Current Climate

Current Climate – 09.29.22

Employment –Total non-farm payroll employment rose by 315,000 in August on the heels of an increase of 528,000 in July, as the unemployment rate edged up to 3.7% after dropping to 3.5% from 3.6% in May.

  • Non-farm employment has risen 5.8 million over the past 12 months bringing the total 240,000 higher than the pre-pandemic level in February 2020.

The Economy – Based on the U.S. Bureau of Economic Analysis (BEA) revised “third ” estimate, real gross domestic product (GDP) decreased at an annual rate of 0.6% in Q2 2022. In comparison, GDP decreased 1.6% in the first quarter.

  • The Q2 decrease remained static from the “second” estimate released in August. The smaller decrease in Q2 GDP primarily reflected an upturn in exports and an acceleration in consumer spending. 
  • Gross Domestic Income (GDI) was revised downward by $47.4 billion to $305.7 billion. The revisions to GDP and GDI suggest a weaker U.S. economy in the first half of 2022 than initially anticipated.
  • The economy is currently defined as being in transition as the data are contradictory based on continued strength in the labor market, production, and spending.
  • After-tax profits climbed 10.4% on an adjusted basis in Q2. As a share of gross value added for non-financial corporations, after-tax profits improved 15.5% for the period, up from 14.0% in Q1 and the most significant increase since 1950.    
  • Inflation did not ease as expected in August. Over the last 12 months, the Consumer Price Index (CPI) increased 8.3% before seasonal adjustment.
  • The August rate reflected a downward adjustment to the July estimate of 8.5% and 9.1% in June but fell short of easing economic uncertainty.  Subsequently, the Fed raised interest rates another 75 basis points. The increase was the third consecutive three-quarter-point hike and the fifth increase of the year.  
  • The Personal Consumption Expenditure (PCE) Price Index increased 0.1% in July or 6.3% year-over-year. The metric is down from 6.8% in June. Personal income increased $47.0 billion (0.2%) and disposable personal income (DPI) increased $37.6 billion (0.2%). Look for an update on 9/30.

The Conference Board (TCB) Leading Economic Index® (LEI) for the U.S. decreased for the 6th consecutive month in August, dropping 0.3% to 116.2 (2016=100) after declining 0.5% in July.

  • Over the six-month period February to August 2022, the LEI fell 2.7%, a reversal from 1.7% growth over the previous six months. Economists suggest the current turnaround is signaling an impending recession.
  • TCB opines that labor markets will continue to moderate in the months ahead as firms reduce hours before reducing  workforce levels. A major driver of the slowdown is the Federal Reserve’s monetary policy intended to counter inflationary pressures.

Housing Trends – Nationwide, the annual home price growth pace had slowed for the third consecutive month in July. By August, the median list price had dropped 14.3% from June’s all-time high of $450,000 to $435,000.

  • A shift in the inventory mix resulted in a decline in larger home listings (1750+ sf) in July and the median list price per square foot annual growth rate dropped to 15.5% from 16.2% in June. suggests that this is a signal of imminent moderating price growth.   
  • The inventory of active listings continues an upward trend, increasing 26.6% year-over-year in August. Despite the improvement, active listings continue to lag their pre-pandemic and early-pandemic levels.  The number of active listings in August was 7.0% below 2020 and 43% lower than 2019.  
  • Newly listed homes declined 13.4% year-over-year in August, according to the latest Fannie Mae National Housing Survey. The net percentage of respondents who believed it was a good time to sell had declined 16% on a month-over-month basis, the largest drop in selling sentiment since December 2020.
  • The total number of unsold homes nationwide – i.e., active listings and listings in various stages of the selling process that are not yet sold — increased for the second consecutive month in August, reflecting a 1.3% year-over-year increase, largely due to a decline in pending inventory (-21.9%).
  • Homes sat on the market an average five days longer in August than a year prior and the average home sold for less than its list price for the first time in more than 17 months. According to one in five sellers (20%) dropped their asking prices in August compared to 11% a year ago.
  • Redfin reports that requests for home tours was down 16% at the end of August compared to the same period one year before. Touring activity was also down 9% from the beginning of the year compared to an 11% increase one year ago.  

