August 23 2023
New home sales rose 4.4% in July to 714 thousand after having declined 2.8% in June, and after having jumped 3.7% in May, 6.1% in April, and 2.4% in March. New home sales have clearly begun to cimb.
Existing home sales are being constrained by a lack of inventory and, as a result home buyers are looking at new homes available for sale. For this reason, existing home sales have been bouncing along at close to their low point from January while new home sales have surged.
The increase in mortgage rates does to 7.0% does not seem to be deterring home buyers very much.
Home prices jumped 4.8% in July to $436,700 after declining 0.7% in June. Over the past year new home prices have fallen 8.7%. But a year ago the year-over-year increase in home prices was in a range from 20- 25%. While home prices fell earlier in the year, prices for new homes may have hit bottom.
Housing affordability fell rapidly earlier this year as mortgage rates climbed sharply. It declined slightly in June to 94 which means that median-income earning consumers had 6% less income than is required to purchase a median-priced home. If mortgage rates remain fairly steady, home prices rise slowly, and income continues to climb, affordability should remain around its current level through the end of the year.
Having said that,, we look for new home sales to rise from 714 thousand currently to 755 thousand or so by yearend as the shortage of existing homes being offered for sale remains lean and potential buyers seek out a new home as an alternative..
Stephen Slifer
NumberNomics
Charleston, SC
Enjoyed your presentation today AND very well attended!
One idea that I have read lately, is changing the actual goal for inflation from the stated 2.5% to something higher. Apparently the reasoning is that the 2.5% is outdated and does not take into account our current economic environment.
Wanted to get your assessment of that possibility, so the Fed would actually change the goal?
Thanks!
Hi Richard,
First of all, thanks for coming. I, too, was pleased with the turnout. These people keep coming back year after year. The corporate tables sold out in 24 hours. I am flattered by the fact that so many people are interested.
There has been discussion about raising the desired rate of inflation from 2.0% to something higher. That is possible but, in my view, that is unlikely to happen. Inflation is a like a tax. It erodes purchasing power (as we have seen lately). If inflation goes up, workers will demand higher wages to compensate. So instead of having to lobby for a 2.0% pay hike every year, now people will have to lobby for 3.5% wage gains each year to just stay even (i.e., for real wages to stay the same. If inflation rises, interest rates will be higher (bond investors usually want a return of some amount above the inflation rate). If interest rates rise, it costs the government more to finance its debt. I personally think it is a bad idea.
And re: the fact that a 2.0% inflation target is outdated. Why exactly is that? The Fed did not have a problem keeping it at or below 2.0% for the past 20 years. It wasn’t long ago that the Fed was worried that the inflation rate was too LOW. It has jumped the past two years because of all those problems I mentioned at the conference. The Fed started raising rates in March of this year which, I think, was about 18 months too late. They let the problem get out hand. And we were adding more fuel to the fire in January and March of 2022 with additional fiscal stimulus when the recession ended in April 2020. Remember the chart re: the total amount of stimulus? $9.5 trillion of stimulus to fix a $2.2.trillion GDP shortfall. I don’t think the Fed should be fiddling with its target, it should do a better job of carrying out its policy.