The best indicator of a looming recession is to watch how consumers behave. And this will be a record year for travel on the ground and in the air. So, would consumers continue travelling if they saw financial trouble ahead? Of course not.
Gas Buddy, for one, says gas prices are down. For the ninth consecutive week, the nation’s average price of gasoline has declined, falling 6.2 cents from a week ago to $3.27 per gallon according to GasBuddy data compiled from more than 12 million individual price reports covering over 150,000 gas stations across the country.
And AAA is predicting a record number of cars on the road. the third highest since 2000. AAA projects 55.4 million travelers will head 50 miles or more from home over the Thanksgiving holiday travel period.
Housing construction and Pending Home sales numbers were also up in October. This may be an indication that the housing market slowdown may have bottomed, another sign of a resurgence.
That’s in part because mortgage rates have dropped suddenly to the low 7 percent range, 15-year fixed to mid-6 percent, and homebuyers will know this. The bond market has been rallying of late, in line with optimism that the Fed may be done with its rate hikes and even begin to ease rates early next year.
The National Association of Realtors Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – rose 1.1 percent to 72.6 in September. Pending transactions had declined 11% in a year.
The NAR forecasts that the 30-year fixed mortgage rate will average 6.9 percent for 2023 and decrease to an average of 6.3 percent in 2024, as markets unwind from the Fed’s rate hikes.
I can see blue skies ahead for housing as interest rates continue to decline. More existing homes for sale are needed, which are at historic lows because of the interest rate disparities from the COVID pandemic (see red line in below Calculated Risk graph).
Overall housing starts (new construction) increased 1.9 percent in October as well to a seasonally adjusted annual rate of 1.37 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
The October reading of 1.37 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 0.2 percent to a 970,000 seasonally adjusted annual rate.
However, single-family starts are down 10.6 percent year-to-date. The multifamily sector, where demand is greatest and includes apartment buildings and condos, increased 6.3 percent to an annualized 402,000 pace.
“The construction data in October continue to reflect that despite multidecade lows for housing affordability, the market continues to lack attainable inventory that only the home building industry can provide,” said NAHB Chief Economist Robert Dietz. “And with the 10-year Treasury rate now back in the 4.5% range, we are forecasting gains for single-family home building in the months ahead and an outright gain for construction in 2024.”
What are consumers thinking at the moment? Many have been discouraged from even looking for homes because of such high interest rates.
Overall, lower-income consumers and younger consumers exhibited the strongest declines in sentiment, said Joanne Hsu, Director of the University of Michigan sentiment survey. In contrast, sentiment of the top tercile of property owners improved 10 percent, reflecting the recent strengthening in equity markets.
It’s a reflection of the 37 percent increase in wealth of mostly homeowners from 2019 to 2022, according to a new survey from the Federal Reserve. The average family's net worth jumped 37 percent between 2019 and 2022. That's the largest three-year increase since the Fed began conducting the survey more than three decades ago.
The bottom line is with so much pent up demand brought on by the Fed’s inflation fight, consumers still want to spend, especially with interest rates on the decline.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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