Pending home sales in December rose 2.5% m/o/m instead of falling by 1% as forecasted and November was revised slightly higher to a less weak print. That is just the 2nd m/o/m increase dating back to October 2021 for reasons we all are well aware of. A bounceback in contract signings in the South and West offset weakness in the Northeast and a slight drop in the Midwest.
Bottom line, not including covid and notwithstanding the modest rebound, this index is just off the lowest level since 2010 due to the affordability challenges for first time buyers and the lack of desire to give up that cheap mortgage rate. That said, the drop in mortgage rates off the October peak helped to bring back some buyers. The NAR said “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
Pending Home Sales index
The final January UoM consumer confidence figure was 64.9 vs the first print of 64.6 and compares with 59.7 in December. This is the highest figure since April 2022 but still remains well below the 101 seen in February 2020 due to the changed economic rate environment and MUCH higher cost of living (and I’m not talking about rate of change). Most of the m/o/m gain was driven by the rise in Current Conditions. One yr inflation expectations fell to 3.9% from 4.4% and vs 4% in the initial January print. The 5-10 yr outlook was unchanged with December at 2.9% but was at 3% in the preliminary January survey. For perspective, the one yr expectations figure compares with the 2.3-3% range in the two years before Covid.
The bottom line from the UoM was that the gain in confidence resulted from “improving assessments of both personal finances and buying conditions for durables, supported by strong incomes and easing price pressures.” Here though is the caveat, “there are considerable downside risks to sentiment, with two-thirds of consumers expecting an economic downturn during the next year.”
Also of note, “While the recent easing of inflation has been noted and welcomed by consumers, its positive effects on sentiment were partially offset by the negative impact of rising borrowing costs. For the 3rd consecutive month, at least 30% of consumers spontaneously cited high interest rates as a reason for poor buying conditions for durables, cars or homes” which of course makes sense since these big ticket items typically are financed.
Specifically on housing, “Views of housing markets continued to worsen, as consumers across the income distribution perceived current house prices to be intolerably high. Buying conditions, which have declined broadly since 2020 due to low supply and high prices, have further deteriorated and are now near historic lows from 1982 due to rising borrowing costs.”
So, the consumer gets relief from lower inflation and still strong wage growth but the higher cost of funding major purchases puts a freeze on those markets which make up, all in, north of 20% of the US economy.
UoM
One yr Inflation Expectations