Market Update

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The latest housing market as well as economic data is holding up well and a strong job market is helping households shoulder the worsening burden of rising prices. With consumers having to pay almost 25% more for their monthly housing cost this year than last year, and having their incomes stifled by inflation, purchasing a home is getting tougher financially for many buyers. Despite this apprehension, home sales have remained strong up to this point. Housing supply also seemed to have improved, with construction spending climbing, while inventory of existing homes continued to head in the right direction. Concerns for the risk of a recession next year, however, continue to mount, as the recent yield curve inversion signals a drag on the economic growth, possibly due the Fed’s aggressive rate hikes in the near future. It can only be said that we are on precarious footing now more than we had been in the last 6 months.

Mortgages rates accelerate in March as homebuyers rush to lock in: The average 30-year fixed-rate mortgage (FRM) interest continued to surge and reached 4.67% this past week, the highest level in over three years. The quarter-of-a percent increase from last week’s 4.42% has the 30-year mortgage rates on a breakneck pace to reach the 5% mark, a level not seen since February 2011.

Inflation’s toll evident in real spending decline: February marked the seventh straight month in which inflation outpaced income, raising doubts about the resilience in consumer spending.Consumer spending was only up 0.2% in February from the prior month but spending after inflation adjustment actually fell 0.4%. Inflation continues to be the top threat to consumer’s purchasing power. Despite stronger wage growth in the past year, higher inflation continues to push real disposable income below its pre-pandemic level with inflation likely to remain elevated in the upcoming months. The deterioration in the purchasing power presents a real concern to the economic growth for the next couple years.

Consumer confidence is holding up despite worsening headwinds: Rising price, especially at the gas pump, and the war in Ukraine were listed as top factors that weigh down on consumers expectations, with the expectation index falling to 76.6 in March from 80.8 the month prior.  Despite these challenges, consumers’ confidence in general inched up to 107.2 in March from a downwardly revised level of 105.7 in February, mostly due to an improvement in the labor market. The share of consumers seeing jobs as plentiful has never been higher in over 50 years.

Job openings near all-time high but hires looked to be topped out: The number of job openings in February declined to 11.27M from an upwardly revised 11.28M in January. While the rate of jobs available dipped slightly from the previous month, it remained near its all-time high, an indication that the exceptionally strong demand for workers will likely continue. The latest employment report reflects a similar trend, with 431k jobs in March, pushing unemployment to a new low of 3.6%. Vacancies saw very little change in the past few months, however, a signal that employers’ hiring spree may be losing steam. That said, with plenty of job availability, the tight labor market will continue to put upward pressure on wages in the upcoming months.

Construction industry continues to cut through material and labor headwinds: Total construction spending rose 0.5% during February over the previous month. The $1.7 trillion seasonally adjusted and annualized pace of spending reached during the month represents an 11.2% yearly gain. Total spending is now up 13.5% compared to level observed just before the pandemic. Most of the overall monthly increase occurred in residential spending, which rose 1.1% during the month. New residential development continues to be driven by a historic shortfall of existing homes for sale and robust buyer demand. Though, sharply higher mortgage rates in recent weeks may have taken some wind out of residential sales in coming months.