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Housing Market Recap (excerpted from Gate House’s weekly note to clients) June 27, 2023

Tuesday, June 27, 2023

Amidst somewhat surprising signs of resilience this year in the U.S. economy, Fed watchers expect two more rate hikes this year to combat stubbornly high core inflation rates. Goldman Sachs Research’s chief U.S. economist believes a healthy labor market rebalancing that includes a large decline in job openings without an increase in unemployment is a positive sign for the potential for the U.S. to orchestrate a softer landing.

Although initial jobless claims and layoff rates are ticking up, the labor story has a positive side to it — wage growth appears to be coming down, dampening its inflationary pressures, the Goldman Sachs Research group said. Additionally, supply chain problems that recently vexed the economy are continuing to heal, leaving room for rebuilding of inventories that should be deflationary.

Within housing, the dichotomy between existing and new homes construction continues. The National Association of Realtors said existing home sales fell 20.4 percent year-over-year in May, the large annual decline in 11 years. MBA reports that after the 2021 market had set records for purchase ($1.86 trillion) and refinance originations ($2.57 trillion), originations fell to an estimated $2.2 trillion in 2022, and are forecasted to fall further to $1.8 trillion this year. Fannie Mae lowered its 2023 Single-Family Originations Forecast to $1.59 Trillion.

The National Association of Home Builders/Wells Fargo Housing Market Index reported that “solid demand, low existing inventory, and improving supply chain efficiency shifted builder confidence into positive territory in June for the first time in 11 months.” Home construction surged in May and prices of new homes have ticked up, even with interest rates at a 15-year high, surprising some analysts.

Zillow recently issued a report that suggesting there is a deficit of 4.3 million homes, with “roughly 8 million individuals or families who lived in another person’s home in 2021 and just 3.7 million homes for rent or sale.”