Rick Seese has 47 years experience working in real estate market, and each month, he shares the latest news and outlook for Lowell-area housing market.
September 2023 Edition
-My Perspective – Still No Landing Gear
-The Latest Area Market Statistics
-Monthly Summary – What Does All This Mean?
My Perspective – Still No Landing Gear
The economic report card for the past month doesn’t offer a clear roadmap for our future with inflation. Instead, it feels like a relentless boxing match between the Federal Reserve (FED) and its stubborn opponent, inflation. So, why should we care about this economic saga? Well, it plays a crucial role in helping us forecast the FED’s upcoming decisions regarding mortgage interest rates and helps them steer us toward a smooth economic landing.
In August, the Consumer Price Index (CPI) climbed to 3.7%, up from July’s 3.2%. The good news is that it remains significantly lower than the pandemic-era peak of 9.1% in June 2022. Nevertheless, it remains above the FED’s target rate of 2%. When economists check the flight paths of the underlying inflation trends, they usually prefer to remove energy and food prices, which tend to be quite volatile from month-to-month.
This adjusted gauge, known as Core CPI, decreased to an annual rate of 4.3% in August, down from 4.7% in July. On a monthly basis, Core CPI inched up, from 0.2% in July to 0.3% in August. The prevailing theory suggests that to return to pre-pandemic inflation levels – a period marked by low and stable inflation – the economy needs consistent monthly core CPI readings of 0.2%.
Additionally, let’s not overlook the Producer Price Index (PPI), which tracks pricing before products hit wholesalers and retailers and eventually become the prices we pay, as consumers. In August, PPI surprised us with a more significant increase than anticipated, hinting at possible higher consumer prices looming in the near future.
Just as we observed in the monthly CPI, both indexes picked up the pace in August compared to July. Both August increases were primarily driven by the uptick in energy prices. Not a shocker, considering the recent rollercoaster ride of oil and gasoline prices.
So, who’s leading this contest? The FED or Inflation? Well, it’s not an easy call, at least not yet. If we scrutinize the most recent reports influencing the FED’s decision-making, the Unemployment Rate at the end of August climbed from 3.5% to 3.8%, signaling a slower economy that should apply the brakes on inflation. Moreover, the end of August brought us more declines in Pending Home Sales on a national scale, followed by a tamer Initial Jobless Claims report in September. However, just last week, the monthly Retail Sales report came in hotter than expected, which indicates that consumers are still opening their wallets. It’s a mixed bag of positives and negatives, injecting uncertainty into the upcoming FED decision on rate increases.
In my book, I still believe we’re in line for at least one more interest rate hike. Inflation seems to be toying with the idea of picking up steam, and the economy doesn’t appear to be putting up much resistance.
Shifting gears to the local real estate scene, Inventory continues to expand, while Pending Sales are on the decline. However, we’re still operating with a considerably lower than normal Months of Supply reading, triggering the continuation of multiple offers, which continue to drive up Average Sale Prices for sellers.
For those intrigued by statistics, take a closer look at the intriguing shifts within our focus area school districts below. You’ll find that some districts are weathering these economic tides quite differently than others.
The Latest Housing Statistics
We are comparing the current 12-Month Rolling Average Sale Prices with the final 2022 Average Sale Prices within our surrounding focus area school districts. All our focus area school districts are currently above 2022 ending prices. The Entire MLS Average Sale Price is up $5,945 (2.0%) over last year and has eclipsed the $300,000 Average Sale Price level for the first time in history. The Lowell School District is up $10,476 (2.7%) over their Average Sale Price from last year.
From last month to this month, all our focus area school districts experienced increases in Average Sale Prices, except Lowell and Lakewood. Our focus area school districts continue to show steady demand. There continues to be less homes sold, but higher sale prices continue to be supported by lack of inventory.
Here are the 12-Month Rolling Average Sale Prices for our Surrounding Townships through August 2023. The Lowell School District takes up a portion of each of these townships, except Vergennes and Lowell, where the entire townships are totally encompassed by the Lowell School District. All the surrounding townships had increases including the Entire MLS, except Vergennes, Boston, and Lowell Townships had Average Sale Price decreases over last month. This chart shows us a bit more of current geographic values, rather than school district values.
