Facebook
X
Pinterest
Copy Link
The Olympics is officially over, and the market’s attention is back on inflation. Two reports on inflation will be released this week and will hopefully provide more evidence that prices remain on a cooling trend. Another report on retail sales is also scheduled to come out before the end of the week and should offer more insights on the well-being of the economy. Mortgage rates had declined to the lowest point since April 2023 before bouncing back up in the last several days, and a positive spin from these reports could help bring them back down.
Homebuying optimism pulled back: Home Purchase Sentiment released by Fannie Mae dipped slightly in July as near record low levels of affordability remained a challenge for homebuyers. The share who said that it is a good time to buy decreased two percentage points to 17% in July after climbing five points to 19% in the prior month. Despite mortgage rates sliding down throughout the month of July, consumer sentiment toward the housing market remained less than optimistic last month. With rates moderating further since a couple of weeks ago and home prices expected to come down as the market transitions into the off season, costs of borrowing should decline in coming months which should help push up homebuyers’ optimism. Indeed, the share of consumers who believed that mortgage rates will go down over the next 12 months increased five percentage points from June’s 24% to July’s 29%. Meanwhile, those who said that it is a good time to sell inched down from 66% in June to 65% in July. The dip in home selling confidence was attributed partly to seasonal factors but the volatility of the rates movement may also have been a contributing factor as well.
Consumers’ short-term inflation expectation unchanged: Consumers’ expectations on inflation a year from now were unchanged in July but were down sharply at the medium-term horizon, according to the latest New York Fed’s Survey of Consumer Expectations. At the one-year horizon, the median inflation expectation remained stable from the prior month and registered at 3.0%, while the median three-year ahead inflation expectation dropped 0.6 percentage points from June to 2.3% in July. Expectations on the labor market, on the other hand, were less positive, as earnings growth one-year ahead declined 0.3 percentage point to 2.7%, and the likelihood of finding a new job within three months decreased 0.9 percentage points to 52.5%. While the jobs market is showing signs of a slowdown, consumers’ perception on employment remained positive, as the expected likelihood of a higher unemployment rate a year from now decreased one percentage point in July. Debates on whether the economy will go into a recession will continue, but at least for now, consumers are not feeling more concerned about their short-term employment situation.
Jobless claims provide a sigh of relief: Initial claims of unemployment insurance came in lower than expected for the week ended August 3, easing some concerns that the U.S. labor market is suddenly pulling back much faster than anticipated. First-time filing for jobless benefit recorded a seasonally adjusted 233,000 for the week, a decline of 17,000 from the prior week. Jobless claims had been trending upward throughout the first seven months of the year and the latest increase was due at least partly to the disruptions from Hurricane Beryl and the summer shutdowns of auto plants. The drop in claims in the latest report provided evidence that the jump in claims in the previous week could be due to weather and seasonality, rather than a more fundamental issue. Nevertheless, continuing claims, which run a week behind, remained elevated and reached the highest level since November 7, 2021. So, while the financial market might have overreacted to the pullback in jobs growth reported a couple of weeks ago, the labor market slowdown is real, and we should expect more cooling in hirings in coming months.
Multifamily developers lose confidence in second quarter: Builder confidence has been declining in the past few months and the latest results from the Multifamily Market Survey released by the National Association of Home Builders (NAHB) added more evidence to the sliding trend. The Multifamily Production Index (MPI), which measures developers’ sentiment about current production conditions in the apartment/condo market, dropped 12 points year-over-year to 44 in the second quarter of 2024. With a number below 50 indicating that more respondents feel “poor” about the conditions than those who feel “good”, builders in the multifamily sector are less optimistic than they were a year ago. The Multifamily Occupancy Index (MOI), which measure the industry’s perception of occupancies in existing apartments, recorded a more positive reading of 81 but still registered a decline of eight points from a year ago. High interest costs and a surge in supply in the past couple of years have softened the market fundamentals and dimmed builder sentiment. With interest rates likely to decline in the next few months, builder confidence should bounce back before the end of the year.
Mortgage rates inch back up: After dropping to the lowest level in 15 months in the first full week of August, the average 30-Yr. fixed rate mortgage climbed back up by more than 20 basis points (bps) in the last few days, as recent data suggest that the economy remains in decent shape. The return to expansion in the service sector activity, a bounce-back of the stock market, the calming of the financial market volatility, and a stronger-than-expected jobless claims report all contributed to the rebound of mortgage rates in the past week. With more reports on inflation, retail sales, and jobless claims scheduled to be released this week, mortgage rates could see more fluctuations in the coming days.
