Economic Indicators
Single-family Housing Starts
New residential construction increased by 5.7% y-o-y in May 2023. Despite high mortgage rates, there is a strong demand for homes, but it is not being met by existing homes. Hence, potential home buyers are creating demand for new homes.
Housing Inventory
Inventory of existing homes in May 2023 was lower than the level a year ago. This highlights homeowners’ reluctance to part with their sub-3% mortgage rates. Given that mortgage rates are trending over 6.5%, inventory will likely remain low in the coming months.
Mortgage Rate
Mortgage rates are trending around 6.7% and are expected to stay in the 6.5% – 7.0% range as more rate hikes are expected by the Fed to bring down inflation to its target rate of 2%. This will continue to keep housing supply tight.
Inflation
Inflation declined to 3% in June 2023. The cooling in inflation was due to a decline in energy and used car prices. However, shelter, a large component of CPI, increased by 7.8% on a y-o-y basis. Given the low housing inventory, shelter costs are likely to remain elevated.
Unemployment Rate
The U.S. unemployment rate was at 3.6% in June 2023 and has stayed below the 4% level for the 17th month in a row despite several interest rate hikes by the Fed. The strong labor market continues to support housing demand.
Hourly Earnings
Average hourly earnings increased by 4.4% in June 2023 compared to a year ago. This means that wages are rising faster than prices and will support demand for housing.
