Economic Insights Report — May 2023
Today we’re bringing you the latest Economic Insights by Dr. Marci Rossell, chief economic for Leading Real Estate Companies of the World. This interview features Miami Real Estate Podcast correspondent Jessica Edgerton together Dr. Rossell delivering her top 5 economic insights from June., including:
Inflation and Federal Response
While the Federal Reserve paused rate hikes in May, it signaled that more increases may be necessary to bring inflation down from its current 4+% rate to the target 2%. Dr. Rossell notes that, as the Fed’s heavy hike campaign of the past 15 months is now having a palpable effect, additional bumps might very well not be carried out, despite the Fed’s current signaling.
Debt Limit Deal
Following several months of cross-aisle strife, on May 31 Congress reached an agreement to suspend the US borrowing limit until 2025. While the deal itself averted a global economic crisis, the underlying package, says Dr. Rossell, contained only one point of notable economic import: The impending reinstatement of student loan payments. Dr. Rossell applauded this measure as a compelling additional step to combat inflation, as consumer demand will be curbed as borrowers refocus their earnings on debt repayment in the second half of the year.
Mortgage Rates and Inventory
Housing inventory was down 6.1% year-over-year in May, according to NAR research. While demand conditions will loosen as an estimated 500K in new rental units come online in the second half of the year, existing-home turnover is likely to remain sluggish until the current 7+% mortgage rates begin to ease. Dr. Rossell reiterates that the current slowdown is temporary, and that while many prospective consumers are currently in “wait-it-out” mode, housing requirements and ongoing market normalization will help kick activity back into gear in the coming months.
Housing Bubble Chatter
Dr. Rossell assures us that any “bubble” chatter is just that: chatter. “Bubble” conditions require a loose credit ecosystem exacerbated by oversupply. Neither of these factors is present in the current environment. Given tight inventory, limited new inventory coming online, and healthily low leverage rates among homeowners, a housing bubble is extremely unlikely.
Recession Outlook
A recession, by definition, requires declining economic activity. While certain sectors (residential and commercial real estate, venture capital, and tech) do currently meet the definition of recessionary conditions, the overall U.S. economy, 60% of which is driven by consumer spending, does not. While the reinstatement of student loan repayments may kick us a notch closer, Dr. Rossell notes that two of the primary indicators for impending recession, high unemployment and weak consumer spending, are simply not present. While initial unemployment claims are up by approximately 40K year-over-year, coming in at 260K claims per week as of mid-June, this is a far cry from the typical recessionary rate of 600K weekly claims. Per Dr. Rossell, if the Feds can raise rates by more than 5 percentage points and avoid a recession, it will have pulled off “the heist of the century” – but such a heist, as of today’s indicators, is not out of the realm of possibility.
Host: Omar De Windt
Guest: Dr. Marci Rossell
Producers: Omar De Windt; Veronica Aizpurua
Art: Alberto Arevalo
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