Housing Data Gets Litty Titty

This was a week that required me to physically put my phone down twice. 

Once on Wednesday when I read that Congress had just passed the largest housing affordability bill in a generation - the kind of legislation that takes thirty years to get through - and Trump cancelled the signing ceremony to use it as leverage for a voter ID bill. 

And then yesterday when PCE data crossed my screen showing inflation at 4.1% annually - the highest reading since April 2023 - right alongside oil prices sitting at $73 a barrel, nearly 35% below their wartime peak. 

Good news wrapped in bad news wrapped in good news again. 

That is this week in a little gift. 

The Housing Bill - and the Rug Pull Nobody Saw Coming 

Congress passed the largest housing affordability bill in a generation this week with overwhelming bipartisan support. The bill was designed to address the housing supply crisis that has been building for thirty years - grants and forgivable loans for home repair, easier conversion of vacant office buildings into apartments, and a suite of other provisions aimed at the 4 million unit shortage that has been strangling American buyers for years. 

Trump was scheduled to sign it Wednesday. Then he cancelled the ceremony, saying Congress must first pass a strict voter ID bill in exchange. 

I am going to resist the urge to editorialize here because we don’t need his signature – Congress has the votes to make this bill veto-proof. What I can tell you is this: the bill does not address labor shortages or provide funding for lower-cost single-family construction - so even in its best form, its impact is limited and long-term. The housing shortage is a decades-long structural problem that will take a lot of work and time to fix. 

What the cancellation does signal is that housing - even when it has rare bipartisan momentum - is still subject to being used as a bargaining chip for unrelated political priorities. All in all, buyers need to understand there is no cavalry coming to the rescue when it comes to affordability.  You have to focus on your personal finances and your own economic reality. 

PCE: The Peak? 

Thursday’s PCE report showed the Fed's preferred inflation gauge rising 4.1% annually in May - the highest since April 2023 and the first above-4% reading in three years. Core PCE, which strips out food and energy, came in at 3.4% - slightly above the 3.3% forecast. 

That is an uncomfortable number on its face. But let’s dive deeper. 

Economists widely expect May to mark the peak of this inflation surge. Oil prices have fallen to $73.40 a barrel - down more than 35% from their wartime high of $114. The energy shock that drove this inflation spike is already unwinding. The problem is that it takes time to show up in the data. What we are reading today reflects May. The oil price drop happened in June. Which means the next PCE report -dropping July 30th - is the one to watch. 

There was actually a lot of good news buried in today's report that got overshadowed by the headline number. Personal spending rose 0.7%. Personal income rose 0.7%. GDP was revised up to 2.1% from a prior estimate of 1.6%. Jobless claims fell to 215,000 - well below expectations. The consumer is still spending and still employed.  That explains a lot of the activity we are seeing in housing markets across the country, which I’ll get to in just a second. 

The Fed's preferred measure reinforced what Warsh said last week - price stability is the mission. The FOMC's post-meeting statement committed unequivocally to deliver price stability even if that requires rate hikes. Traders now have September circled as the most likely date for the first rate hike. 

In terms of data, this was tough news for anyone hoping for rate relief. But the underlying trajectory and how the bond market performed this week was the opposite. With oil falling, energy prices coming down, the war's inflationary impact beginning to reverse – July could be a real turning point for interest rates. 

I’m personally hopeful. 

The Market That Moved Anyway 

In the middle of all of this – housing data was off the hook this week. Litty Titty even. 

Pending home sales rose 4.8% year over year in May. Mortgage applications surged 10.8% week over week - the largest gain since February. Home sales hit a 5-month high in May, rising 3.2% to 4.17 million annualized. First-time buyers made up 35% of purchases.

Available inventory of single-family homes is back to the pre-pandemic range with 826,000 homes unsold on the market as of mid-June.  Let me connect these dots for you because I think this is the most important thing I can say this week. 

The Fed is signaling hikes. PCE printed above 4%. The housing bill got cancelled. And buyers are showing up anyway?! 

Maybe’s it’s not as irrational as it all seems though.  Remember what Rocket Mortgage said last week? Buyers are responding to their own economic reality. Personal income is up 0.7% this month. Spending is up. Unemployment claims are falling. Maybe the labor market isn’t breaking inspite of the AI layoffs? And the people who have been waiting for a political or economic all-clear to buy a home are watching buyers with jobs and income and gumption move into their houses. 

The Confidence Tax is lifting if you ask me. Not because the macro situation is easy. Because some people decided to stop letting the headlines decide for them.