Spring weather is in full force across the land, and this week economists and the market will get their first glimpse at the health of the housing market in March.
Mortgage rates have eased in recent weeks as the Federal Reserve’s battle against inflation and worries over the banking sector have combined to offer hope that the central bank is close to an end of its aggressive tightening of monetary policy. The rate on a 30-year fixed loan is now a little over 6%, a full point below the 7%-plus level notched last fall.
Homebuyers still struggle with the available inventory of homes to buy, so reports on new construction out Tuesday will show how builders are negotiating the uncertain terrain. Estimates are for a drop of 3.5% in the number of housing starts after an increase of 9.8% in February. Building permits for future construction are also expected to dip, by 6.5%, after February’s sharp rise of 13.8%.
Thursday brings a report on existing home sales for March, with expectations of a drop of around 2% following the 14.5% increase a month earlier.
“We believe depressed homebuilder sentiment, elevated mortgage rates and tightening credit standards likely slowed sales momentum not only for March but also for the next few months,” Wells Fargo Managing Director and Senior Economist Sam Bullard wrote on Sunday.
In addition to housing, the data this week will show how the economy is doing and where it might be headed in the months to come. On Wednesday, the Fed will release its “beige book” of regional and national economic conditions, while Thursday will bring the leading economic index for March. In February the index fell for the 11th consecutive month and a decline is forecast for March as well. The index is often a reliable indicator of a coming recession.
The Kalshi Whisper Report now forecasts a 44% chance of a recession this year, what it terms “a coin flip proposition” with an 83% probability the Fed raises rates again in May, by 25 basis points. The service, which tracks multiple market indicators that are shared among banks and Wall Street firms, predicts inflation will end 2023 at 4.05%.
BCA Research on Monday noted that inflation expectations have ticked up in recent days, with both the University of Michigan consumer survey finding expectations jumped by 1 percentage point to a five-month high of 4.6% in April and the New York Fed’s survey showing one-year inflation expectations jumping from 4.2% to 4.7% following four consecutive months of decline.
“Reaccelerating inflation expectations – as well as higher wage growth – underscore that inflation risks have not dissipated,” BCA wrote. “While it is true that the longer-term measures from both the University of Michigan and NY Fed surveys are stable and therefore do not foreshadow a wage-price spiral, the pickup in short-term expectations indicates that households do not believe the inflation issue is resolved.”
“Thus, even though the 12-month economic outlook is deteriorating, and the Fed is likely to deliver its last rate hike in May, a policy pivot to cutting interest rates is not imminent,” BCA added. “A repricing of Fed policy expectations is likely.”