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Mortgage rates have been on the decline recently but remain significantly higher from this time last year. Long-term bond yields rose as the Federal Reserve increased interest rate policies.
This week, we’ll better understand the destruction caused by this crisis in the housing market – an already-weakening area.
Tuesday’s figures from the U.S. Census Bureau will reveal key insight into housing starts and building permits, while Friday is set to provide an update on new home sales for November.
This Wednesday, real estate investors should keep an eye on the existing home sales numbers from the National Association of Realtors – and it doesn’t end there. Come Thursday, data regarding mortgage rates and applications will also be available.
Despite positive job creation and a growing economy, the housing market has been facing challenging times in recent months. Existing and new home purchases are struggling as mortgage rates rise alongside high prices for first-time buyers.
Even more worrisome is that activity to start new construction projects through permits has plummeted over the past year, leaving hope uncertain of whether this trend can be reversed soon.
Last week, Lennar (LEN) reported increased earnings, suggesting that the housing market might be recovering. Following this news, shares of LEN have surged in optimism and hope for a brighter future.
The company far exceeded all expectations – their revenue topped forecasts and predicted an even higher number of homes to be delivered in the upcoming year than analysts had anticipated.
Their performance goes above and beyond, setting a high bar for other businesses.
Lennar investors “may be looking ahead to 2023, perhaps crossing the valley from recession to potential recovery,” CFRA Research analyst Kenneth Leon said.
Read also: 8 Important Things To Know Before Acquiring a Vacation Home
Housing Market Performance
Despite turbulent economic times, those in the industry remain confident that bright days are ahead.
With the recent slide in single-family home prices, it’s essential to understand their true significance. Amherst Group, an investment firm that purchases these homes for rental purposes, has offered a unique insight into this phenomenon and its implications.
Amherst’s housing market remains resilient despite the pandemic, with home prices still up 40% from pre-crisis levels.
Even if values take a 15% tumble – which is unlikely to happen – that would simply bring them back in line with mid-2021 figures and put it far away from any bubble-bursting scenarios of yesteryear.
The job market is thriving, wages are on the rise, and many consumers have a healthy level of savings due to pandemic-era government support – all great news for economic recovery.
With several positive factors in play, the housing market is on a steady path and could avoid major turbulence for now.
“The U.S. housing market is still supported by a tight labor market, the lock-in effect of low fixed mortgage rates for existing homeowners, tight mortgage underwriting, low leverage in the mortgage sector, and low housing supply,” Brandywine fixed-income analyst Tracy Chen said in a report this month.
Chen continued: “We believe we can avoid a severe housing downturn like the one in the Global Financial Crisis.”
Homeowners continue demonstrating their financial responsibility, even in the face of challenging market conditions.
Despite high home prices and elevated mortgage rates preventing a robust housing sales climate, existing homeowners continue making timely monthly payments.
Holidays Input
The year 2008 was a difficult time for many homeowners, as those with subprime loans or lower credit scores had difficulty affording their mortgages. Contrastingly today’s market is seeing much more financial stability in its home loan holders.
“Housing is not bringing down the economy. Yes, the housing market has been impacted. But mortgage delinquencies are still low,” Gene Goldman, chief investment officer at Cetera Investment Management, stated.
Investors are on the lookout this week – a handful of companies have released their quarterly earnings, and they could provide valuable insight into consumer spending habits as well as corporate investment trends.
On Tuesday, the breakfast table heavyweight General Mills (GIS) will show its cards when it comes to earnings.
Even though consumers may be growing concerned about inflation and economic conditions, their hunger for Wheaties remains as strong as ever – evidenced by GIS’s 30% stock surge in 2021 so far.
Analysts expect a slight gain in both sales and profits for this iconic cereal maker.
Furthermore, Analysts are taking a more cautious approach to assess the prospects of three major players in their respective industries: Nike, an iconic sneaker manufacturer and Dow component; CarMax – America’s leading retailer for used cars; and Micron, whose memory chips help power our cell phones, computers & automobiles.
Three trailblazers of Corporate America face a grim reality, and declining earnings as many other business leaders can expect to report similarly lackluster results.
Read also: Wage growth: Private sector sees all-time high
What Experts Found
As the year draws close, expectations for S&P 500 companies are not as high. FactSet data reveals that fourth-quarter earnings could be down 2.8% compared to last year’s results – adding significant pressure on corporations at an otherwise hectic time.
Analysts have had a busy season as they revise their forecasts.
According to FactSet’s Senior Earnings Analyst John Butters, initial projections on the fourth quarter of 2019 indicated an expected 3.7% hike in profits – but these estimates may have changed since September 30th.
With 2023 right around the corner, investors are staying vigilant and scouring through company earnings reports to gain insight into how companies envision their upcoming year.
Analysts’ current projection of 5.3% earnings growth for 2023 could be a little too rosy, particularly if companies start to trim their expectations due to increasingly unstable economic conditions.
