Existing Home Sales Hit 10-Month High

December’s Existing Home Sales hit their highest level since February, while real-time rental data could bode well for future inflation readings. Read on for these stories and more:

·      Existing Home Sales Rose for Third Straight Month

·      Real-time Rental Data a Good Sign for Inflation

·      Further Proof of Slower Hiring

Existing Home Sales Rose for Third Straight Month

Closings on existing homes beat estimates in December, rising 2.2% from November to a seasonally adjusted annual rate of 4.24 million units. Closings were also 9.3% higher than a year ago, which the National Association of REALTORS® (NAR) noted was the largest annual increase since June 2021.

What’s the bottom line? This was a strong report for December, given that it measured people who were likely shopping for homes in October and November, when rates were elevated.

NAR’s Chief Economist, Lawrence Yun, added that “home sales during the winter are typically softer than the spring and summer, but momentum is rising with sales climbing year-over-year for three straight months. Consumers clearly understand the long-term benefits of homeownership. Job and wage gains, along with increased inventory, are positively impacting the market."

However, this uptick in buyer demand also comes when inventory is still well below pre-pandemic norms. There were 1.15 million units available for sale at the end of December (-13.5% MoM and +16.2% YoY), though many homes counted in existing inventory are under contract and not truly available for purchase. In fact, there were only 872,000 “active listings” at the end of last month, so inventory is tighter than the reporting implies.

This pent-up demand for homes combined with ongoing tight supply continues to bode well for housing as an investment and continued home price appreciation over time.

Real-time Rental Data a Good Sign for Inflation

Shelter costs significantly influence the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE), the two main government inflation reports that impact the Federal Reserve and financial markets. Shelter makes up a large portion of these indices (nearly 46% of Core CPI, for example) and therefore plays a crucial role in determining whether inflation progresses towards the Fed’s 2% target.

What’s the bottom line? Currently, shelter costs in the CPI and PCE reports are higher and lag behind real-time rental data that has been reported by Realtor.com, Apartment List, CoreLogic and Zillow. As CPI and PCE reporting begin to better reflect this softer rental data, inflation should decrease. And while many factors influence the markets, lower inflation typically helps both Mortgage Bonds and interest rates improve.

Further Proof of Slower Hiring

Initial Jobless Claims rose by 6,000 to 223,000 in the latest week. Continuing Jobless Claims increased by 46,000 to 1.899 million and have now exceeded 1.8 million each week since the start of June.

What’s the bottom line? Although new unemployment filings remain historically low, the elevated number of Continuing Jobless Claims indicates that individuals are taking longer to secure employment. Moreover, with many people receiving benefits for only 26 weeks, the rise in Continuing Claims as benefits expire suggests underlying weakness and a slower rate of hiring.