Builder Benchmarks – Housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,517,000 reflecting month-over-month and year-over-year declines of 10% and 14.4%, respectively. On a year-over-year basis, single-family permits were down 11.6% while authorizations for units of buildings with five or more units were down 9.7%.

  • Housing starts in August were at an annual rate of 1,575,000, up 12.2% month-over-month, but relatively flat (-0.1%) on a year-over-year basis. Single-family starts were at a rate of 935,000 in August reflecting a 13.1% year-over-year decline while the rate for buildings with five or more units increased 14.7% to 621,000.
  • Housing completions were at an annual rate of 1,342,000 in August. This is 5.4% below the revised July estimate of 1,419,000 but 3.1% above the August 2021 rate. Single-family housing completions rose 5.1% year-over-year in August while the unit completion rate for buildings with five units or more was down 10.7% y/y. 
  • On a regional basis, the South suffered the most significant decrease in building permit activity, dropping 15.4% year-over-year, followed closely by the West (-15.3%). The Northeast dropped 13.7% and the Midwest was down 8.6%.
  • Authorized permits not yet started were strongest in the Northeast (+48%) followed by the South and the West, each up 9.1%. Only the Midwest saw a drop in permits authorized but not started, down 10.7%.
  • Three of the four regions saw declines in the numbers of units started in August with the West reporting a 10.7% increase. All regions exhibited increases in construction, ranging from 9.9% in the Northeast, to 20.5% in the Midwest, 22.3% in the South and 23.0% in the West.

Home Purchase Sentiment – Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased 0.8 points in August to 62, for a sixth consecutive monthly decline and the lowest level since 2011. The current level persists well below the all-time high (93.8) set in 2019 and is down 13.7 percentage points on a year-over-year basis.

Existing Home Sales – Existing home sales retreated for the seventh straight month in August to a seasonally adjusted annual rate of 4.80 million and were down 19.9% year-over-year from 5.99 million in August 2021.

  • After five consecutive months of increases, total housing inventory dropped to 1.28 million units in August, remaining static over the year while reflecting a 1.5% month-over-month decrease. At the current pace of sales, the inventory represents a 3.2-month supply, up from 2.6 months in August 2021.
  • The median existing home price for all housing types in July was $389,500, up 7.7% year-over-year as prices moderating increases in all regions. While this marks 126 consecutive months of year-over-year increases, August was the second month in a row that the median sales price backed off its June record high.  
  • Single-family home sales declined to a seasonally adjusted annual rate of 4.28 million in August, down 0.9% month-over-month and -19.2% year-over-year. The median existing single-family home price was $396,300 in August, down from $410,600 in July while reflecting a 7.6% year-over-year increase.
  • Existing condominium and co-op sales were at an annual rate of 520,000 units in August, up 4.0% month-over-month but down a significant 24.6% year-over-year. The median existing condo sale price was $333,700 in August for an annual increase of 7.8%, down from 9.9% in July.
  • The share of first-time homebuyers remained flat in August at 29%, consistent with August 2021.
  • Individual investors/second home buyers purchased 16% of homes in August, up from 14% in June and +15% in August 2021.
  • All cash sales remain flat month-over-month in August, accounting for 24% of transactions but were up from 22% in August 2021.   
  • All regions saw double-digit year-over-year slowdowns in sales. The momentum was led by the West, down 29.0%, followed by the South, down 19.3%; the Midwest, down 15.9%; and, the Northeast, down 13.7%.
  • Existing home sales have exhibited a retreating trend since the end of last year. Nevertheless, median prices were up in all regions year-over-year ranging from +1.5% in the Northeast to 12.4% in the South.  
  • Properties typically remained on the market for 16 days in August, down from 17 days in August 2021; 81% of homes sold in August 2022 were on the market for less than a month.

Pending (Existing) Home Sales – Pending sales declined for the third consecutive month in August and for the ninth time in the last ten months. The National Association of Realtors® Pending Home Sales Index (PHSI) stood at 88.4 in August reflecting a 24.2% decrease over the year, the lowest level since April 2020.

