Fed's Powell Signals Rate Cut Ahead

Fed Chair Jerome Powell signaled that a rate cut could be on the horizon. In housing news, both existing home sales and housing starts exceeded expectations, though builder sentiment remains low amid ongoing market uncertainty. Read on for the key takeaways.

·      Powell Gives Green Light for Rate Cut

·      Existing Home Sales Rebound in July

·      Home Builder Confidence Stalls at Low Level

·      Housing Starts Unexpectedly Rise

·      Hiring Lags as Continuing Claims Hit 4-Year High

Powell Gives Green Light for Rate Cut

Last Friday, Fed Chair Jerome Powell signaled a rate cut may be on the table, noting that the “shifting balance of risks may warrant adjusting our policy stance.” His remarks were a key takeaway from the annual Jackson Hole Economic Symposium. While the Fed has kept its main interest rate unchanged this year to help balance inflation and employment, talk of a potential cut at their next meeting on September 17 has been building.

Just a quick reminder: when the Fed adjusts interest rates, it’s changing the Fed Funds Rate – an overnight lending rate between banks. This rate sets the tone for other interest rates across the economy, but it doesn’t directly control mortgage rates or other long-term rates.

What’s the bottom line? The Fed is trying to maintain a delicate balance between keeping prices stable and supporting job growth. High inflation tends to delay rate cuts, while signs of economic slowing can prompt them. Powell’s comments suggest the Fed is growing ready to ease rates, depending on how inflation and job data play out in the coming weeks.

Existing Home Sales Rebound in July

After dropping to a 9-month low in June, existing home sales bounced back in July, rising 2% to an annual pace of 4.01 million – a solid improvement over the 0.5% decline that was expected.

The median home price dipped to $422,400, down 2.4% from June. Keep in mind, this number reflects the midpoint of homes sold, not changes in home values or appreciation.

What’s the bottom line? Inventory reached its highest level in five years, with 1.55 million homes on the market at the end of July. However, only 1.1 million of those were active listings – the rest were already under contract. While inventory is still below pre-pandemic levels, NAR’s Chief Economist Lawrence Yun says, “Homebuyers are in the best position in more than five years to find the right home and negotiate for a better price.”

Home Builder Confidence Stalls at Low Level

Builder confidence dipped slightly in August, falling to 32 from 33 in July, according to the National Association of Home Builders (NAHB). Confidence levels have hovered between 32 and 34 since May – well below the 50 mark that indicates growth – marking 16 consecutive months of weak sentiment.

While there were minor improvements in buyer traffic, current sales expectations fell slightly while future sales expectations remained flat. All key measures stayed below 50, reflecting continued challenges for builders.

What’s the bottom line? Persistently high mortgage rates, lower buyer demand, and supply chain issues continue to weigh on builder sentiment. As NAHB Chair Buddy Hughes put it, affordability is the biggest challenge, and many buyers are waiting for rates to improve before making a move.

Housing Starts Unexpectedly Rise

Housing starts rose 5.2% in July to a 1.43 million-unit annual pace, surpassing expectations of a decline and reaching the highest level since February. The increase included growth in both single-family and multi-family construction, with stronger gains on the multi-family side.

However, building permits – a key indicator of future construction – fell 2.8% to a 1.35 million annual rate, the lowest in five years. Single-family permits ticked up slightly but remain near their lowest levels of the year.

What’s the bottom line? Despite the uptick in construction activity, future supply may stay tight. The NAHB noted there were 621,000 single-family homes under construction in July – down 1% from June and 3.7% from last year. That’s the lowest level since early 2021, signaling a cautious pullback from builders amid ongoing market uncertainty.

Hiring Lags as Continuing Claims Hit 4-Year High

Initial jobless claims rose by 11,000 to 235,000, coming in above forecasts and reaching a two-month high. However, the more telling figure remains continuing claims – the number of people still receiving unemployment benefits after their first week. These rose by 30,000, reaching a new cycle high of 1.972 million, and the highest level since November 2021.

What’s the bottom line? Continuing claims have held above 1.9 million each week since mid-May. This suggests it’s taking longer for people to land new jobs, and there may not be enough openings to match demand in the current labor market.