The Breakdown:

The second estimate of second-quarter GDP surprisingly came in lower than the expected -0.9% decline at -0.6%. As of now, we have two consecutive quarters of negative GDP but it is important to note that the second-quarter GDP may be revised once again when the final reading is reported on September 29.

Whatever word games are being played to avoid the reality of our economic situation, know that two consecutive quarters of negative GDP became the Wall Street rule-of-thumb for marking a recession because we have never seen two successive quarterly declines without the National Bureau of Economic Research (NBER) officially announcing one. We'll have to wait and see what needs to happen before the NBER announces a recession. It's possible that they are waiting to see some increases in the unemployment rate before doing so.

In housing news, we saw a decrease in both Pending Home Sales and New Home Sales. Pending Home Sales measures housing contract activity based on signed contracts for existing single-family homes, condos, and co-ops, and it fell by 1% from June to July. New Home Sales, a measurement of contracts on new homes, fell by 12.6% from June to July.

When looking at the Pending and New Home Sales data, there are a couple of important points to keep in consideration:

Given the average amount of time buyers spend finding the right home, July’s data is likely a reflection of buyers who were house hunting in June when rates peaked earlier this year.

Lawrence Yun, the chief economist for the National Association of Realtors, said that “Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023.” Lower appreciation is very different from home price declines and is still very beneficial for wealth creation. For example, if someone bought a $400,000 home and put 10% down, 5% appreciation means they would gain $20,000 in appreciation over the next year and earn a 50% return on their investment due to leverage.

There is no doubt that higher interest rates have impacted demand for homes, but low inventory continues to be a factor as well. And while we are clearly seeing an activity recession in housing, low inventory should continue to be supportive of home prices.

Looking ahead, we'll be bringing you some housing and labor sector news next week, after we received the data on home price appreciation data for June from the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index. In addition, we'll take a look at the Bureau of Labor Statistics Jobs Report for August, which includes Non-farm Payrolls and the Unemployment Rate.

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