Home Prices Hit Highs, Inflation Progress Stalls

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John Smith
January 1, 2023
5 min read

Progress towards the Fed’s 2% inflation target remains stalled while signed contracts on existing homes fell in April. Meanwhile, home prices continue to hit new highs this year. Read on for these stories and more:

  • Inflation Not Heating Up But Not Cooling Off
  • Pending Home Sales Plunge in April
  • Home Price Gains Continue
  • First Quarter GDP Weaker Than Initially Reported
  • Initial Jobless Claims Tick Slightly Higher
Inflation Not Heating Up But Not Cooling Off

April’s Personal Consumption Expenditures (PCE) showed that headline inflation rose 0.3% from March, with the year-over-year reading holding steady at 2.7%. Core PCE, the Fed’s preferred method which strips out volatile food and energy prices, also rose by 0.2% monthly. The year-over-year reading remained at 2.8%, stalling progress toward the Fed’s 2% target.

What’s the bottom line? The Fed has been working hard to tame inflation, hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) eleven times between March 2022 and July 2023. These hikes were designed to slow the economy by making borrowing more expensive and lowering the demand for goods, so pricing pressure and inflation would shrink.    

The Fed has held rates steady since last September because inflation had been making good progress lower late last year before stalling more recently. Fed members have emphasized that they do not expect to cut rates until they’re confident that inflation is moving sustainably towards their 2% target.

However, a sharp rise in the unemployment rate (which has been in a narrow range between 3.7% and 3.9% since last August) could also impact the Fed’s timing for rate cuts, given their dual mandate of price stability and maximum employment. The unemployment rate for May will be reported this Friday.

Pending Home Sales Plunge in April

Pending Home Sales fell 7.7% from March to April per the National Association of REALTORS® (NAR), coming in well below estimates of a modest decline. Sales were also 7.4% lower than they were a year earlier. This report measures signed contracts on existing homes, making it an important forward-looking indicator for closings on these homes as measured in the Existing Home Sales report.

What’s the bottom line? The Pending Home Sales index took a big turn lower in April after a strong reading in March, with NAR’s Chief Economist, Lawrence Yun, explaining, "The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market."

Home Price Gains Continue

The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.3% from February to March after seasonal adjustment. Home values in March were also 6.5% higher than a year earlier, unchanged from the previous report.

The Federal Housing Finance Agency’s (FHFA) House Price Index also reported a 0.1% jump in home prices from February to March, with prices 6.7% higher than the previous year. Note that FHFA does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.

What’s the bottom line? March’s report “boasts another all-time high” for home prices, confirmed S&P DJI’s Head of Commodities, Brian D. Luke. “On a seasonal adjusted basis, national home prices have reached their ninth all-time high within the past year, with all 20 metropolitan markets posting positive annual gains for the fourth consecutive month, indicating widespread and sustained growth in the housing sector.”

These indexes show that homeownership remains a fantastic opportunity for families to create wealth through appreciation gains.

First Quarter GDP Weaker Than Initially Reported

The U.S. economy grew more slowly than previously thought during the first quarter, per the Bureau of Economic Analysis, as their second estimate of Gross Domestic Product (GDP) for that period showed 1.3% growth. This was down from the 1.6% pace that was initially reported and well below the 3.4% growth seen in the fourth quarter of last year.

Note this data is subject to one more revision when the final reading is released on June 27.

What’s the bottom line? GDP functions as a scorecard for the country’s economic health, so signs of a slowdown are a concern. They also coincide with the Fed’s latest Beige Book survey of regional Fed bank districts, which showed that “overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.”

Initial Jobless Claims Tick Slightly Higher

Initial Jobless Claims rose by 3,000 in the latest week, with 219,000 people filing new unemployment claims. There were also 1.791 million people still receiving benefits after filing their initial claim, as Continuing Claims increased by 4,000.

What’s the bottom line? With the Job Openings and Labor Turnover Summary (JOLTS) report showing that the pace of hiring has slowed over the past year, it will be important to see if an uptick in unemployment claims continues. As noted above, Fed members are closely watching for signs of labor sector softening as they weigh the timing for rate cuts this year.

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