December 2, 2023 | Annual Home Sales, Delinquencies, Core PCE and the Real Estate Market

Annual Home Sales
The higher interest rates have put a damper on home sales, which is no surprise. The seasonally adjusted annual sales came in at 3.8 million for October. Not only is that a decline of 4.1% from September, it is the lowest seasonally adjusted annual home sales since August 2010 which was over 13 years ago. As interest rates pull back somewhat going forward, we could see some better homes sales but I do not believe we’ll see any type of boom that will cause home prices to increase substantially.

Delinquencies
You may be hearing about the increase in delinquencies for Americans, but at the end of September just 3% of outstanding debt was in some stage of delinquency. What you won’t hear is back in 2009 delinquency rates hit a record 12% and going back to a more normal economy in 2019, delinquency rates were 4.7%. Here is another fact for you that shows things are not as bad as the media wants you to believe. As a whole, consumers used an average of only 24.1% of their credit card allowance which is still below 2019 when it was 24.6% of the outstanding allowance.

Core PCE
The Fed’s preferred measure known as core PCE rose just 3.5% year over year in the month of October, which was down from 3.7% in September and marked the lowest reading since April 2021. Core PCE excludes food and energy from the headline number. If we look at headline PCE, it was even more impressive due to lower energy prices as it rose just 3% compared to last year, which was down from 3.4% in September. This report is further evidence that inflation is continuing to decelerate and reinforces my belief that the Fed’s interest rate hiking cycle has ended.

Real Estate Market
Just how strange is the current real estate market? Pending home sales, which looks at signed contracts in the month of October dropped 8.5% compared to last year and registered the lowest reading since the National Association of Realtors began tracking them in 2001. This means that home sales are worse now than the Great Recession in 2008/2009. The main issues in the month were high interest rates, which shot above 8% in the month and the limited amount of supply. Given the wild swing in interest rates, I still believe it will take a few years for the real estate market to normalize.