The Current State of the Housing Market
The housing market in America is experiencing a decline, with house prices falling for the fourth consecutive month. This trend is expected to continue, with next week’s numbers likely to show a fifth month of decline. Despite a surprising 20% increase in new home sales last month, the number of properties on the market remains historically high, indicating further downward pressure on prices. Homebuilder sentiment is also at an ultra-low level, suggesting a lack of confidence in the market.
The Impact of Mortgage Rates
Mortgage rates, although slightly lower than in previous months, remain over 6%. This is significantly higher than the average rate of 4% for existing homeowners, making it less likely for people to move up the property ladder. The high mortgage rates are contributing to the decline in the housing market, which could have a ripple effect on the overall economy.
The Broader Economic Implications
The decline in the housing market could have a significant impact on the consumer story, which has been driven by wealthier Americans in recent years. The housing market is a crucial component of the economy, and any further cracks in the market could lead to a decline in consumer spending. This, in turn, could have a negative impact on the overall economy.
The Role of the Federal Reserve
The Federal Reserve has cut interest rates once, but there is a strong case for further cuts in October and December. The economy is responding more slowly to rate cuts than it used to, which adds to the urgency for further action. However, there is a risk that if the jobs market cools further, the Federal Reserve may not be able to respond quickly enough to mitigate the effects.
The Jobs Market and Economic Outlook
The jobs market is still a concern, with consumers noticing a deterioration in hiring conditions. While next week’s jobs numbers may show some improvement, the broader jobs market still looks ominous. The Federal Reserve’s decision to cut interest rates will depend on the upcoming jobs numbers and other economic indicators.
Europe’s Economic Outlook
The economic outlook in Europe is also uncertain, with the European Central Bank (ECB) potentially facing further easing. Sweden’s surprise cut in interest rates has raised questions about whether the ECB is really done with rate cuts. The risk of further easing due to a rapid strengthening of the euro or fresh tariff uncertainty is also a concern.
Fiscal Policy and Tariffs
Fiscal policy and tariffs are playing a significant role in driving the economic outlook in Europe. Germany’s stimulus splurge is facing fresh questions, with concerns about austerity and creative accounting. The risk is that the boost to growth over the next year or two may be tempered. The lesson from the Covid pandemic and the subsequent energy price shock in Europe is that fiscal policy and tariffs are generally more decisive in driving the economic outlook than central banks.
Conclusion
In conclusion, the decline in the housing market and the potential for further rate cuts by the Federal Reserve are significant concerns for the economy. While rate cuts may not be the solution to all the problems facing the major economies, they are not pointless. Fiscal policy and tariffs are also crucial in driving the economic outlook, and their impact should not be underestimated. The economic outlook is uncertain, and it is essential to monitor the upcoming economic indicators to determine the best course of action.
