Windermere Chief Economist Jeff Tucker looks at how political and financial turmoil is shaping the real estate market.
First number we found this month: $108. That’s the price of a barrel of oil as of May 19, and it’s still significantly higher than the sub-$60 price range before the US launched its war against Iran this year.
In fact, prices have remained almost consistently above $85 per barrel for more than two months, despite some interesting hints of an end to hostilities across the Strait of Hormuz. As long as oil flows are restricted, price pressures will remain elevated.
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Second number we know this month: 3.8 percent. This is a year-on-year change in the consumer price index and represents a sharp acceleration in inflation from February’s 2.4% pace. This reflects rising energy costs that are spilling over into the supply chain, inevitably driving up the prices of consumer goods and services.
What’s more, the producer price index rose 6% year over year, well above consensus expectations and a good indicator of more pain to come for consumers.
10-year Treasuries and over 1 million active listings
Rising inflation also tends to affect bond rates, and this spring was no exception. The yield on the 10-year U.S. Treasury bond, which fell to just under 4% on the eve of the Iran war, is now around 4.6%.
And we know that rising Treasury yields typically mean rising mortgage rates. After some volatility and a false start to the decline last month, mortgage rates rose further in mid-May to near 6.75%, according to Mortgage News Daily. This will dampen demand from homebuyers during the spring buying season, which is in full swing.
When it comes to the housing market, there were just over 1 million active listings at the end of April. That’s about 60,000 more cases than at this time in 2020 and 40,000 more than at this time last year.
The year-over-year growth rate of just under 5% helps the slowing trend in inventory growth continue as the market looks increasingly balanced this year, with neither an oversupply of residential properties building up nor a severe shortage, at least on the national average.
Pending home sales were also about flat compared to this time last year, but we expect May and June to be weaker than this time last year if mortgage rates remain above 6.5%. Again, this means that the forecast depends on whether a lasting peace is established and whether oil begins to be supplied again in the Middle East.