Homes Currently for Sale – The Entire MLS Homes Currently for Sale increased by 445 homes from last month. Caledonia, Lowell, Belding, and Lakewood also experienced increases from last month. Forest Hills and Saranac experienced decreases, with Rockford registering the same number as last month.
Months of Supply – Months of Supply refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, five to six months of supply is associated with moderate price appreciation, and a lower level of month’s supply tends to push prices up more rapidly. The “new normal” may be closer to four to five months of supply.
All our focus area school districts experienced increases in Months of Supply from last month, except Forest Hills and Saranac, which edged down slightly. The Entire MLS increased from 1.7 to 1.9 from last month. All our focus areas are now at or above 1.0 Months of Supply for the first time in a couple of years. The movement of additional supply continues to increase as higher interest rates continue to slow demand. However, the total supply is still well below normal.
New Listings – We are beginning to witness fluctuations in New Listings across various areas. Specifically, when comparing to the same period last year, Forest Hills, Caledonia, and Lakewood have seen an uptick in New Listings. Saranac has remained consistent with the number reported in 2022, while Rockford, Lowell, and Belding have recorded fewer New Listings compared to last year. Moreover, looking at the Entire MLS, there has been another decline from August 2022, with the figure dropping from 4,099 to 3,846. Notably, Lowell experienced a substantial decrease in New Listings, going from 45 to 31 Year Over Year.
Remarkably, nearly all the school districts within our focus area have seen an increase in New Listings compared to last month, except for Saranac, which has seen a decrease of 6, and Rockford, which has maintained the same number of New Listings at 66. Lowell has observed a rise in New Listings, with 31 reported this month compared to 25 last month. It’s worth noting that the Entire MLS has seen an increase of over 500 New Listings compared to last month. This could potentially mark the onset of a new trend in inventory increases. We will closely monitor these numbers as we progress further into the fall season.
Pending Sales are sales under contract with an accepted offer, but those transactions have not been finalized yet (closed).
The Entire MLS witnessed another substantial year-over-year decline in Pending Sales during August, as we compare 2022 to 2023 (3,517 to 2,688). Moreover, every school district within our focus area registered decreases when comparing August 2022 to August 2023, except Belding. The comparison from last month also showed a decrease in Pending Sales in Forest Hills, Rockford, Lakewood, and Saranac. However, there were increases in Pending Sales from last month in Caledonia, Lowell, and Belding, along with a slight increase in the Entire MLS.
As we move further into the fall market, our attention remains fixed on this chart.
September 2023 Monthly Summary
What does all this mean?
Local real estate markets have exhibited remarkable resilience during the Federal Reserve’s ongoing interest rate hikes. Most of West Michigan has, without a doubt, proven to be one of the most robust market areas across the entire United States. Nevertheless, as we observe the continued growth in Pending Sales and the initial signs of Inventory expansion, we can’t help but wonder where that critical tipping point might be.
Should the FED opt to wait another month to see whether the uptick in the Consumer Price Index (CPI) was merely a blip, driven by the historically unpredictable energy prices, or should they be more proactive with another rate increase? While there are real estate markets elsewhere in the country facing more adverse conditions, we are starting to detect a downward market effect in many outlying rural areas.
The Federal Reserve doesn’t want a prolonged trend of escalating inflation. At the same time, they certainly don’t want an overly reactive reversal causing a recession due to excessive slowing. History reminds us that consumer spending attitudes can shift in the blink of an eye, making them a challenging variable to predict.
In my view, the FED should lean toward a more cautious “wait and see” approach. The recent uptick in CPI and PPI was relatively minor within the bigger picture, but the increase in the Unemployment Rate raises questions about where the economy is with overall strength and health. Moreover, Pending Sales continue to decline across most real estate markets. Given these factors, the FED may want to tread lightly at this point, demonstrating their commitment to achieving a successful and smooth economic landing.
Rick Seese works with buyers and sellers of residential, commercial, and industrial real estate. He is an Associate Broker with Greenridge Realty, Inc. and has been licensed full-time for over 40 years. If you’re interested in reaching out to Rick for more information, or have a question for the monthly article, you can contact him via email ([email protected]), visit his website at www.rickseese.com or Facebook page or call/text him at 616-437-2576.