![]() The IMF is predicting a recession in one-third of the world this year, and while America may escape it, Russia’s invasion of Ukraine and changing pandemic dynamics in China could easily cause further economic strife across the globe. The bad news is that while it certainly looks like inflation is on its way out, there’s a lot that could happen to impact markets and supply chains in 2023. The good news is that this may be buffered by the 10-year Treasury yield if inflation continues to go down. We do not yet know the degree of these rate hikes, but we can be assured that further rate hikes are coming. The Fed intends to continue raising rates in 2023. Though the change is exciting, it’s probably better described as less pessimistic. ![]() It might not be appropriate to label current sentiment as optimism just yet. While 35 is a better score than last month, generally, homebuilders are considered to be optimistic when the number is at 50 or higher. Homebuilder sentiment grew a healthy four points month-over-month to 35. This swing in trajectory is particularly notable because it’s been on a downward trend in the 12 consecutive months prior.īut it’s important to put things in perspective. It’s true that homebuilder sentiment has inched up. It will be interesting to see how this plays out, as the largest pricing decreases we’ve seen over the past year have been mostly in large, Western cities, though there have also been concerns about potential pricing decreases in cities where people moved with their remote work during the pandemic, like Pocatello, Idaho and Morristown, Tennessee. The HMI stayed steady in the South, and actually dropped by a point in the Midwest and Northeast. In other markets, the optimism among buyers and homebuilders doesn’t seem to have materialized yet. The HMI bumped up by one point in Western markets in January 2023. The HMI takes three metrics into account: present single-family sales, single-family sales for the next six months and traffic of prospective buyers. The NAHB’s reports on the HMI both nationally and regionally. While national trends are interesting, they don’t necessarily predict changes in each individual market equally. The most reason for optimism is in the West Increasing supply could help not only the slowdown we’ve seen over the past year, but it could also potentially ease America’s affordable housing crisis if the number of permits and new builds increases in a meaningful way. ![]() The shortage in single family homes was a partial contributor to the out-of-control pricing rally we saw earlier in the pandemic. Homebuilders have primarily been focusing on multi-family units over the past year, as they viewed the rental market as a more viable move financially. If this comes to fruition, it could increase inventory in this market sector. The NAHB is predicting that with increased homebuilder sentiment following the news of lower mortgage interest rates, we’re likely to see an increase in permits and new builds for single-family homes. Permits and new builds for single-family homes may rise This yield has been on a downward trend in recent weeks as all the economic metrics, from unemployment to CPI to PPI, show a definitive slowdown in inflation.īecause the 10-year Treasury yield is on a downward trend, this parallel move in mortgage interest rates is to be expected. What we’re seeing in the early months of January is likely attributable to a decrease in the 10-year Treasury yield. This metric is commonly used to anchor mortgage interest rates, even in times when the federal funds rate is moving upwards. The reason we saw a market correction in November 2022 was because mortgage interest rates had gotten too far ahead of the 10-year Treasury yield. 10-year Treasury yield drops with inflation Over the first weeks of January, though, we have seen a meaningful drop with the average rate on a 30-year fixed mortgage, which fell to 6.15% as of Jan. These rates more or less hovered around that number until Jan. We saw a market correction in November 2022, when rates on a 30-year fixed mortgage fell to 6.61%. Home prices had increased by a whopping 45% between December 2019 and June 2022, and rising interest rates served to cool the overheated market down.īut rates over 7% caused prices to drop.
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