It is becoming very clear that the housing market is all about interest rates. Existing home sales rose 3.4% in October, the first increase in two months. Sales are based on contract closings signed in September when mortgage rates had fallen to the lowest level in almost two years. The dip in rates pulled buyers from the sidelines despite high prices and lean inventory. The average 30-year mortgage rate was 6.18% in September versus 6.65% in the two months prior and close to 7% this month. Signing a contract in September saved buyers $150 - $200 a month in mortgage interest. The supply of homes for sale inched up slightly but remains well below pre-pandemic levels. The tight inventory continues to put pressure on prices with little relief in sight. A study by Bloomberg estimates the average rate on existing mortgages is below 4.1% with 24 years remaining. It is easy to understand why most homeowners are reluctant to sell their home unless absolutely necessary.

Homebuilders remain optimistic about the new home market. The most recent homebuilder sentiment gauge rose to a seven-month high and the six-month sales outlook was the best in two years. Builders are optimistic that a Trump administration will ease regulations and make more land available for building. October housing starts, however, decelerated to the slowest pace in three months. Much of the slowdown was in the South as projects were put off in the wake of the hurricanes. Yet, activity has slackened across the country as builders continue to use incentives to sell already built projects. Building permits, a proxy for construction, fell as mortgage rates rebounded in October.

KEY INDICATORS THIS WEEK

Consumer Sentiment – Consumers are feeling the most optimistic about their financial situation than they have in seven months, although a bit less from when surveyed earlier this month. The post-election euphoria seems to have worn off a bit, but optimism is still present. A gauge of sentiment among Republicans surged in November to the highest level since 2021, while that of Democrats slid to a more than one-year low. As for inflation, respondents to the University of Michigan Sentiment report believe inflation will subside in the near term but accelerate in the long term.

NOTE: Behind the Numbers will not be published next week. The report will resume on December 6.

As we approach the time of year to be extra thankful for what we have, I would like to take this opportunity to thank you for your continued readership and shared interest in dissecting the nuances of the financial markets and economy. I wish you and your families a very happy Thanksgiving holiday.

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