Strategy in TECH...
Sales of newly constructed single-family homes dropped to a two-year low in October as rising mortgage rates and persistent high prices impacted the affordability of available homes and served to keep buyers on the sidelines. Some experts also noted that elevated hurricane activity also kept buyers away, especially in the South region.
I continue to be intrigued by the growing influence of vinyl records, a once dominant media that by the early 2000s was thought to be dead. Now, however, after 17 back-to-back years of ever-increasing sales growth (according to RIAA data), it is back. A global phenomenon, this week the U.K. government announced it would now include vinyl records in its official basket of goods used to track inflation.
A key metric of the U.S. economy is consumer confidence – a reading of how confident consumers feel about the economy, both currently and in the near future. A confident consumer helps stimulate the economy by freely spending their money, as compared to an unconfident or insecure consumer who will instead pull back on spending to hold on to their money. Now, three major surveys that offer key readings on consumer sentiment in July show big gains in confidence – a bullish sign for the economy.
Chalk this up to good economic news! Yesterday, the latest Consumer Price Index (CPI) reading for the year through June shows that inflation continues to moderate, coming in at a reading of just 3% growth. That is well off the reading of 4% through May and much better than economists had anticipated.
But it is not yet time to open the champagne just yet, as we are likely to have another interest rate increase from the Federal Reserve Board (the Fed) later this month, and perhaps yet another one before the end of 2023 as they try to manhandle inflation down to their 2% target rate.
On the face of it, the inflation numbers for May seemed quite positive and an apparent validation of the Federal Reserve Board’s efforts to glide the economy into a “soft landing.” But the overall number, a 4% increase in the broader-based Consumer Price Index turned out to be a bit of an illusion, causing the Fed to leave interest rates at the current level, but forecast two more interest rate increases in 2023.
Residential construction of new homes – known as housing starts – continues to register monthly declines as a combination of still-high home prices along with rapidly rising mortgage rates results in collapsing home affordability. While economists continue to debate if and when the U.S. economy enters a recession – it’s clear that housing overall, and the home building segment specifically – is already there.
After a dramatic double-digit drop in May, June housing starts declined again, with overall starts not only dropping below May’s rate to a nine-month low but also coming in well below the rate in June 2021. Single-family starts in June hit their lowest seasonally adjusted annual rate since July 2020.
The U.S. Bureau of Labor Statistics announced Wednesday that inflation in June came in at a surprising rate of 9.1%, clearly demonstrating that – in contrast to what many economists had hoped – inflation had not yet peaked in May. This news raises the risk of an approaching economic disruption…a recession.
The latest data on home affordability from the National Realtors Association, tracked in its Housing Affordability Index, shows that housing is at its least affordable level in 22 years. And that’s not just for first-time buyers, but for home upgraders as well. Not only that, but new economic data suggests that this declining housing affordability will remain an issue for some time yet to come.
Data released on Friday by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development showed that sales of newly constructed homes actually increased in May. At the same time, the National Association of Realtors released new data on pending home sales which also showed a surprise jump in contracts in May.
What’s going on? Is the housing market mounting a comeback?