  • Three of four major regions registered month-over-month decreases and all four reported double-digit declines on a year-over-year basis. The West saw the most precipitous year-over-year drop (-31.3%) followed by the South, down 24.2%, the Midwest, down 21.1%, and the Northeast, down 19.0% year-over-year.

New Home Sales Activity – Sales of new single-family houses in July were at a seasonally adjusted annual rate of 511,000, 12.6% below the revised June rate and down nearly 30% (29.6%) year-over-year.

  • The July report called for a 10.9-month supply of new homes at the current sales pace.
  • The median sales price for new houses sold in July 2022 was $439,400, up 8.2% over July 2021. The average price was $546,800 reflecting an 18.3% year-over-year increase.
  • According to Zonda, new home community counts are down year-over-year. There were 12,977 active new home communities tracked by Zonda in July, down 11.4% from last year. On a month-over-month basis, the national count slipped 1.6%. In July, the new home community count was  32.6% below July 2019.
  • Las Vegas, Sacramento and Riverside/San Bernardino grew community counts the most on a year-over-year basis, up 12.3%, 11.2% and 10.7%, respectively. The largest declines in new home community counts were found in Seattle (-32.6%), Baltimore (-32.1%) and Atlanta (-28.3%).
  • Zonda also reports on Quick Move-Ins (QMIs) — homes that can be occupied within 90 days — totaled 21,532 units in July, up 94.6% year-over-year and 5.2% higher month-over-month. Total QMIs were 1.2% above 2019 levels in July. The shift to increased inventory suggests a significant number of contract cancellations. Markets posting the greatest QMI gains were Riverside/San Bernardino (+431.7%), Tamps (+400.8%) and Minneapolis (+312.7%).
  • On  a national basis, new home prices increased year-over-year across entry-level, move-up and high-end homes. Prices were up the most at the entry level (+13.6%) to $337,903, followed by move-up homes at +11% to $524,843, and a 7.0% increase to $891,517 for high-end homes.
  • The top three markets for year-over-year home price increases at the entry-level were Tampa (+29.7%), Salt Lake City (+25.3%) and Austin (+22.2%).
  • Move-up homes saw the greatest increases in Salt Lake City (+22.4%), Tampa (+22.4%) and Orlando (+19.4%).
  • At the high end of the range, New York garnered the #1 spot with a 34.8% increase, followed by Orlando (+25.4%) and Raleigh (+23.4%).

Zonda New Home Pending Sales Index (PSI) for July was down 18.2% over the year and -2.8% compared to July 2019. According to the July report, 85% of homebuilders surveyed noted that the market was slower than expected, and 87% intended on slowing starts in response.

  • Now standing at 109.8, the New Home Pending Sales Index is currently 37.0% below cycle highs. Of all select markets, the PSI was up year-over-year only in Cincinnati. The metros that performed the worst over the year were Sacramento (-56.1%), San Francisco (-45.1%), and Seattle (-33.7%).

Mortgage Activity – The MBA Composite Mortgage Market Index decreased 3.7% on a seasonally adjusted weekly basis the week ending September 23rd.  The seasonally adjusted Purchase Index declined 0.4% from one week earlier and the unadjusted Purchase Index was down 1% week-over-week and a significant 29% year-over-year.    

  • Mortgage applications continued to decline as interest rates accelerated. The average 30-year fixed-rate mortgage increased to 6.52% for the week, the highest level since mid-2008 and are more than double what they were one year ago.
  • At last report, the average purchase loan stood at $406,400, down from $410,900 one week prior. Purchase loan size has decreased steadily since mid-March when it peaked at $460,000.
  • ARM’s continue on an upward trajectory. While the share of adjustable-rate mortgages (ARM) applications remain unchanged at 9.1% on a week-over-week basis, the market share reflects increases from 8.5% at the end of August and 6.5% in mid-August.
  • Based on MBA estimates, the average interest rate for a 5/1 ARM increased to 5.30% from 5.14% a week prior.

Ciao for now.