Weekend Talking Points - 'Electives'

Talking Points took a break last week, so we’ve got a lot of news to catch you up on: contradictory data releases, the Fed meeting and more! All the stories are in chronological order.

September PCE: “Headline” drops, “core” flat. The PCE index (Private Consumption Expenditures) for September saw a decent drop in “Headline” inflation (+2.3% year-over-year → +2.1% YoY) but “Core” was flat at +2.7% YoY. [CNBC]

TP: When Fed members talk about their 2% inflation target, they’re talking about “core” PCE. Unfortunately, “core” PCE has made very little progress in the last five months, kept elevated by housing and insurance costs.

3Q GDP at 2.8%. The first reading of 3Q 2024 GDP came in slightly below expectations, but was still quite robust, boosted by consumption and government spending. [BEA]

Case-Shiller index hits another record. Case-Shiller’s national home price index rose 0.3% month-over-month in August to a new record. Annual price growth was +4.2% YoY in August 2024 — still solid, but a big deceleration from +6.7% YoY back in February. [S&P DJI]

TP: New York’s price index saw the biggest growth (+8.0% YoY), and Portland the slowest (+0.8% YoY). More on this below.

CoreLogic sees price growth deceleration too. CoreLogic’s national HPI index rose 3.4% year-over-year in September, down from +3.9% YoY in August and +4.3% YoY in July. CoreLogic forecasts just 2.3% home price growth over the next 12 months. [CoreLogic]

Jobs week delivered extremely mixed messages, further complicated by storms & strikes
JOLTS: Job openings down 5% in September. The JOLTS (Job Openings & Labor Turnover Survey) showed total job openings at 7.4 million, the lowest figure since January 2021. [BLS]

ADP: Upside surprise to jobs growth. The payroll giant reported that private employers added 233,000 jobs in October, nearly double Wall Street expectations. [ADP]

BLS: Just 12,000 jobs added in October. That was much lower than expected, even taking into account the hurricanes and strikes. Moreover, the prior two months’ results were revised downward by 112,000. [BLS]

Talking Points: It is very difficult (impossible?) to square the results from ADP and BLS. We’re talking about the same economy, right? It’s also worth remembering that this big move up in mortgage rates started when the BLS announced 254,000 job gains for September.

Pending sales jumped in September. Taking advantage of mortgage rates near 6% in September, buyers snapped up properties, lifting the pending sales index 7.4% MoM to 75.8. To put that number in perspective, the index started at 100 in 2001, when existing home sales were in the range of 5.0–5.5 million units. [NAR]

TP: Since the pending sales index leads existing home sales by 1–2 months, we can expect a solid, positive move from the October existing sales figure when it comes out on Thursday, November 21. But with the nearly 100 basis points rebound in average mortgage rates in October & November, this is likely to be just a ‘blip.’

Active inventory continues to rise. According to Realtor.com, active inventory (which excludes homes under contract) rose 29% year-over-year to 954,000 units in October — the highest amount since December 2019. We’re basically back to pre-pandemic levels!

TP: The inventory situation is very different from state to state. Much more on this below.

Fed cuts for the second time. Despite recent contradictory data regarding the strength of the economy and the labor market, Fed members stuck to the loosening program and voted to reduce the target Federal Funds Rate by 25 basis points (one quarter of a percentage point) on Thursday.

TP: Since the Fed’s first, 50 basis point rate cut on September 18, the 10-year US Treasury yield has spiked from 3.62% to 4.44% (+82 basis points), and average 30-year mortgage rates have jumped from 6.15% to 7.13% (+97 basis points).

On the Case (Shiller) Again

Case-Shiller’s seasonally-adjusted (SA) national home price index rose 0.3% MoM in August, a reacceleration from ~0.1% MoM growth in the previous two months. Despite this, year-over-year growth continues to slow, dropping to +4.2% YoY in August, from +4.8% YoY in July and +5.4% YoY in June.

Here were five other takeaways from national and big city indexes:

• The SA national index is up 2.4% year to date, which suggests an annualized pace of +3.6% price appreciation for full year 2024. While that may not seem like much compared to the price appreciation of 2020 and 2021, keep in mind that 3.6% appreciation on a $400K home is $14,000 of equity gains.
• The Composite 20 (big cities) home price index has outgrown the national index for the last seven months. Strong rebounds in cities like New York City and Seattle, and continued strong growth in Detroit and Chicago, have buoyed the index.
• Only two big city indexes went backwards MoM on an SA basis in August: Miami and Tampa, and those declines were very small.
• Only two big cities indexes were down on a year to date basis in August: Phoenix (-1.0%) and Tampa (-0.4%). The Phoenix index has declined in 5 of the last 6 months.
• The Los Vegas index is now ABOVE its mid-2022 peak. It took 26 months from peak-to-trough-to-new-peak. That leaves only six cities whose price indexes are still below their mid-2022 peaks: San Francisco (-6.8%), Phoenix (-4.2%), Denver (-2.7%), Portland (-2.5%), Seattle (-2.2%) and Dallas (-1.8%).

