The last couple of weeks of December typically exhibit very light trading volume and limited investor reaction to economic news. This year was no exception, and mortgage rates ended a little higher than they were in the middle of the month.
The core PCE price index is the inflation indicator favored by the Fed. In November, core PCE was 4.7% higher than a year ago, up from 4.2% last month and the highest annual rate since 1989. For comparison, readings were below 2.0% during the first three months of the year. Heading into 2022, one of the big questions for investors is how quickly inflation will moderate as pandemic-related disruptions are resolved.
Home sales are on track for their strongest year since 2006. Sales of existing homes in November rose modestly from October to the best level since January. The median existing-home price was 14% higher than last year at this time at $353,900. Inventory levels were down 13% from a year ago, at just a 2.1-month supply nationally, well below the 6-month supply which is considered a healthy balance between buyers and sellers. According to the National Association of Realtors, supply-chain disruptions and labor shortages remained significant obstacles to a faster pace of home construction.
Rising prices and competition from investors have made it more difficult for buyers to find affordable homes, especially at the lower end of the market. First-time buyers made up just 26% of sales in November, down from 32% a year ago and the lowest level since 2014. Cash sales accounted for about 24% of the total, up from 20% last year at this time.
Looking ahead, investors will closely follow news on the omicron variant and will look for additional Fed guidance on the pace for tapering bond purchases and the timing for future rate hikes. Beyond that, the ISM national manufacturing index will be released on January 4 and the ISM national services index on January 6. The monthly Employment report will be released on January 7, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month.
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