Buy The House; Live in the House; Markets Go Up and Down | Guest Post
I’m not sure if March 2023 will be long remembered in history, but on some level, it should. After six bank failures, conversations quickly turned to memories of 2008, monies moved from small banks to banks too big to fail and the claim was made... here comes the recession. Yet, it didn’t. Troubled banks surprisingly were saved, through the FDIC, the Fed’s new Bank Term Funding program, or other banks stepping in. The markets quieted as quickly as they erupted. No recession, at least not yet.
Consumer Price Index (CPI) this month turned up slightly, with food prices still on the rise, increasing 9.5 percent, and shelter up 8.1 percent year-over-year. Even the 7.9 percent decline in fuel oil prices and eggs tumbling 6.7 percent month-over-month couldn’t help offset other increases, and CPI increased 0.4 percent. The markets did not like this.
A week later, Fed Chair Powell and his band of Fed members had to take a stand. 50 bps? Inflation needs to be tamed as we are far, far away from the Fed’s 2 percent target. No change? Six banks just collapsed, so clearly, the financial markets can’t handle higher for longer, faster. Or do they go with 25 bps showing they still mean business but not so harshly? 25 bps it is, the middle of the road. But it didn’t stop there. Chairman Powell’s comments afterward are what the markets were listening to and what led to a kind of celebration (after running a marathon). Happy dance on the inside. Powell said, “The U.S. banking system is sound and resilient,” that “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain.” Meaning let’s wait and see. Will banking contract spending through tighter lending standards?
The post-meeting statement also dropped a phrase used after recent meetings, namely that the FOMC anticipated “ongoing increases” in rates would be appropriate, signaling that the Fed might consider ending rate increases sooner rather than later. The markets celebrated tenderly.
Later in the month, the Personal Consumption Expenditures Index (PCE) was released. The PCE is the Fed’s preferred measure of inflation and measures slightly different data than the CPI. Whereas CPI measures urban consumer spending, the PCE measures urban, rural, and what third parties pay. The PCE came in under forecasts, with the headline dropping from 5.3 percent to 5 percent and core down from 4.7 percent to 4.6 percent year-over-year. However, incomes were up 0.3 percent month-over-month, with spending up 0.2 percent and savings up 0.5 percent—way to go, savers. The markets liked this!
Yet people continue to spend. According to Goldman Sachs, as of mid-January, Americans have spent down about 35 percent of the extra savings accumulated during the pandemic. By the end of 2023, Goldman Sachs forecasts Americans will have exhausted roughly 65 percent of that money.
The majority of dollars are being spent on services, not goods, except cars and homes. Automobile sales are up 9.3 percent year-over-year, but overall, S&P US Manufacturing PMI is down for the 5th straight month after a 28-month heyday. You know, when people couldn’t go out. So they stayed in with five TVs and a new washer and dryer delivered. Services PMI, however, rose to 53.8 in March from 50.6 in January, easily beating market expectations and the fastest rise since April 2022. This continued spending will put ongoing pressure on inflation. Higher inflation is keeping the Fed vigilant on their singular mandate and is keeping our mortgage rates higher.
Homebuyers are also spending and have seemed to acclimate to higher mortgage rates. There is an element of seasonality in our numbers this month. There is also a strong desire to move on and move in. Even with rates almost 2 percent higher than they were a year ago, buyers are spending their funds on the right house.
Gotta be the right house though! Homes that sold without a price reduction are selling two and a quarter times faster than homes that came on the market too high. Buyers will spend more money on that house, too. Pushing close-to-list for March up a full percent from 98.9 percent to 99.8 percent. The increased close-to-list is keeping home prices overall flat to slightly positive.
March pending home sales climbed 22 percent, and closed homes jumped 32 percent month-over-month. Some sellers took advantage of a hungry buyer appetite by putting 5,093 more homes on the market, up 47 percent from February. Not all “could be” sellers are listing their homes, though. Goldman Sachs reported that 99 percent of all mortgages are locked in below 6 percent, and 72 percent below 4 percent. Almost 40 percent of all homeowners don’t even have a mortgage. But the sellers who do and take the time to price and stage their homes right will be rewarded by buyers who simply want to buy a home and are willing to spend some of that excess savings to get it.
Pending a recession or not, most Americans have a positive outlook for their income, business and labor market conditions. However, consumer Sentiment dipped slightly on the banking unrest, and the present situation index of the Consumer Confidence Index decreased by 1 point, yet, the Expectations Index increased by 3 points.
With an exciting March in the history books, what we saw in real estate was a mostly seasonal pickup in demand where buyers' biggest driver was to buy the house, move in and move on.
Until next time, this is Nicole Rueth with the Rueth Team. It’s my pleasure to keep you updated.
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