Welcome to our new blog series, 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 series will help you navigate the ever-evolving economic environment so you can make well-informed decisions to support your business and career success. Each month, we aim to offer comprehensive coverage of crucial economic trends, policies, and data releases, keeping you informed on the latest developments and their impact on various sectors. Uncover this month’s economic trends and insights—written from an appraiser’s standpoint—in the following economic recap for March 2023.
Economic recap March 2023
Following recent bank failures, several questioned whether the Federal Open Market Committee (FOMC) would maintain its firm stance on interest rate hikes. During the 21–22 March meeting, the Federal Open Market Committee (FOMC) raised interest rates by a quarter percent for the ninth time since March 2022, bringing the federal funds rate target range to 4.75%–5%. Last week, Fed members acknowledged that, while they remain committed to bringing inflation under control, it is too early to assess the extent of the consequences of the recent banking turbulence. More information will be required before they can make their next decision, but the Fed has indicated that there will be at least one more rate hike before the end of the year.
The U.S. unemployment rate increased slightly to 3.6% in February 2023 from a 50-year low of 3.4% in January, exceeding market expectations. Unemployment climbed by 242,000 to 5.94 million, while employment increased by 177,000 to 160.32 million. The overall unemployment rate, which includes discouraged job seekers and underemployed part-time workers, rose to 6.8% in February, up from 6.6% in January. The labor force participation rate increased slightly to 62.5%, its highest level since March 2020. (Source: United States Department of Labor Statistics)
While there is a lot of positive talk about the employment situation, some clouds are on the horizon. Continued layoffs and longer job search times may indicate weakness in the job market. This factor is something that will need to be watched moving forward.
According to a Freddie Mac study, the average 30-year fixed mortgage rate was 6.42% on March 23, 2023, down from 6.60% the previous week. This was the most significant one-week drop since mid-January. The 15-year fixed-rate mortgage averaged 5.68% this week, down from 5.90% the previous week. “Mortgage rates continued to slide down as financial market concerns came to the fore over the last two weeks,” said Sam Khater, Freddie Mac’s Chief Economist. “However, on the homebuyer front, the news is more positive, with improved purchase demand and stabilizing home prices. If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season.”
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Although overall application traffic remained relatively low, purchase and refinance applications grew for the third consecutive week as borrowers continued to take advantage of the month’s lowest mortgage rates. On a seasonally adjusted basis, the Market Composite Index, which measures home loan application volume, gained 3.0% over the previous week.
U.S. housing starts increased by 9.8% month-over-month in February 2023, reaching a seasonally adjusted annualized rate of 1.45 million, the highest in five months and significantly above market forecasts of 1.31 million. Single-family housing starts increased by 1.1% to 830,000, while multi-unit starts rose by 24.1% to 608,000, the highest since April of the previous year. Starts increased significantly in the Midwest, West, and South but declined in the Northeast. Year-over-year, housing starts were 18.4% lower. (Source: U.S. Census Bureau)
Existing home sales
In February 2023, existing home sales in the United States grew by 14.5% to a seasonally adjusted annual rate of 4.58 million, ending a 12-month drop and marking the highest monthly percentage rise since July 2020. The market was expecting a more modest 5% gain. Year over year, the median existing-home sales price fell 0.2% to $363,000. At the end of February, the inventory of unsold existing homes remained unchanged from the previous month at 980,000, suggesting a 2.6-month supply at the current monthly sales pace.
New home sales
For the third month in a row, new home sales increased. New home sales increased 1.1% from January to a seasonally adjusted annual rate of 640,000 dwellings in February. While sales increased for the third month in a row, new home sales remained 19.0% lower than the same month last year. Regionally, sales in the Northeast and Midwest fell, while sales in the South and West increased by a single digit. The increase in sales pace in February removed 0.7% of new home inventory, bringing the months of supply down to 8.2 at the current sales pace. Despite mortgage rate volatility and economic uncertainties, builders are cautiously optimistic. The increase in builders’ confidence is most likely due to increased market competition and solid price growth in recent weeks, resulting in more purchasers turning to the new home market. At the same time, supply in the existing housing stock remains limited.
In summary, the March 2023 economic data revealed the Federal Reserve’s ongoing efforts to combat inflation and regulate the labor market, as well as fluctuations in mortgage rates, housing starts, and home sales. Mortgage rates are expected to remain volatile as we enter the spring homebuying season, and supply is still an issue.
Thanks for reading The Full Measure with Kevin Hecht: Economic Recap March 2023. As the economic landscape continues to evolve, we encourage you to stay informed and utilize the valuable economic insights for appraisers provided in this blog series to make well-informed decisions in your business and career.
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.