Monthly Report: September 2024

United States

Once again, the US property market presents a mixed picture, with existing home sales continuing to drop while mortgage rates and applications portray a much more positive outlook. 

Existing home sales dropped by 2.5% (vs. the 0.9% forecasted) to 3.86 million in August, the lowest sales pace since October 2023 and the second slowest since 2010.  Despite the number of available homes staying almost unchanged, the supply has been the highest since COVID-19 due to the low sales.  

Existing home sales have been at their lows since 2010 as inventories edge higher. (chart below) 

According to the Census Bureau, housing started increasing 9.6% to 1.4 million in August, with single-family starting to jump 16% and eliminating last month’s decline. 

The Housing Market Index (National Association of Home Builders/Wells Fargo) increased to 41 (+2) in September, reversing last month’s decline, but is still well below 50. Manufacturing PMIs remained subdued, printing 53.6 for August, missing the 55 forecasts but faring much better than Europe/China. 

Ongoing weakness in existing home sales is in line with our most recent forecast, which called for the lowest annual level of existing sales since 1995. It’s worth noting that August sales, which were mostly closed in June and July when rates were still around 6.9 percent, don’t reflect most of the recent decline in mortgage rates. However, most real-time indicators have shown sluggish demand at current affordability levels even recently, when rates fell below 6.5 percent. 

The main bright side of the US housing market has been reading weekly mortgage applications. Last week's applications soared by 11% and another 14% the week before (see chart below). Mortgage applications have now reached their highest point since June 2022. Seasonally, applications are about to turn to positive YoY growth for the first time since 2021. 

This is in line with the continued drop in mortgage rates, with the 30-year fixed contract dropping to a new 2-year low of 6.1% and the 15-year fixed rate dropping to 5.2% (charts below). The mortgage rate on the 30-year contract has now dropped for eight consecutive weeks, which hasn’t happened since 2019. 

This trend is expected to continue as the Fed continues its dovish rhetoric. Refinancing applications rallied by 20% weekly, as they tend to be more sensitive to changes in interest rates than mortgages. 

Despite the drop in mortgage rates, however, there hasn’t been strong loan application activity, indicating that many are waiting for the rate-cut cycle to continue and for house affordability to improve even more. 

New Home Builders could be building momentum now that Hurricane Beryl is behind us. They were shown to ramp up activity for the second consecutive month. 

Home prices remain elevated, but price growth is easing, according to the Shiller Home Price Index, which showed a 14th consecutive monthly record high. This rate has slowed over the past six months, from 6.5% in Feb 2024 to 2.1% currently, but hasn’t seen a decrease since early 2023. Prices for new and existing homes retracted in August as inventory continues to build, and lower mortgage rates haven’t translated into fresh demand for housing yet. Charts of median sale prices are below. 

UK

Relevant economic data remains resilient in the United Kingdom, but it appears to be softening compared to forecasts. GDP growth was muted at 0% MoM for July (0.2% expected), but rates, inflation YoY, and unemployment remained pretty much stable, as expected, for this month. 

The S&P Global Construction PMI printed 53.6 for August, down from 55 in July and below the 55 consensus. 

The Halifax House price index grew by 0.3% Month over Month in August, down from 0.9% in July but in line with expectations and beating expectations year-over-year (4.3% vs. 4.2%). 

The Nationwide House Price Index increased by 2.4% YoY in August, up from 2.1% YoY in July, but a miss from the expected 2.9% increase. This was the sixth consecutive increase in house prices, the strongest streak since late 2022, and it took house prices just 3% from their recorded ATHs. 

China

Over the last few days, China's supportive policies have supported the local market, especially the property market. The PBOC cut rates aggressively on its 1-year lending facility to stimulate growth. Shanghai and Shenzhen are planning to lift the remaining restrictions on home purchases to attract potential buyers to their real estate markets. Time will tell whether these measures are likely to have any impact on China’s troubling property market. Chinese equities have been reacting very well to the news, but the property market is always much stickier and correlates stronger to the real economy vs. monetary policy. 

China’s newly built house prices have dropped consistently since July 2023 on a year-on-year basis. The index dropped by 5.3% in August, another miss from the -5% forecast. 

The property price index for China’s houses in tier-1 cities continues making new lows, approaching levels we haven’t seen since 2016 (chart below). This is a massive problem for China since households hold, on average, more than 60% of their wealth in property vs. the 20, as the 2nd chart below shows. 

References

(n.d.). US Treasuries Yield Curve. US Treasuries Yield Curve. https://www.ustreasuryyieldcurve.com/

(n.d.). CME FedWatch Tool. CME Group. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

(n.d.).Trading Economics. Trading Economics. https://tradingeconomics.com/united-states/nahb-housing-market-index

(n.d.).Goldman Sachs. Goldman Sachs. https://www.goldmansachs.com/

(n.d.).Bloomberg. Bloomberg. https://www.bloomberg.com

(n.d.). FRED. Federal Reserve Economic Data. https://fred.stlouisfed.org/

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