New Home Sales Hampered By Q3 GDP: Does This Indicate The Fed's Plan Is Working?

As the U.S. economy’s real gross domestic product rebounded by 2.6% (seasonally adjusted annual rate) in the third quarter, consumer spending was moderately unchanged as the personal consumption expenditures (PCE) index increased by 0.6% to $113 billion in September. 

This is positive news for the U.S. economy after reporting a weaker-than-expected first half of the year for gross domestic product (GDP), as the second quarter's real GDP was a decrease by 0.6%.

What Happened: Internet-based real estate firm Zillow Group Z, reported that residential fixed investments decreased by 26.4% in September, since new single-family construction and brokers’ commissions fell.

Residential fixed investments track the purchases of private residential structures, new construction, improvements to housing units and brokers’ commissions on the sale of residential property and residential equipment.

This was its third consecutive decline this year as residential investments fell by 18% in the second quarter, which represents the housing market's reaction to the Federal Reserve's interest rate hikes.

Since the Fed’s fund rate has been raised to a range of between 3% to 3.25% since March, the housing market has mirrored these increases as online mortgage lender Rocket Companies Inc RKT has an average 30-year fixed interest rate of 7.125%, as of Oct. 28.

Additionally, new housing starts were 7.7% lower and new home sales declined by 17.6% in September. The moderation in consumer spending and slowing in the housing market signaled the Fed’s hawkish policy stance is cooling down the U.S. economy, reported by Zillow’s Orphe Divounguy.

Meanwhile, hampered residential investments and the slowing of new construction can be warning indicators the economy is headed for a downturn.

Also Read: Benzinga's Complete Guide To Real Estate Investing 

The Last Word: Greenlight Capital Re, Ltd. GLRE generates its revenue from premiums collected on reinsurance policies for property and casualty business assumed, and through investments.

For the first nine months of 2022, the reinsurer saw returns of 17.7% compared to the S&P 500 index, which decreased by 23.9%.

Although new construction and new home builds are starting to decline, many new homebuyers are still left in the twilight zone, deciding if they should rent instead.

One of the fund's top winners happens to be a homebuilding and land development company Green Brick Partners Inc GRBK, which is up more than 12% in the past six months.

As the demand for shelter outweighs the amount of supply in America, the demand for rental units could continue to surge as the down payment for mortgages becomes increasingly more expensive. This could result in more land development, especially in states like Texas, where Green Brick generates a majority of its building operations revenue.

Photo: terng99 via Shutterstock