Inflation Aligned as Forecasted While Housing Market Sees Increased Listings but Stagnant Mortgage Demand: Portafolio Capital Markets Recap for Week Ending 06/28/2024
In May, inflation rates witnessed a 2.6% increase from the previous year, aligning with economic forecasts. This figure is derived from a principal Federal Reserve indicator that tracks changes in consumer prices known as PCE. The consistency of this rise with expectations suggests that the economic assessments guiding monetary policy remain on track.
Prices
The PCE price index slightly decreased by less than 0.1%. Goods prices fell by 0.4%, while services prices rose by 0.2%. Food prices increased by 0.1%, and energy prices dropped by 2.1%. Excluding food and energy, the PCE price index went up by 0.1%.
Compared to May of the previous year, the PCE price index rose by 2.6%. Goods prices decreased by 0.1%, and services prices increased by 3.9%. Food prices were up by 1.2%, and energy prices surged by 4.8%. Excluding food and energy, the PCE price index also increased by 2.6%.
Real PCE
Real personal consumption expenditures (PCE) increased by 0.3%, with spending on goods rising by 0.6% and spending on services by 0.1%. The main driver for goods was recreational goods and vehicles, particularly computer software and accessories. For services, the increase was led by transportation services, especially air transportation, and health care, notably outpatient services.
Further Dissecting the Data:
The $47.8 billion increase in personal consumption expenditures (PCE) included a $34.2 billion rise in spending on services and a $13.6 billion rise in spending on goods. The key contributors to the increase in services were health care (especially hospitals), housing and utilities (mainly housing), and transportation services (notably air transportation). In goods, the increase was primarily driven by nondurable goods (especially prescription drugs), despite a decline in spending on gasoline and other energy goods.
The full report by the Bureau of Economic Analysis is available here.
As mortgage rates continue to climb, the housing market is seeing a notable shift. Home prices are beginning to cool off, with active listings surging by 35%. This increase in housing availability is providing potential buyers with more options and possibly easing the competitive pressure that has characterized the market in recent years.
For the four weeks ending June 23, the average home sold for slightly below its asking price. Although almost 66% of homes sold above the asking price last month, this is the lowest percentage since June 2020. Annual home price growth declined to 4.6% in May, down from 5.3% in April, marking the slowest growth rate in seven months.
The full press release by Redfin can be found here.
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Weekly demand for home loans appears stagnant, indicating a potentially sluggish summer for the housing market. This stabilization may cause potential homebuyers to hesitate as they face higher borrowing costs coupled with limited housing inventory. Analysts suggest this trend could lead to less competitive market conditions compared to previous years.
According the the Mortgage Bankers Association (MBA), the Market Composite Index, which tracks mortgage loan application volume, rose by 0.8% on a seasonally adjusted basis but fell by 10% unadjusted from the previous week. The Refinance Index stayed almost the same as the prior week but was 26% higher than a year ago. The seasonally adjusted Purchase Index increased by 1%, while the unadjusted Purchase Index dropped by 10% from the previous week and was 13% lower than the same week last year.
The full report (and survey) from MBA can be found here.
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