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As the housing market twists and turns like a Formula One circuit, consumers have been placing their homebuying and selling plans in the pit lane — waiting for the best time to race back onto the track.
Although the time to shift gears isn’t favorable just yet, the U.S. Bureau of Labor Statistics on Thursday provided hope the housing market will return to a more normal pace next year.
In October, the all-item inflation index increased 7.7 percent year over year, the lowest annual increase seen since January’s record-breaking jump to 7.5 percent, according to the bureau’s latest Consumer Price Index. Before Thursday’s report, analysts forecasted the index would rise 7.9 percent, down from September’s 8.2 percent gain.
“This morning’s C.P.I. data were a welcome relief,” Lorie K. Logan, the president of the Federal Reserve Bank of Dallas, told The New York Times. “But there is still a long way to go.”
The “long way to go” is primarily found in the statistics for housing inflation, where renters and buyers are still bearing the brunt of an increasingly volatile market marred by booming housing costs, higher (albeit not record-breaking) mortgage rates, and other economic woes.
In October, rental costs rose 0.7 percent month-over-month and 7.5 percent year-over-year, respectively. Meanwhile, costs on the for-sale side increased at a slightly slower rate of 0.6 percent month-over-month and 6.9 percent year-over-year.
President Biden, on the heels of a relatively positive midterm performance, said October’s report was evidence that his administration’s economic policies are working and inflation— including housing — could reach a “soft landing” sometime next year.
“I am optimistic, because we continue to grow and at a rational pace, we’re not anywhere near a recession right now, in terms of the growth,” he said in a press conference on Thursday. “But I think we can have what most economists call a ‘soft landing.’ I’m convinced that we’re going to be able to gradually bring down prices so that they, in fact, end up with us not having to move into a recession to be able to get control of inflation.”
While the inflation report has given political leaders and the stock market an extra pep in their step, with the SP500 on track to have its best CPI day performance since 2008, several housing economists gave a more tempered evaluation of what the CPI report means for consumers.
Dr. Lisa Sturtevant |Credit: LinkedIn
“Inflation is down from 8.2 percent in September, signaling the Fed’s actions are beginning to have an impact,” Bright MLS Chief Economist Dr. Lisa Sturtevant said in an emailed statement to Inman. “However, the drop may not be enough to assuage concerns about where the economy—and rates—ultimately are headed.”
“Even as rate hikes begin to slow inflation, the Fed will continue on its path of continued rate increases,” she added. “As a result, we should expect mortgage rates to also stay elevated.
Sturtevant said higher mortgage rates coupled with a seasonal slowdown will bring buying and selling activity to a halt, with most consumers opting to wait until the spring in hopes of lower rates and more leverage.
Realtor.com Chief Economist Danielle Hale also said today’s report signaled the economy was going in the right direction; however, it will take a while before consumers will see the evidence of that in their bank statements.
Danielle Hale
“Unsurprisingly, at a time when mortgage rates are up more than 400 basis points from a year ago, with more than half of that increase coming in the last 14 weeks, home shoppers are reevaluating their options, which have changed dramatically,” she said in a written statement. “The monthly mortgage cost of buying a typical for-sale home at today’s rate with a 10 percent down payment is up more than $1,140 compared to last year, and up more than $475 from early August, when rates briefly dipped below 5 percent (4.99 percent).”
Beyond mortgage costs, Hale said price hikes for food, energy, and transportation services will continue to deliver a one-two punch to consumers and push them to reconsider their buying and selling strategies.
“While October wages were up 4.7 percent from a year ago, October inflation data suggests that those paychecks were able to buy much less,” she said. “Recent survey data show that just 16 percent of respondents said it was a good time to buy a home.”
Still, this week’s , highlighting that even when it’s not a good time to buy, there are still home shoppers in the market for a variety of reasons.”
Sturtevant and Hale said the upcoming months will be a mixed bag, with some consumers powering through headwinds — mortgage applications increased for the first time in two months — and others simply unable to contend with home costs, even as sellers reduce their asking prices.
“Nationally, the median home price is about five times the median household income,” Sturtevant said. “This grows considerably in higher priced markets, such Los Angeles, where the median home price is more than 11 times the typical household income.”
“Even in markets where sellers are dropping their asking price, those adjustments are not enough to make much of a dent in the affordability challenge,” she added. “In the high-cost Washington D.C. area, about 40 percent of sellers are dropping their asking price. But on average they are cutting prices by just 6 percent, which means homes are still selling for more than 15 percent more than they were before the pandemic.”
Despite more choppy waters ahead, the inflation report was enough to buoy several real estate companies’ stock performances by double digits after dreary third-quarter earnings.
As of 12 pm EST, Compass (COMP) price per share rose 25.95 percent to $2.33 per share. Redfin (RDFN), even with the news of layoffs and iBuyer closure, price per share increased 34.10 percent to $4.38.
EXp Realty (EXPI) and Opendoor (OPEN)’s stock values increased 13.77 percent and 31.45 percent, respectively, to $12.60 per share and $1.98 per share. Anywhere’s (HOUS) price per share increased 7.82 percent to $7.08.
The Federal Reserve will announce its next rate hike on Dec. 14.
