December 02, 2024 – News on the economy and the housing market last week were mostly positive and encouraging. Black Friday kicked off the holiday shopping season and consumers were able to deliver. Retail sales on the day after Thanksgiving increased 3.4% year-over-year and more money is expected to be spent on Cyber Monday. Consumers feeling more confident about the economy and their financial well-being was one reason for the holiday spending spree. The Consumer Confidence index which measures the level of optimism, indeed, increased for the second straight month in November. There was also good news in the housing market, as conforming loan limits were raised for 2025 and mortgage rates continued to recover after reaching their recent peak in early November. And while it was disappointing to see new home sales dropping to the lowest level in October, a separate housing market index released recently suggests that an improvement in buyers’ traffic and future sales were observed in November.

FHFA increases conforming loan limits for 2025: The Federal Housing Financing Agency (FHFA) raised the conforming loan limits for conventional loans for 2025. To keep up with higher home prices, the maximum baseline for one-unit properties will increase 5.2% from $766,550 in 2024 to $806,500 in 2025. For high-cost states like California and New York, higher loan limits will also be adjusted with the new ceiling being raised to $1,209,750 next year from $1,149,825 this year. The conforming loan limit determines the maximum size of a mortgage that Fannie Mae and Freddie Mac can buy or “guarantee.” As conforming loans typically have lower interest rates than non-conforming loans, the increase in the limits next year should benefit many California homebuyers, especially since home prices are expected to grow modestly in the upcoming year.

Black Friday spending up from last year’s level: The holiday shopping season officially started last week, with the U.S. retail sales climbing 3.4% year-over-year on Black Friday, according to Mastercard Spending Pulse. Sales at brick-and -mortar stores were somewhat muted with a growth of 0.7% from last year, while e-commerce sales had a much more robust jump of 14.6% from 2024. Data from Adobe Analytics indicates that U.S. shoppers spent $10.8 billion online on Black Friday, which is more than doubled what consumers spent online on Black Friday in 2017. A boost in consumer confidence in recent months and a shorter holiday season this year are the likely contributing factors to the growth in Black Friday spending. Shoppers are more willing to finance their purchases in 2024, with 8.8% more consumers using the “Buy Now, Pay Later” option this year than last year. Americans will continue shopping on Cyber Monday, and spending in stores and online from November 1 through December 24 is projected to be up 3.2% year-over-year.

Mortgage rates remain near the lowest in a month: Interest rates continued to recover in the past two weeks after reaching a 4-month high in early November. As of December 2nd, the average 30-year fixed rate mortgage (FRM) reported by Mortgage News Daily was at 6.91%, a tad higher than the day before but remained close to the one-month low recorded last week. Mortgage rates have been fluctuating since after the election but began to calm down after President-elect Donal Trump picked Scott Bessent as his Treasury secretary. In response to lower rates, purchase activity shot up in the week ending November 22, with the purchase application index rising 12% from the prior week. On a year-over-year basis, the index was up 52% from the same week in 2023. While the index was at the highest since February, it was still low by historical standards. Refinancing activity continued to be slow, with its index dropping 3% from the prior week, but was 119% higher than last year’s level.

Consumer confidence reaches the highest level since July 2023: Consumer confidence rose for the second straight month and climbed to a 16-month high in November, according to the Conference Board. The increase in optimism was driven largely by consumers’ improved outlook of the labor market, as well as their expectations for lower inflation and higher stock prices over the next year. The confidence index could also have been lifted up by post-election euphoria and could inch up further in coming months if it follows the historical trend. In the Trump’s first election in 2016, U.S. consumer confidence increased an average of 4.8 points per month from October 2016 to March 2017. With more consumers expecting a better business condition outlook and an improved family’s financial situation over the next six months, the index could continue its upward trend in the near term. Recession expectations over the next 12 months also receded to the lowest since the question was first asked in July 2022, but the share of consumers who planned to purchase a home over the next six months remained stagnant. 

New home sales dip to the lowest level since late 2022: Sales of new single-family homes declined 17.3% on a month-to-month basis and registered a seasonally adjusted annual rate of 610k in October, the lowest level since November 2022. New home sales were well below the consensus expectations of 725k units and dropped 9.4% from the same month of last year. A sizable pull-back in sales activity in the South region suggests that hurricanes were the main reason for the plunge in the overall new home sales in October. However, the spike in mortgage rates between mid-September and early November might also have contributed to the sharp decline, as the average 30-year FRM jumped almost 100 bps during that time frame. With rates beginning to moderate in November, sales could bounce back in coming back, as the latest NAHB housing market index suggests an improvement in buyer traffic and current/future sales in November. Meanwhile, new housing inventory soared to 9.5 months, the highest level in two years. New for-sale units remained elevated and climbed 8.8% from last year to 481k.

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