Uncertainty or Recession, Which is Worse? | Guest Post
GDP, or Gross Domestic Product, is a measure of our economic activity. Wages, unemployment and jobs create a measure of our labor market. Inflation is a measure of overall supply and demand, while inventory and mortgage applications are a measure of our housing market. And interest rates, they are a measure of certainty.
2023 has been anything but certain.
By the hair of our chinny chin chin, the debt ceiling crisis was averted. When in reality, the U.S. Government does not default, the political rivalry that took us to the edge created a bead of sweat on the forehead of both the equities and stock markets. Mortgage rates broke 7 percent again this month, touching 7.14 percent. Mortgage purchase applications dropped four weeks in a row as buyers sat on the sidelines waiting for some sign of stability.
Sellers were also waiting. Locked in with incredibly low interest rates and high equity positions, their desire to sell has waned. While new listings were up in DMAR's 11 counties by 9 percent over April they were 24 percent lower than May 2022. We also saw a 13 percent pop in active listings, but are still 41 percent lower than 2019. Consider this: Denver's Metro has 3.3 million people and 1.6 million households. With 5,228 homes for sale, there is only one home available for every 313 households.
Real estate is not dire, but it is strained. Some sellers are crushing it with 40 plus showings, 11 plus offers and well over asking. Some buyers are finding the deal of the year in a slower neighborhood or unperfect home. Some real estate agents are finding their niche and seem to have all the deals. After the last few years of abundance for everyone, today's uncertainty requires the ability to break through fear.
We've closed 17,164 homes so far this year. That's 2,500 to 6,500 less than any of the last four years, so it's slow. Yet there were 4,167 sales in May, up 7 percent from last month. So, buyers are indeed buying.
Let's double-click on the economics of our buyers for a hot minute.
Overall confidence is down, which impacts spending. Consumer Confidence (which is a measure of the overall economy and job strength) slipped to a six-month low. As did Consumer Sentiment, which more closely measures households' confidence in how their wallet feels. Both of these were measured as the Debt Ceiling debate ensued. Note that during this same period, spending was up 0.8percent.
ADP payroll rose by 278,000 jobs, well ahead of expectations. The Nonfarm Payroll jumped by 339,000 jobs, well over the 190,000 expected. Wages for job stayers increased 6.5 percent year-over-year and for job changers 12.1 percent. This is 1 percent less than last month but still incredibly strong. Despite continued layoffs and an unemployment rate jumping from 3.4 percent to 3.7 percent, the initial jobless claims 4-week moving average dropped 2,500. Job seekers are finding stable employment.
So even as higher interest rates reduce affordability, there is ability. What we are lacking is desire due to uncertainty. So what happens when certainty returns?
This uncertainty will continue into and through a recession. The GDP has been dropping from a growth of 3.2 percent in the 3rd quarter of 2022 down to 2.6 percent in the 4th, then to 1.3 percent in the 1st quarter of 2023. This slowdown of economic activity will continue to put pressure on sticky inflation. Although May 10th's CPI inflation numbers did not give us what we wanted, June 13th's numbers should start to show what the wholesale inflation, or the Producer Price Index, is already showing as it fell to 2.3 percent last month.
Lower inflation outside of a debt ceiling uncertainty will positively impact our interest rates, allowing yields to drop and affordability to improve. With unemployment jumping 0.3 percent, an economic recession is coming and will be good for housing.
Bottom line: we want a recession. We want spending to slow down just enough for overall supply to balance and prices to moderate. We want jobs to remain strong and consumer confidence to regain its loss this month. Yet, within the uncertainty, we gain our advantage, increase market share and take advantage of opportunity. We become thought and market leaders. Because when certainty returns and rates drop, pent-up buyer demand will gobble up limited housing inventory, pushing up home prices that have already begun their accent.
Until next time, this is Nicole Rueth with the Rueth Team. It's my pleasure to keep you updated. Oh! Almost forgot…Go Nuggets!!
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