So what?
The nation’s two key home sales reports scored surprising wins last month. July’s existing home sales continued to build on the strong momentum from June, with demand holding firm in the face of rapidly rising prices. Demand was boosted, in part, by gains in inventory that offer buyers more choices, and mortgage rates that remain near historic lows. New home sales also crept up in July, charting their first monthly gain since March. While builders continue to face significant challenges finding and affording key materials, land and labor, the homes they are making available for sale are still being met with sturdy demand from eager home shoppers. Despite a recent slowdown in construction activity, the number of new homes available for sale remains elevated, even if not all of them have been built yet. More than a quarter (28.3%) of new homes available for sale in July had yet to begin construction. Overall, while sales activity has fallen since the highs reached earlier in the year, recent trends suggest that activity may be leveling off, as more balance slowly returns to the housing market. Applications for home purchase mortgages rose last week for the second time in three releases, reaching its highest level since early July, and traffic of prospective buyers appears to have stabilized after falling from the Spring.
The Federal Reserve’s preferred measure of inflation rose strongly again in July, touching its highest annual change in over 30 years. The annual change in the core Personal Consumption Expenditures index – which omits the volatile energy and food-related spending categories – rose to 3.6%, the highest point since May 1991. Monthly growth in the price gauge, meanwhile, continues to recede, as the index increased by 0.33% from June to July, compared to 0.63% from March to April. The monthly deceleration does suggest that price pressures are easing, adding some credence to the Federal Reserve’s position that these recent inflationary pressures are transitory and should relent as pandemic-related supply restrictions ease. But despite the monthly decline, prices continue to grow at a faster pace than typical norms. What’s more, reports this week suggest that the global supply shortage is far from over and has likely been exacerbated by the recent surge in COVID-19 cases. According to the Drewry World Container Index, the cost of sending a container from Shanghai to Los Angeles is more than six times higher today than it was in May 2020, and those costs are likely to be passed down to consumers in the form of inflation. Theoretically, too-high inflation should entice the Federal Reserve to tighten monetary policy, which would likely push mortgage rates upward. But in a highly anticipated statement this week, Fed Chair Jerome Powell said that while a modest tightening would likely be necessary by the end of the year, the central bank remains far from taking more drastic efforts, such as increasing interest rates. Bond yields, which had priced in a more hawkish message from the Fed Chair, retreated slightly following the statement and mortgage rates followed suit. All told, even as inflation skies to 20-year highs, mortgage rates remain near all-time lows.
Just weeks after its inception, the federal eviction moratorium was rejected this week by the U.S. Supreme Court. The ban was implemented in early August after a previous iteration had expired at the end of July, and this week’s Supreme Court ruling once again places the fate of millions of renters into question. According to the latest Census Bureau’s Household Pulse Survey, more than 8 million rental households are behind on monthly payments, and about 3.5 million of them believe they are at least somewhat likely to be evicted. With limited data available, precisely predicting how many of those people will be forced to leave their home is challenging, particularly as many states and localities still have their own protections in place. Zillow’s latest research suggests that about 8% of these currently at-risk households will end in eviction. The fate of these households will likely come down to how quickly earmarked relief funding gets distributed, particularly as rent prices surge higher. With this latest development, the speed in which funds can reach the most vulnerable renters and landlords is of utmost importance. A report shared Wednesday showed that just $5.1 billion (11%) of the $46.5 billion in federal funding allocated for rental assistance had been allocated.
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