January 15, 2024 – Despite inflation rising slightly more than expected at the end of last year, news headlines in 2024 so far have been mostly positive. Consumers begin to believe that overall price growth is slowing, while rates are stabilizing, and more homebuyers on the sidelines are coming back to the market. These are encouraging signs that could kick start the housing market in the new year and could help turn the market around. If the sentiment remains upbeat and the upward momentum continues, we could see a bounce back in market activity in the near term.
Inflation rises more than expected in December: Consumer prices rose more than expected, with the headline inflation increasing 0.3% month-over-month and 3.4% year-over-year in December. Economists were expecting the Consumer Price Index (CPI) to have an increase of 3.2% for the final month of the year, an inch-up from 3.1% recorded in November. Most of the increase in the overall prices came from rising shelter costs, as the category jumped 6.2% year-over-year. The Core CPI – inflation excluding food and energy – continued to fall on an annual basis in December, with the index dipping to 3.9% from November’s 4%. It was the first time in two and a half years that the core CPI dropped below the 4% threshold. Despite a slight uptick in the headline CPI, inflation continues to ease, but the downward trend is somewhat sticky and is moving at a slow pace. Looking ahead, the headline CPI should decline further in coming months and will likely drop below 3% year-over year by the end of 2024.
Short-term inflation expectation dips to the lowest point in three years: Americans began to take note of the slower growth in prices and started to believe that inflation is cooling. The median inflation expectation at the one-year ahead horizon fell to 3.0% in December from 3.4% recorded in the prior month, as reported by the New York Fed in its Survey of Consumer Expectations. The year-end number has come a long way from the high of 6.8% registered in June 2022, but remained above the pre-pandemic 5-year average of 2.7%. Consumers in December continued to expect home prices to grow at 3.0% a year from now, unchanged from the prior month, but continued to stay above the survey series 12-month trailing average of 2.4%. The slowdown in inflation expectations is a positive sign that prices will continue to ease later this year, as expectations can feed into actual inflation and could turn them into self-fulfilling prophecy.
Mortgage rates inch up in the second week of 2024: The average 30-year fixed rate mortgage (FRM) reported by Freddie Mac for the week ending January 8 climbed again, albeit slowly, to the highest level in three weeks. The rise in rates was due partly to more upbeat economic data and partly to the recent increase in traders’ doubts about the Fed’s rate cuts in the next 12 months. More recent data collected by Mortgage News Daily in the past few days, however, indicates a reversing trend as latest inflation reports keep low rate hopes alive. With CPI coming in slightly higher than expected though, rates could see some volatility in the coming weeks. Lower rates brought some homebuyers off the sidelines at the start of the year, with mortgage applications surging 9.9% week-over-week in the first week of 2024, according to Mortgage Bankers Association. Purchased applications, while still down 16% from the year-ago level, were up 6% from the prior week.
U.S. foreclosures up in 2023 but remain below pre-pandemic levels: Foreclosure filings on U.S. properties increased to 357,062 in 2023, a jump of 10% from 2022 but a decline of 28% from 2019, according to ATTOM. Foreclosure activity was also well below the Great Recession level, with filings in 2023 down 88% from the peak of 2.9 million in 2010. The 357k plus properties with foreclosure filings represented 0.26% of all U.S. housing units, a slight uptick from 0.23% in 2022, but a dip from 0.36% in 2019 and a steep decline from the peak of 2.23% in 2010. For the month of December, 20,490 properties in the U.S. started the foreclosure process, an 8% decline from the prior month, and a drop of 3% from the same month in 2022. Nationwide, one in every 4,606 properties had a foreclosure filing in the last month of the year. At the state level, California had 29,180 foreclosure starts in 2023, an increase of 7% from 27,269 reported in 2022. With home prices expected to increase in 2024 and the economy likely to experience a mild growth this year, foreclosure activity could fluctuate but is not expected to increase sharply in the next 12 months.
Small business optimism ends the year with a positive note: The National Federation of Independent Business (NFIB) index – a measure that indicates the level of small business sentiment in the U.S. – rose 1.3 points to 91.9 in December. It was the first increase in five months and the index tied the 2023-high reached in July. The resiliency of the economy has brightened business outlook and has driven optimism higher at the end of last year. Sales expectations, while still remaining in negative territory, improved sharply in December and reached the highest level since January 2022. Inflation was the biggest issue facing small businesses last month, while hiring remained a challenge for many owners. Despite the recent bounce-back, the index remained below the historical average of 98 for the 24thth straight months.