Podcast Summary
The belief of recession vs. the reality: People may perceive a recession despite economic growth due to personal experiences and skewed perspectives, leading to a disconnect between perception and reality.
Despite the widespread belief, particularly among professionals, that the US economy is in a recession, the reality is quite different. The unemployment rate is at a historic low, real disposable income is growing, the economy is expanding, and consumer spending is strong. This contradiction between the general perception and the actual state of the economy can be explained by what I call the "everything is terrible, but I'm fine" philosophy. People tend to give negative answers when asked about the broader economy or society, but their personal experiences and situations are often more positive. This disconnect can lead to a skewed perspective, even among experts. So, while it's important to stay informed about economic trends, it's equally important to remember that our personal experiences and the broader economic picture may not always align.
Signs of a Turnaround in the Housing Market: The housing market, which experienced a downturn in 2022 due to rising mortgage rates, is showing signs of a comeback with five notable trends. These trends suggest a potential turnaround, providing insights into the current state and future direction of the housing market.
The economy, particularly the housing market, exhibits patterns of fluctuation, or a "yo yo economy," making it essential to look beyond recent trends when evaluating economic conditions. The housing market, which saw a significant downturn in 2022, may be on the verge of a comeback, as indicated by several key signs. In 2020 and 2021, the housing market was unusually hot, but in 2022, it cooled off dramatically due to rising mortgage rates, causing a standoff between buyers and sellers. Now, the market might be turning around, as evidenced by five notable trends. By focusing on these signs, we can better understand the current state and future direction of the housing market and its implications for inflation, the recession, and more.
US housing market rebounds with 6% mortgage rates: The US housing market has rebounded with a decrease in mortgage rates to an average of 6%, despite the Federal Reserve continuing to raise interest rates. Builders and sellers have employed mortgage rate buydowns to help buyers cope with affordability challenges.
The US housing market, which was previously experiencing a significant slowdown due to high mortgage rates, has seen a rebound in demand following a decrease in mortgage rates to an average of 6%. This is a significant shift from the "ice cold" market conditions seen in late 2022, which were caused by the Federal Reserve raising interest rates and mortgage rates reaching levels that froze the market. Despite the Federal Reserve continuing to raise rates, mortgage rates have fallen, leading to a divergence between the two. Builders and sellers have also employed mortgage rate buydowns to help buyers cope with affordability challenges. The question moving into 2023 was what level of mortgage rates would bring the market back into balance, and it appears that 6% may be that level. However, the long-term implications of these trends and the potential impact on home prices remain to be seen.
Mortgage rates influenced by 10-year treasury rates, not Fed's overnight rate: Despite the Fed's rate hikes, mortgage rates may remain steady or decline due to projected rate cuts and record-low housing inventory
Mortgage rates are influenced more by 10-year treasury rates than the Fed's overnight rate due to the long-term nature of mortgages. With markets anticipating the Fed's rate hikes to end soon, projected rate cuts have lowered 10-year rates, potentially leading to steady or even declining 30-year mortgage rates, despite the Fed's continued rate increases. Another critical stat to focus on is the National Housing Inventory, which reached a record low of 250,000 last year and is now falling again. With fewer homes available for sale, housing prices could continue to rise due to increased demand and a smaller supply. This decline in inventory could also incentivize homebuilders to construct new homes, contributing to economic growth. Essentially, low inventory puts pressure on housing prices to increase.
Housing market shows signs of recovery with rebounding new home sales and decreasing mortgage rates: The housing market is recovering from its downturn in 2022, with rebounding new home sales and decreasing mortgage rates encouraging more buyers to enter the market. However, the market's future direction remains uncertain and heavily dependent on mortgage rates.
The housing market, which saw a significant downturn in 2022, is showing signs of heating up. New home sales, which reached decade lows last October, are projected to have rebounded strongly in January. This rebound is attributed to a decrease in mortgage interest rates, which has spurred more buyers to enter the market. Additionally, inventory levels are falling as sales increase, which could lead to an uptick in housing prices. On the supply side, large homebuilders like Doctor Horton and Lennar have seen significant stock appreciation since October 2021, indicating confidence in the housing market's future prospects. However, the market's volatility is heavily influenced by mortgage rates, and any significant increase could freeze the market once again. Overall, the housing market is showing signs of improvement, but its future direction remains uncertain and heavily dependent on mortgage rates.
