On the supply side, new home inventory fell by 2.2% from November to December, which based on the sales pace represents a nine-month supply. Generally, a six-month supply is seen as more balanced so there seems to be a strong amount of available supply, but… only 71,000 units, or 15% were actually completed. The rest of the units were either still being constructed or hadn’t even begun building yet. When taking this into consideration there is only a 1.4 months’ supply of new homes. Clearly not enough to meet current high levels of demand.
The Bureau of Economic Analysis released its gauge of inflation called the Personal Consumption Expenditures report for the month of December, and it showed that headline inflation increased by 0.1%. Stripping out food and energy prices, it shows that Core PCE increased by 0.3%. Year over Year headline PCE decreased from 5.5% to 5.0% and Core PCE dropped from 4.7% to 4.4%. Inflation is the arch-enemy of the bond market as higher inflation erodes an investor’s return on their investment. As inflation trends lower, the bond market should continue to improve and gain more of an appetite from investors which will aid mortgage rates to improve.
It appears the housing market is turning around and drawing more optimism and interest rates are improving due to lower levels of inflation. As this dynamic continues its trend, we should see increased mortgage activity and more homes being sold.
Sources :Jon Iacono