The Full Measure with Kevin Hecht: Economic Recap May 2023

The Full Measure with Kevin Hecht: Economic Recap May 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 so you can make well-informed decisions to support your business and career success. Uncover this month’s economic trends and insights—written from an appraiser’s standpoint—in the following economic recap for May 2023.

Economic recap May 2023

The current economic landscape is riddled with several critical issues that demand attention. From the ongoing debt ceiling debate to employment trends, inflation concerns, fluctuating interest rates, and the state of the commercial real estate market, it is important to understand the implications of these factors on the overall economy. This blog post highlights key insights and potential impacts.

Debt ceiling debate

The Biden administration has warned of possible default due to the ongoing debt ceiling dispute and a projected $1.5 trillion deficit. While likely to be resolved, the debate brings attention to uncontrolled spending increases and potential entitlement reforms.

Tax revenue will increase slightly, but not enough to offset the expected spending surge. The real issue is the management of future spending, not the immediate debt ceiling. Ultimately, the U.S. must reform entitlement programs or increase taxes. Reduced entitlements could stimulate GDP growth, whereas higher taxes risk suppressing economic activity.


Inflation moderated to 4.9% in April from last June’s 9.1%. Given the underlying inflation rate of 3.5-4% and slowing service sector demand, the Federal Reserve is expected to halt interest rate increases, considering financial stability concerns and the ongoing debt ceiling standoff.

However, the persistently high core inflation rate of 5.5% may still warrant a June rate hike. April’s CPI rose by 0.4% monthly and 4.9% annually, while core inflation, excluding food and gasoline, mirrored this monthly increase but reached 5.5% yearly. The Fed’s key supercore inflation metric increased by 0.2% monthly and 5.1% on a three-month annualized basis.

Housing costs, expected to rise until midyear before tapering off, grew by 0.2% in April, reaching 7.5% on a yearly basis. This, coupled with decreasing goods and services prices, should pull overall CPI towards 3-3.5% by year-end.

Interest rates

According to Freddie Mac, interest rates increased after a two-week decrease, with the average 30-year fixed-rate mortgage rising from 6.35% to 6.39% between May 11 and 18. The first quarter of 2023 saw substantial mortgage rate fluctuations, with the 30-year FRM ranging from a low of 6.09% to a high of 6.73%. These swings stem from the Federal Reserve’s battle against inflation and banking sector uncertainties triggered by Silicon Valley Bank’s collapse. As a potential recession looms, we may have reached the peak of this rate cycle, though rates are known for their volatility.

Mortgage applications

The drop in the number of mortgages suitable for a rate refinance implies that refinance origination volumes will stay low unless rates fall significantly. However, intermittent opportunities for refinancing will arise. Refinance demand for non-rate-related reasons, such as canceling FHA Mortgage Insurance Premiums, will persist. National house prices are expected to keep home purchase originations flat this year. However, a positive turn in home price growth and a slight rise in home sales may trigger modest growth in purchase originations by the second half of the year and beyond.

The Mortgage Bankers Association reported a near 5% drop in mortgage applications last week due to increased rates. The Market Composite Index, measuring overall mortgage loan application volume, fell 4.6% on a seasonally adjusted basis from the previous week. Unadjusted, the decrease was 5%. The Refinance Index dropped by 5% from the previous week and was 44% lower than the same week last year. The seasonally adjusted Purchase Index declined by 4% from the previous week, and unadjusted, it decreased by 5% and was 30% lower than the same week last year.

What’s the best way to survive a slow market as an appraiser? Get tips and insights in this article.

Housing starts

In April, home construction saw a marginal rise as developers grapple with a tough housing market. Both single-family and multi-unit starts bolstered the increase, although prior months were adjusted down. With the 30-year mortgage rate nearing 7%, developers are exercising caution, but it appears that single-family construction has hit a temporary bottom. Despite a 22.3% year-over-year drop in new residential projects, construction activity remains sizable. Many projects were already in progress, with the number of homes under construction approaching record levels dating back to 1970. It wasn’t unexpected to see a 1.5% drop in permits for new projects in April. While housing isn’t projected to contribute to economic growth in the coming year, recent figures don’t suggest a severe housing crash like the 2000s is imminent.

Existing home sales

In April, existing home sales hit a three-month low, falling 3.4% to an annual rate of 4.28 million, a drop of 23.2% from a year ago, due to limited inventory and volatile mortgage rates, according to the National Association of Realtors. However, easing inflation and anticipated slower rent growth suggest a potential rebound. The share of first-time buyers increased to 29%, and the inventory level rose marginally to 1.04 million units. Despite this increase, inventory is low, with a 2.9-month supply, underlining the ongoing need for home construction. The average listing duration was 22 days, with 73% of homes sold within a month. Cash sales represented 28% of transactions; the median sales price was $388,800. All regions reported a sales decrease in April, with the highest decline in the West at 6.1%. The Pending Home Sales Index also fell 5.2% in March, signifying a year-over-year decline of 23.2%.

Commercial real estate

Mounting concerns about the U.S. commercial real estate market’s impact on banks and the broader financial system stem from the 30-year high in office vacancies. Decreasing property values due to low occupancies and increased interest rates coupled with the imminent refinancing of 25% of CRE loans at higher rates, while banks limit lending, exacerbate the situation. Smaller regional and community banks, engaged mainly in real estate financing and facing deposit losses, might pose a significant risk.

However, Moody’s analytics shed light on some important details. In smaller banks, only a third of loans are CRE-based, with less than a third of these for office and retail properties. Moreover, a significant portion of CRE loans is securitized and held by asset managers and insurers, and banks are better capitalized now than in 2008. Hence, while defaults are likely, the exposure is less than in the 2008 subprime lending crisis. Swift regulatory and Federal intervention is anticipated if systemic risk emerges.

In summary, as the economy grapples with various challenges, including the debt ceiling debate, employment fluctuations, inflation concerns, interest rate volatility, and the state of the real estate market, it is crucial to monitor their impacts closely. While resolutions to these issues are anticipated, long-term fiscal sustainability, job market recovery, inflation management, interest rate stability, and the mitigation of risks in the real estate sector should remain priorities. It will be important for real estate professionals to understand these factors to navigate the potential economic shifts.

Thank you for reading The Full Measure with Kevin Hecht: Economic Recap May 2023. As the economic landscape continues to evolve, we encourage you to stay informed and follow this blog series to get valuable economic insights for appraisers designed to help you 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.