Note: The Case-Shiller indexes are some of the most accurate measures of true home price appreciation out there. That’s because Case-Shiller (and FHFA) use the repeat sales method, which tracks pairs of sales of the same property over time. This in contrast to other home price measures (such as NAR’s median sales price), which can be easily skewed by the shifting mix of properties being sold.

A Closer Look at Inventory

Another data release that I look forward to is Realtor.com’s residential listing database, which has statistics at the national, state, county, metro, and ZIP level. In October, active inventory rose 1.4% MoM to 953,814 units. That’s the largest number of homes available for sale since December 2019. We’re fast approaching pre-pandemic levels!

Here were six other takeaways from the Realtor.com listing database:

• 34% of active listings were in three states: Florida (15.2%), Texas (12.2%), and California (6.5%). To put that in perspective, here are those states’ share of the US population: Florida (6.6%), Texas (9.0%), and California (11.7%). Florida’s got disproportionately more homes for sale; California’s got disproportionately less.
• 28% of new listings in October were in Florida (11.0%), Texas (9.3%), and California (7.9%).
• Seven states had active inventory that was already higher than pre-pandemic levels (comparing October 2024 to October 2019): Tennessee (+14%), Texas (+13%), Arizona (+11%), Florida (+10%), Colorado (+7%), Idaho (+6%) and Utah (+5%).
• In October, the states seeing the largest YoY decline in median listing prices were Florida (-6.9%), Hawaii (-6.1%), Iowa (-4.9%), Tennessee (-3.4%), Delaware (-2.3%) and Colorado (-2.0%).
• Looking at the Top 100 metros, the largest YoY decline in median listing prices came from Miami (-12.3%), Honolulu (-11.4%), North Point-Sarasota (-9.8%), San Francisco (-9.2%), Cape Coral (-9.0%), and Kansas City (-8.6%).
• And the strongest YoY listing price growth came from Toledo (+20.2%), Syracuse (+14.5%), Rochester (+11.0%), and Milwaukee (+11.0%).

The scatterplot below compares the change in median listings prices since pre-pandemic to the change in active inventory. You can see the seven states with active inventory ABOVE their pre-pandemic levels on the right side of the scatterplot.

I’d note that the cluster of New England states in the top left (NH, ME, VT) look solid despite the huge growth in home prices (70–75%) since 2019 because inventory levels are still 45–55% below pre-pandemic levels.

Mortgage Market

For most of October and early November, the trend in bond yields and mortgage rates has been powerfully higher. Since the Fed cut rates for the first time on September 18, mortgage rates have risen by nearly 1 percentage point, trampling the first ‘green shoots’ of a recovery in existing home sales.

Here’s what the fed futures market is currently pricing in for future rate cuts. Note that the current Fed Funds Rate policy range (AFTER the 25 bps cut announced today) is 4.50–4.75%.

• Dec 18 FOMC Meeting: 66% probability of another 25 bps cut. 33% probability that Fed will stay on hold.
• Jan 29 FOMC Meeting: 51% probability that the Fed will stay on hold. 31% probability of a further 25 bps cut (in which case the policy range would be 4.00–4.25%).

They Said It

“After two years of sluggish home sales in 2023 and 2024, existing-home sales are forecasted to rise to 4.47 million in 2025 and more than 5 million in 2026. During the next two years, expect a slower rate of growth in home prices that’s roughly in line with the consumer price index because of additional supply reaching the market.” — Lawrence Yun, NAR’s Chief Economist

“Home price growth is beginning to show signs of strain, recording the slowest annual gain since mortgage rates peaked in 2023. As students went back to school, home price shoppers appeared less willing to push the index higher than in the summer months. Prices continue to decelerate for the past six months, pushing appreciation rates below their long-run average of 4.8%. After smoothing for seasonality in the data, home prices continued to reach all-time highs, for the 15th month in a row.” — Brian D. Luke, Head of Commodities, Real & Digital Assets

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