Housing market shows signs of improvement: Homebuilders clear sales backlog, benefit from lower mortgage rates, and experience decreasing material costs, leading to potential home price stabilization and increased profit margins. However, economic volatility calls for continuous reassessment of trends and narratives.
The housing market, which was a major concern due to potential home price drops and rising input costs in 2022, is now showing signs of improvement. Homebuilders have cleared a backlog of sales, benefited from lower mortgage rates, and experienced decreasing costs for materials like lumber. These factors could lead to stabilizing home prices and increased profit margins. However, it's crucial to remember the volatility of the current economy, as prices and trends can change rapidly within six-month intervals. For instance, we've seen this pattern in durable goods, savings rates, and tech employment. As such, it's essential to continually reassess economic narratives and adapt to the ever-changing landscape. The housing sector's recent performance is just one example of the economic pendulum swinging back and forth.
Housing Market Rebound Could Boost US Economy's Growth in 2023: The housing market's rebound could contribute significantly to the US economy's growth in 2023, potentially surpassing initial forecasts of only half a percent.
The housing market's rebound could significantly impact the US economy's growth in 2023, potentially surpassing the initial forecasts of only half a percent. The NAHB's monthly sentiment survey of homebuilders, which hit a deep contraction of 35 in December 2022, is now showing signs of recovery, with a prediction of possibly reaching 45 in the current month. This rapid shift from contraction to expansion during the pandemic economy highlights the potential for a substantial increase in the housing market index this month. This housing rebound is not only significant for buyers and sellers but also for those analyzing the possibility of a US recession. The housing market's recovery could contribute significantly to the economy, potentially mitigating the anticipated low growth rate in 2023.
Navigating the Economic Landscape with AI and Financial Guidance: Stay informed and adaptable in the economic landscape with AI-driven business tools and personalized financial guidance.
The economic landscape is constantly evolving, and making informed decisions in finance and business requires the right tools and knowledge. With Workday's AI-driven platform, organizations can confidently navigate business operations and make decisions faster. Meanwhile, at Edward Jones, financial advisors help individuals discover what truly matters in life and plan for a rich future. Regarding the economy, there's ongoing debate about the possibility of a recession. While some predict it in the near future, others believe that a housing market rebound could prevent it. The Federal Reserve faces a delicate balance, trying to curb inflation without causing an unwarranted recession. If the housing market recovers strongly, some may even call for further interest rate hikes. Ultimately, the economic situation is complex, and staying informed and adaptable is crucial.
Fed's Inflation Fight Could Slow Housing Market: The Fed's efforts to combat inflation could lead to a housing market slowdown, with mortgage rate hikes potentially causing a more significant downturn if the housing market remains overheated.
The Federal Reserve's efforts to bring down inflation could negatively impact the housing market. Recent mortgage rate increases have already started to slow down the housing market, and further rate hikes could lead to a more significant downturn. This scenario, where the Fed continues to raise rates to combat inflation but the housing market remains overheated, is sometimes referred to as a "no landing" scenario. It's a delicate balance, as the Fed aims to bring inflation down to acceptable levels while avoiding a recession or a housing market crash. The goal is for housing to find a soft equilibrium, with prices stabilizing at a slightly higher level without causing inflation to spiral out of control. Ultimately, the Federal Reserve's actions will determine the path of the economy, and the housing market will be a key indicator of its success.
Monitoring housing market for next six months to predict future trends: The Fed prefers stable economic growth and is monitoring the housing market to determine if current acceleration is sustainable, as unsustainable growth is unlikely to be tolerated.
The Federal Reserve prefers stable economic growth over declining or accelerating growth. The current economic situation, with record-low unemployment and warming housing market, could lead to higher inflation if growth continues to surge. The unpredictable nature of the economy, with numbers fluctuating every six months, makes it difficult to determine the long-term trend. Therefore, it's essential to monitor the housing market's direction for the next six months before making any predictions. The Fed is unlikely to tolerate unsustainable growth, and the current acceleration may not be sustainable. Overall, the economy's instability makes it challenging to predict future trends with certainty.
