Living is Expensive — Have truer words ever been spoken? I don’t think so, and judging by yesterday’s new home sales report, definitely not. Let’s take a look.
Ahh, economists. Another big swing and a miss. Like Scotty Smalls in The Sandlot, they just can’t seem to make contact. Predictions were for an annualized rate of new home sales in February to reach 805,000. Instead, the number dropped to 772,000. For context, that’s a 2% drop from 2021 and 6% drop from January. Better luck next time.
In fact, that ‘better luck next time’ is meant for both economists and the economy. While it’s great for bullying fellow econ nerds, falling new home sales is not great for the economic pie.
Housing drives a huge portion of the economy, largely through things like the velocity of money, construction, and credit. A slowdown in home sales can sometimes be looked at as a proxy for a further overall economic slowdown, especially now as the average consumer is wealthier than they ever have been before.
Consumers are rich, yet homes sales slowed, all while inventory has done nothing but rise, even setting a fresh record from highs set in 2008. So, demand is falling, and supply is increasing. Prices haven’t changed much in the past few months, so what could possibly be driving such a weird dynamic?
While we can’t be too sure, let me introduce you to the elephant in the room. We’ve talked a lot about rates lately, and they’re coming back to bite homebuyers. Mortgage rates have ballooned to back above 4% for the first time in years.
It’s no doubt that low borrowing costs played a role in the WFH-induced buying spree seen during the pandemic, so it wouldn’t be too surprising to see higher rates scare off a few discouraged homebuyers.
Long story short, to say housing is weird right now is an understatement. Supply is up, demand is down, prices are (somewhat) stable, and rates are mooning. Want to know what happens next? Your guess is as good as mine.
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