Sales of existing homes fell for the third straight month in April, while construction of single-family homes also declined. Consumer inflation remains near 40-year highs.
Rising Costs and Rates Hinder Home Sales, Construction
Sales of existing homes declined 2.4% from March to April, per the National Association of REALTORS® (NAR). The reduced buyer activity helped the amount of available inventory rise to 1.03 million units at the end of April, which was up 10.8% from March. However, this level of unsold inventory equals just a 2.2 months' supply of homes. While this is an increase from the 1.9-month supply that was available at the end of March, it's still well below the 6-month supply that is more reflective of a healthy housing market.
Lawrence Yun, NAR's chief economist, acknowledged, "Housing supply has started to improve, albeit at an extremely sluggish pace."
Meanwhile, ongoing supply chain issues and rising costs continued to impact the construction of single-family homes in April. As a result, the single-family segment of Housing Starts declined 7.3% from March, the Commerce Department reported. Building Permits for single-family homes also fell 4.6%, which added to the disappointment as they represent future construction.
Rising material costs, higher interest rates and concerns about affordability also caused builder confidence to decline sharply in May, as the National Association of Home Builders Housing Market Index fell 8 points to 69. While any reading over 50 on this index that ranges from 0 to 100 indicates more builders see conditions as good rather than poor, this is the fifth straight month builder sentiment has declined.
Consumer Inflation Near Highest Level Since 1982
Elevated consumer inflation persisted in April, per the Consumer Price Index (CPI), as the annual reading of 8.3% remained near 40-year highs.
Taming inflation is crucial – and not just because it means higher costs for goods. Inflation also reduces the value of fixed investments like bonds, and home loan rates are inversely tied to a type of bond called Mortgage-Backed Securities. Rising inflation can cause mortgage bonds to worsen, or move lower, and home loan rates can move higher when this happens, as we've seen this year.
The Fed is trying to tame inflation by raising its benchmark Federal Funds Rate, which is the overnight borrowing rate for banks. When rates rise, people and businesses tend to borrow less, which helps cool the demand for goods. And, over time, lower demand typically leads to lower prices.
The Fed hiked their benchmark Federal Funds Rate at several meetings this year, with more hikes expected at future meetings. It's important to note that while the Fed Funds Rate is not the same as mortgage rates, it can influence mortgage and other consumer rates. Monitoring the Fed's future meetings will be crucial to see if its actions can help tame inflation.
If you're considering a home purchase this year and want to review your financing options, reach out any time. Despite the recent uptick, home loan rates remain attractive on a historical basis. I'm happy to help see how you can benefit in today's market!
-Team Mani Mortgage Professionals https://www.pmrloans.com/loan-officer/team-mandi/
Sources: TEAM MANDI MORTGAGE PROFESSIONALS, National Association of REALTORS®, U.S. Department of Commerce, U.S. Census Bureau, National Association of Home Builders, U.S. Bureau of Labor Statistics, CNBC, Federal Reserve