The General Economy 🌐
Once again, predictions of an impending recession were proven wrong, thanks to robust consumer spending and a resurgence in residential construction. In the third quarter, the Gross Domestic Product (GDP) grew at a healthy 3.5 percent rate. Notably, a surge in new home construction contributed significantly to economic growth, with annualized Residential Fixed Investment increasing by a remarkable 6.1 percent. Personal Consumption Expenditures (PCE) also showed strength, growing at a rate almost double that of the second quarter. Summer travel and back-to-school shopping drove consumer demand, leading to a return of credit card usage and, unfortunately, increased delinquencies.
In terms of inflation and unemployment, the Federal Reserve decided to maintain rates at 5.5 percent in September. Despite OPEC-induced oil price increases, the annual Consumer Price Index (CPI) in August and September stood at 3.7 percent. Core CPI, which excludes food and energy prices, exhibited steady performance over the summer. Unemployment slightly increased to 3.8 percent, driven by layoffs, but also by higher wages and reduced personal income growth.
The Real Estate Sector 🏡
Residential 🏠
The residential market faced challenges in the third quarter, with a 30-year fixed mortgage rate exceeding 7.3 percent, affecting home sales. Total home sales were down by nearly 9 percent compared to the previous year due to homeowners staying in low-rate mortgages. Despite this, supportive demographic factors and “life-event” moves created some demand. New home construction rebounded, but supply couldn’t meet demand, leading to an increase in median home prices.
Commercial 🏢
Commercial real estate saw a decrease in transaction volumes and prices in August, largely due to rising interest rates and credit tightening. However, quarterly data shows signs of improvement, with an uptick in transaction volumes and retail gaining positive investor attention. Full-service hotel transactions also saw an increase.
The performance of apartment and industrial sectors was mixed, but their fundamentals remained strong, with lenders making loan modifications to mitigate concerns.
While concerns persist in the office sector with rising vacancy rates and distressed properties, a major wave of sales has yet to occur. Some attribute this to lenders accommodating loan modifications and waiting for a return-to-office movement.
A Glimpse Forward 🔮
The economic future remains uncertain. Factors such as the resumption of student loan payments, labor strikes, depleted pandemic savings, and geopolitical issues could impact the economy. However, consumer resilience and upcoming holiday spending provide some hope.
Fannie Mae forecasts positive PCE annualized growth at 1.7 percent and GDP growth at 1.2 percent. The Federal Reserve may increase the Federal Funds rate by the year-end, depending on economic health. In the residential market, interest rate sensitivity is becoming a key driver of market activity. In commercial real estate, concerns of a “doom loop” may be alleviated by a return-to-office, loan modifications, and investor participation.
The goal for 2024 is to have less economic drama and more stability. 🌟 #Economy #RealEstate #Finance #FutureOutlook
| Brittany LongSales Executive O: 936.756.2070 | C: 936.333.0393 | F: 936.756.2133Mitel: 2306BLong@OldRepublicTitle.comOld Republic Title | Old Republic Insurance Group4507 West Davis, #120 | Conroe, TX 77304oldrepublictitle.com |
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