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Mortgage rates have fallen recently, but are still up from a year ago thanks to soaring long-term bond yields as Federal Reserve interest rates rose.
Although this has already had a negative impact on the housing market, we will have more details this week on the worsening damage.
A long list of housing data is available. On Tuesday, the US Census Bureau will release housing starts and building permits figures for November, followed by Friday’s release of new home sales data for the same month. In between will be November existing home sales figures from the National Association of Realtors on Wednesday, as well as weekly mortgage rate and application data on Thursday.
For the past few months, sales of existing and new homes have been steadily declining due to soaring rates and the fact that home prices remain stubbornly high for first-time buyers. Housing starts and building permits were choppier month over month, but both are down from a year ago.
Still, there are promising signs that the worst may soon be over. Shares of Lennar (LEN), one of the largest homebuilders in the United States, rallied after reporting earnings last week. Revenues beat forecasts, and the company’s forecast for the number of homes it expected to deliver next year was also a bit higher than analysts’ estimates.
Lennar investors “can look ahead to 2023, perhaps traversing the valley from recession to potential recovery,” according to CFRA Research analyst Kenneth Leon.
Others in the industry are also cautiously optimistic.
According to data from the Amherst Group, an investment firm that buys single-family homes for rent, it’s important to put the recent price drop in context.
Amherst said home prices were still up about 40% from pre-pandemic levels. So even a further decline of around 15% would only bring them back to mid-2021 levels. In other words, it’s not like the housing bubble burst of the mid-2000s.
It should also be noted that the labor market is still strong and wages are rising. Additionally, many consumers still have decent levels of excess savings thanks to government stimulus measures in the age of the pandemic.
All good reasons why the housing market could avoid a severe and prolonged slump.
“The U.S. housing market continues to be supported by a tight labor market, the lock-in effect of low fixed mortgage rates for existing homeowners, tight mortgage underwriting, low indebtedness in the mortgage industry, and weak housing supply. “, said Brandywine. analyst Tracy Chen in a report this month.
“We believe we can avoid a severe downturn in real estate like that of the global financial crisis,” Chen added.
Others point out that while home sales may remain weak due to high home prices and still-high mortgage rates, the good news is that most existing homeowners are continuing to pay their monthly mortgages on time.
Again, this is a stark contrast to 2008, when many people with subprime loans or borrowers with bad credit histories were unable to meet their mortgage payments.
“Housing doesn’t bring down the economy. Yes, the housing market has been impacted. But mortgage delinquencies are still low,” said Gene Goldman, chief investment officer at Cetera Investment Management.
Not a ton of companies are releasing their latest earnings this week. But the few that could give more clues about the financial health of consumers and the state of business spending.
Grain giant General Mills (GIS) will release its results on Tuesday. Analysts expect a slight increase in sales and profits. Consumers may be growing increasingly wary of inflation and the economy in general, but they’re still eating their Wheaties. Shares of General Mills (GIS) have soared nearly 30% this year.
Analysts are less optimistic about the outlook for sneaker and component king Dow Nike (NKE), used-car retailer CarMax (KMX) and memory chip maker Micron (MU), whose semiconductors are used in devices ranging from cell phones and computers to cars.
Earnings are expected to fall for all three companies. They won’t be the only Corporate America executives to report weak results.
According to FactSet data, fourth-quarter earnings for S&P 500 companies are expected to fall 2.8% from a year ago. Analysts have also been busy cutting their forecasts. John Butters, senior earnings analyst at FactSet, noted in a report that fourth-quarter earnings are expected to rise 3.7% as recently as Sept. 30.
Investors are also going to be paying close attention to what companies say in their earnings reports about their outlook for 2023. Analysts are currently forecasting 5.3% earnings growth for 2023. That might be too optimistic…especially if the companies are starting to reduce their own forecasts. due to concerns about the economy in general.
“The odds of a recession are quite high,” said Vincent Reinhart, chief economist and macro strategist at Dreyfus & Mellon. This will have a ripple effect on corporate profits. Higher rates and lower earnings suggest more pain for stocks.
Monday: Germany If the business climate index
Tuesday: Housing starts and building permits in the United States; China sets prime lending rate; Bank of Japan interest rate decision; Earnings from General Mills, Nike, FedEx (FDX) and Blackberry (BB)
Wednesday: sales of existing homes in the United States; German consumer confidence; Gains from Rite Aid (RAD), Carnival (CCL), Cintas (CTAS), Toro (TTC) and Micron
Thursday: weekly jobless claims in the United States; US GDP in the third quarter (third estimate); revenue from CarMax (KMX) and Paychex
Friday: personal income and expenses in the United States; US PCE inflation; sales of new homes in the United States; US durable goods orders; consumer sentiment in the U. from Michigan to the United States; Japanese inflation; UK markets close early
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