One thing moving markets

… is the notable decline in home improvement projects – which often correlates with the state of U.S. homeowners and the broader housing market.

Higher housing turnover can lead to larger-scale home projects, as incoming homeowners fix up and remodel their newly purchased houses. Existing home sales have steeply decline since the start of 2022, falling from nearly 6.5 million to just 4.14 million in April.¹ During the same time period, home-improvement spending slumped 19%, from an average of $628 April 2022 to $510 in April 2024, according to Empower Personal Dashboard^TM data.

Homing in on earnings insights

Major U.S. home-improvement companies have underscored how the current housing market is weighing on home improvement spending. In May, Home Depot and Lowe’s leaders reported seeing do-it-yourself customers deferring large-scale discretionary projects like bath and kitchen remodels. Company leaders believe the slowdown doesn’t stem from an inability to spend, but rather a disinclination to act on home remodeling plans in the current interest rate and housing environment.²

Building blocks of the macro trend

The housing market is in a unique predicament. Both prices and interest rates — so, by extension, mortgage rates — remain high, pricing out prospective buyers.

But these factors are also discouraging sellers from entering the market: Homeowners who locked in low-rate mortgages amid and prior to the pandemic are now opting to stay put rather than list their homes and re-enter the market, as that would likely mean taking on a new higher-rate mortgage. This has kept inventory levels low and led to what some call a housing freeze.

While sales figures remain relatively muted, they bottomed in October of last year, suggesting the worst of the freeze may be behind us. The latest existing home sales data showed total housing inventory increased in April to 1.21 million units.³ Although that is still only about three and a half months of supply at the current sale pace, any increase is a positive sign.

Housing and the economy

When consumers buy new homes or pay for large housing projects, it can drive demand for goods and household appliances, and create more jobs, be it producing those extra goods or working on housing projects like remodels. For these reasons, the housing market is a key pillar of the economy on which many other sectors depend, meaning a housing freeze like the one in recent years can be a notable drag on demand for related goods and services.

However, data indicates the housing market may be poised for a turnaround: Despite a slew of hotter-than-expected inflation data, the Federal Reserve has signaled it could still cut interest rates sometime this year. This has led to mortgage rates steadily declining every week since late April, with the average 30-year fixed-rate mortgage now sitting just below 7%.⁴ Once the first cut is initiated, the housing freeze may start to thaw, encouraging sellers to take the plunge and reigniting the market, including all its surrounding sectors.

And a few top headlines

The average down payment on a home in the first quarter of 2024 was 13.6%, while the median dollar value was $26,000.⁵

• A 20% down payment is typically considered standard, but it’s not a requirement. However, a larger down payment will reduce your monthly mortgage payment. When buying a home, be sure to consider your PITI costs.

18% of credit card borrowers used at least 90% of their available credit in the first quarter of 2024.⁶

• High credit utilization rates suggest that some borrowers may be maxed out on spending.

The New York Stock Exchange is contemplating a transition to 24/7 trading.⁷

• This would open up trading after work, over the weekend, and on holidays, enabling more flexibility for traders. It would also remove periods of respite from ever-changing asset prices.

Although overall inflation remained elevated last month, many sectors experienced deflation.⁸

• Instead of disinflation, when the pace at which prices increase slows, prices for some physical goods are actually decreasing due to reduced demand and resolved supply-chain issues. In April, used car prices fell by 1.4%, furniture prices by 0.5%, appliance prices by 0.9%, and television prices by 1.5%. This will provide much-needed relief for consumers. However, many economists consider disinflation preferable to deflation, as the latter may signal a weakening economy.

What to be on the lookout for next week

The second estimate of first-quarter GDP will be released May 30. The following day, we’ll receive more consumer-focused data with the Personal Consumption Expenditures (PCE) index for April.

The initial estimate for Q1 GDP was 1.6%, a notable decline from the previous quarter’s 3.4%.⁹ This suggests the economy may be cooling, but a sizable revision could change that perspective.

Core PCE is also a key economic report, as the Federal Reserve’s preferred inflation metric. Meanwhile, the most recent Consumer Price Index data for April came in below expectations, helping suggest that inflation’s first quarter resurgence may be behind us. This has contributed to rebuilding investor confidence that inflation is resuming its trend toward 2%, and that rate cuts by the central bank may be back on the table.