MARKET MOVING NEWS THIS WEEK

Important housing reports are ahead, starting today with an update on home builder sentiment for this month from the National Association of Home Builders. August’s Housing Starts and Building Permits will be reported on Tuesday, while Existing Home Sales follow on Thursday. Inventory is a hot topic. As long as its lower than demand, home prices are likely to rise. Supply is the most important metric to pay attention to in the housing market today. A 10% increase in supply could drive prices downward if mortgage rates don’t improve. There are no indicators that a rise in foreclosures is likely. Defaults are at an all time low as 90% of mortgage holders have rates below 5%. Only 3.3% of mortgage in the U.S. are delinquent.

Thursday, look for the latest Jobless Claims and September’s manufacturing data for the Philadelphia region. In the most recent week, Initial Jobless Claims saw a rise of 3,000, with 220,000 individuals initiating claims for unemployment benefits. Concurrently, Continuing Claims also edged up by 4,000, indicating that 1.688 million individuals are still receiving benefits subsequent to their initial claim. Notably, this latter figure has been on a declining trend since it peaked at 1.861 million in early April, reflecting a combination of individuals securing new employment opportunities and the expiration of benefits.

It's important to interpret these numbers in context. While the relatively low level of Initial Jobless Claims suggests a robust labor market, it's worth noting that the reporting week encompassed the Labor Day holiday, potentially influencing the data due to the shortened filing period. Moreover, Initial Jobless Claims tend to be a lagging indicator in labor market trends. Typically, signs of a labor market slowdown manifest first in reduced job postings, diminished hiring activity, and a decline in work hours before layoffs become more prominent. Recent reports have indeed indicated these initial warning signs.

Looking ahead, it will be crucial to monitor whether a sustained increase in Initial Jobless Claims emerges in the coming months, particularly in the context of the Federal Reserve's keen interest in identifying clear indications of labor market softening as they deliberate further rate hikes in the approaching autumn.

The Fed will steal the show as their two-day meeting begins Tuesday, with their Monetary Policy Statement, rate decision and press conference coming on Wednesday.

INFLATION INCREASED, WILL THE FEDS HIKE?

Let’s take a closer look at last week’s data. August's Consumer Price Index (CPI) revealed a 0.6% increase in inflation, in line with expectations. On an annual basis, CPI rose from 3.2% to 3.7% last month, though it remains close to its lowest level in over two years. Core CPI, which excludes volatile food and energy prices, saw a 0.3% uptick, while the annual reading decreased from 4.7% to 4.3%.

The monthly inflation surge was largely driven by surging energy and gasoline prices, while stable food and shelter prices, along with decreasing used car costs, helped contain overall inflation. It's worth noting that a prolonged United Auto Workers strike could potentially impact the supply of new cars, potentially leading to a rise in used car prices.

In terms of wholesale inflation, the Producer Price Index (PPI) increased by 0.7% in August, surpassing expectations. On an annual basis, PPI doubled from 0.8% to 1.6%. Core PPI, excluding food and energy, rose by 0.2%, with the year-over-year reading decreasing from 2.4% to 2.2%.

It's important to emphasize that while annual PPI has increased, it remains at a historically low level and is significantly below last year's peak of 11.7%. Furthermore, much of the wholesale inflation increase can be attributed to rising energy prices, echoing trends observed in consumer inflation.

The Federal Reserve has been actively raising its benchmark Fed Funds Rate to combat inflation, with the latest hike in July marking the eleventh since March of the previous year, bringing the rate to its highest point in 22 years.

Recent statements from various Fed members, including New York President John Williams ("monetary policy is in 'a good place'"), Dallas Fed President Lorie Logan ("skipping a hike this month 'could be appropriate'"), and Philadelphia Fed President Patrick Harker ("the Fed may be at a point to 'hold rates steady'"), suggest that the progress made in curbing inflation might lead the Fed to consider pausing further rate hikes. The final decision will be disclosed after the conclusion of the Fed's two-day meeting this Wednesday. The expectation is the Fed will pause for now.

RECORD HIGH HOME PRICE APPRECIATION CONTINUES

According to CoreLogic's Home Price Index, home prices have continued their upward trajectory for the sixth consecutive month, registering a 0.4% increase from June to July. Compared to the same month last year, prices have surged by 2.5%. CoreLogic anticipates a further 0.4% increase in home prices for August, with a projected 3.5% rise for the year ahead. It's worth noting that CoreLogic's forecasts have historically erred on the conservative side. In fact, based on the monthly gains observed so far this year, the CoreLogic index is on track for nearly 9% appreciation in 2023.

Zillow has also reported a significant uptick in home values, with a 4.5% increase since the beginning of the year. Their index has consistently recorded all-time highs in home values since May. If these trends persist, Zillow's index is projected to show a 7% appreciation by the end of the year.

In summary, the latest data on rising home prices from CoreLogic and Zillow mirrors the robust growth observed in reports from Case-Shiller, Black Knight, and the Federal Housing Finance Agency. These consistent findings underscore the enduring appeal of homeownership as a sound investment and wealth-building opportunity in the real estate market.

Higher rates, and rising home prices have crushed homebuilder confidence and consumer demand. Demand for primary homes is down 33% and demand for second homes down 47% from pre-pandemic levels. Demand is now at its lowest since 1995.

SHOULD I BUY A HOUSE?

The answer to this question is personal. The best time to buy a house, is when you’re buying within your means.

Take a look at your net income, and subtract your reoccurring expenses.  How much do you have left over each month? Are you spending that, or saving it?

If you’re waiting for interest rates to reach 2-3% or home prices to drop by 20-30%, you’re waiting for a significant, and catastrophic downturn in the economy, which is unlikely.

As mortgage rates improve, not only will there be more buyers in the market but sellers will also come off the fence. This can help with inventory. We believe buyer demand will outpace supply as there are more families forming than there are homes being built today.

If you can afford a mortgage payment, buying always makes more sense than renting. I can illustrate the exact difference in your market over the next 5-10 year in a zoom call.

For more information, and a personal assessment of your buying power, make an appointment with me, the link is below.

With 20 years of mortgage banking experience, I look forward to serving you.

DOWN PAYMENT REQUIREMENTS:

Conventional Loans

• First Time Homebuyers put 3% down with no upfront mortgage insurance costs.

• Subsequent buyers put 5% down.

• Loan limits vary per county, non-conforming loan amounts require 5% down.

FHA

• FHA loans are not only for first time homebuyers. They’re for anyone that wants to buy with the intent to occupy the home as their primary residence. The down payment is 3.5%.

• Buying a 3-4 unit property will almost always require a higher down payment to meet HUD’s self-sufficiency rule.

VA

• 0% down fo Veterans

• No loan limits

• No funding fee for any % of disability

USDA

• 0% down

• Property must be in a rural area

JUMBO

• 10% down

• Reserve requirements are 6-12 months

NON-QM

• 10% down is the minimum

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