Housing market standstill persists despite surging mortgage rates.
Even as mortgage rates have increased to 20-year highs and demand for housing has plummeted, housing prices have not fallen very far. Home values appear to have been buoyed by low inventory stemming in part from unmotivated sellers that do not want to trade their existing 3% mortgages for new 7% mortgages. According to Zillow data, “sellers listed 24% fewer homes in October compared with a year earlier, the fourth straight month with a drop.” Lower housing inventory appears to be the primary cause of persistently high prices with the S&P CoreLogic Case-Shiller 20-City Composite Home Price Index only down by approximately 2% from its peak even as mortgage rates have more than doubled over the last year. The home-price standoff could become unstuck if inventory increased from sellers becoming more highly motivated which would result in rebounding demand from the more affordable housing options. With so much of the average American’s net worth tied to their primary residence, the timeline and implications of a material change in housing values could have a significant impact on both the average household and the broader national economy.
Layoffs are everywhere it seems like, but will they actually move the needle?
The press world has been abuzz with news of layoffs across the tech and banking industries which might cause you to think U.S. unemployment could dramatically increase. Digging deeper though, it appears that fears could be overblown and the U.S. will head into a potential recession from one of the strongest unemployment positions in history. Large tech companies overhired during the pandemic and afterward and since have cut around 10% of their workforce. However, according to data from Bloomberg, the tech sector accounts for just 2% of U.S. workers which means that even a 10% decrease in the total workforce would only account for a .20% change in U.S. unemployment. Additionally, there is evidence that workers laid off from tech firms have been scooped up by smaller firms that have struggled to compete for high-caliber talent. Business surveys such as the ISM PMI indexes have shown persistent challenges among managers when it comes to staffing; most report that labor markets are still tight and that they are having trouble sourcing qualified hires which bodes positively for unemployment. Globally, developed economies are poised to enter a recession from a period of strength, and according to the Organization for Economic Cooperation and Development (OECD), the total unemployment rate for developed countries is 4.4% which is the lowest it has been since the 1980s. Strength in the labor market should help global economies experience only a mild recession but continue to be negative for inflation as it keeps consumer income and spending high. However, in our view, a strong job market will help stave off the worst of a potential recession no matter the developed geography you look at.
Black Friday spending is higher annually, with data suggesting consumer spending habits may exacerbate inflation.
According to Bloomberg, versus the prior year, in-store traffic was up 2.9% and online sales rose 2.3%. The figures suggest consumers will continue to spend, regardless of inflation. On the positive side, retailers enjoyed greater inventories due to the alleviation of some supply chain constraints. While discounts may erode some of the real value of larger volumes, retailers may be looking forward to a modest annual increase in holiday season spending. These vendors are also facing their own conundrum in weighing the benefit of large-volume sales against the increased cost of goods. The data is insightful, but Black Friday is no longer what it once was due to online shopping. Cyber Monday will offer a more comprehensive view of consumer demand and spending habits.