is this the largest decline in seven months but it is the first drop in four months. The recent volatility in home sales is in direct relationship to the volatility in mortgage rates.
Key Indicators this Week
Durable Goods – The 3.2% rise in durable goods orders in March looks good at first glance, but if you take away the 78% rise in commercial aircraft orders, the picture changes. Orders, minus transportation, rose 0.3%. Core capital goods, a proxy for business orders, fell 0.4%. Businesses are pulling back on investment plans due to higher borrowing costs and uncertainty with the economy. The more talk there is of a recession, the more consumers are delaying large purchases and the more businesses are paring inventory.
Confidence – The Conference Board’s index of consumer confidence dropped to a nine-month low in April as recession fears began to take hold. Despite feeling relatively okay with the current business environment, consumers are becoming concerned about future conditions. Survey respondents are more pessimistic about the labor market and availability of credit. Plans to buy a car, a home or major appliances fell sharply as did plans for taking a vacation, a proxy for service spending. The measure of expectations fell to the lowest level in nine months, well below the level that signals an upcoming recession.
GDP – The economy grew 1.1% during the first three months of this year compared to the 2.6% expansion in the fourth quarter of 2022. Personal consumption rose 3.7% sparked by strong spending in January, but business investment fell 7.3%, the biggest drop in almost three years. The GDP quarterly inflation measure rose 4.9%, the quickest pace in a year. While the rate is well below the peak reached last year, it is nowhere near the Fed’s 2% target.
Strategically for Credit Unions
The data released this week all but confirms the Federal Reserve will increase the fed funds rate 25 basis points on May 3 to a target range of 5.00 to 5.25%. Higher rates are slowly achieving the Fed’s goals of curbing economic growth and lowering inflation, but not as fast as hoped. Most economists believe May’s rate hike could be the last one this year.
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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