The Full Measure with Kevin Hecht: Economic Recap September 2023

The Full Measure with Kevin Hecht: Economic Recap September 2023


Welcome to the latest installment of The Full Measure with Kevin Hecht—your destination for the most current economic insights and analyses. Catered to real estate appraisers, agents, and other professionals, this monthly blog series helps you navigate the ever-evolving economic environment. Uncover this month’s economic trends and insights—written from an appraiser’s standpoint—in the following economic recap for September 2023.

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Economic recap September 2023

In a pivotal move, the Federal Reserve maintained its benchmark Fed Funds Rate within a 5.25% to 5.5% range. Although unchanged, clear signals suggest a “higher for longer” rate strategy. The Fed forecasts just one more hike this year and two cuts in 2024, revising down from four. Chair Powell aims to guide inflation to 2%, though leading indicators reveal a possible recession. Historically, recessions bring rate drops. We’ll explore what this means across the housing and commercial real estate sectors.

Housing market overview

In August, the housing market experienced a slight downturn in existing home sales, as reported by the National Association of REALTORS®. However, this general trend didn’t manifest uniformly across all major U.S. regions. For instance, the Midwest observed an uptick in sales, the Northeast saw stable sales figures, whereas the South and West experienced a decline. All four regions saw a year-over-year sales decline.

The total count of existing home sales experienced a 0.7% decrease from July, translating to a seasonally adjusted annual rate of 4.04 million in August. Sales plummeted by a substantial 15.3% when observed from a year-over-year lens.

August concluded with a total housing inventory registering at 1.1 million units, marking a 0.9% decrease from July and a significant 14.1% drop from the previous year. The unsold inventory now represents a 3.3-month supply at the present sales pace, mirroring the figures from July and showing a slight increase from August 2022’s 3.2 months.

Single-family home sales declined to a seasonally adjusted annual rate of 3.60 million in August, a decrease of 1.4% from July and a substantial 15.3% dip from August 2022. Concurrently, the median price for existing single-family homes was $413,500, marking a 3.7% year-over-year increase.

Home price growth

Key indicators show home prices continue robust growth. The Case-Shiller Index rose 0.7% from May to June, marking five straight months of gains. Prices remain on par with June 2022 peaks. Similarly, the FHFA Index climbed for the sixth consecutive month, up 0.3% monthly and 3.1% annually. But FHFA focuses on conforming single-family loans, excluding cash and jumbo buyers. This explains the differences with Case-Shiller. Overall, FHFA, CoreLogic, Black Knight, and Zillow point to record high home values, rebounding after late 2022 dips. The sustained appreciation highlights real estate’s enduring potential for wealth building.


US nonfarm payrolls rose by 187,000 in August, extending July’s 157,000 gain. California led with 23,100 added jobs, followed by New York and North Carolina. Seventeen states shed 47,700 jobs total, most significantly Missouri. Versus last year, payrolls are up over 3.1 million, signaling a full recovery. Nearly all states saw job gains, topped by Texas at 402,000. Construction also grew in most states, adding 22,000 jobs nationally and up 2.7% annually.

However, job growth is decelerating – August exceeded forecasts, but June and July saw downward revisions, erasing 110,000 jobs. Unemployment ticked up to 3.8%. Part-time roles grew, but full-time shrank, hinting at softening. ADP data showed private payrolls rising just 177,000, missing projections and concentrated in services. Wage growth remains high but is moderating from peaks. Though initial claims hit an 8-month low, that often lags; emerging signs like lower postings and hiring may precede layoffs. The following months will be key as the Fed watches labor health before potential hikes.

Inflation overview

Consumer prices in August saw their largest monthly jump since June 2022, fueled by spiking gasoline costs. However, core service inflation minus housing held steady, signaling a mixed disinflation path. Persistently high shelter costs, stemming from limited affordable supply and rising development costs, remained an issue. The Fed’s tools to boost housing supply are restricted, and tighter policies may further constrain it by increasing financing costs.

The consumer price index (CPI) rose 0.6% in August, up from 0.2% in July, per the Bureau of Labor Statistics. Energy led the increase, surging 5.6%. Excluding volatile food and energy, core CPI rose 0.3%. Gasoline and shelter indexes drove the gains, rising 10.6% and 0.3%, respectively. Some areas, like lodging and used vehicles, declined. Shelter, a large core component, climbed 0.3%, with growth in owners’ equivalent rent and primary residence rent. Annually, CPI rose 3.7% in August versus 3.2% in July. Core CPI jumped 4.3%, the slowest since October 2021. The uptick in inflation was chiefly due to spiking energy and gasoline. But inflation remains well below 2022 peaks.

Mortgage rates

Mortgage rates above 7% have sharply reduced builder sentiment per the NAHB/Wells Fargo HMI, which fell below 50 to 45 in September. High rates cut buyer purchasing power. Supply constraints like labor and lot shortages also exacerbate affordability issues. In response, 32% of builders lowered prices in September, up from 25% in August. The HMI declined across all major indices. Freddie Mac shows 30-year fixed rates holding at 7.19% despite cooling economic signs. High rates discourage homeowners from listing, but October historically sees inventory gains versus summer. Still, first-time buyers face challenges, especially as falling rents make buying less favorable than renting in major metros. The average 30-year rate recently hit 7.23%, unseen since 2001, damping mortgage demand and refinancing. Household debt surged, led by credit cards. The outlook remains cautiously optimistic, balancing reduced inflation with slower growth.

Commercial real estate

The commercial real estate landscape is nuanced amid shifting economic indicators. As rates surge, banks tighten CRE lending standards, impacting sectors differently. Multifamily remains strong despite more deliveries and slight vacancy increases, aided by favorable demographics, jobs, and low rents amid high mortgage rates. Offices face adaptation challenges, with a record 13.5% vacancy due to remote work uptake. The Industrial sector mirrors pre-pandemic numbers as absorption drops 40% and vacancy hits 5.4%, though rents climb 7.2%. Retail proves resilient with a steady 4.2% vacancy. Hospitality sees a resurgence with rising occupancy and room rates.

In conclusion

Mortgage rates persisting above 7% have dampened the housing market, dragging builder sentiment and shifting rent versus buy dynamics. Builders face diminishing buyer purchasing power and supply constraints, compounding affordability issues. The Fed’s tightening stance may induce more volatility. Despite potential near-term breaks for buyers from seasonal patterns, first-timers especially confront stiff hurdles. Careful tracking of economic indicators and how they interact with interest rates is vital in this unstable environment.

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Written by Kevin Hecht. Kevin has been a real estate appraiser since 1987, and currently holds a Certified Residential appraiser license in Missouri. As a McKissock Learning instructor, Kevin specializes in market analysis, USPAP, and real estate economics. In addition to being an appraiser, Kevin is an Adjunct Professor of Economics at Maryville University.