Inflation

While inflation is likely to remain somewhat elevated through the end of 2023, there are signs that a moderation is already underway and that this cooling will become more prominent over time. Pandemic-related challenges including supply chain bottlenecks have eased, and a surge in bottled up demand (initially for goods and more recently for services, such as travel) should fade. And, if you’ve driven through a car lot lately, you may have noticed that new and used vehicle prices have slowly been declining.

Spending

Household balance sheets still look healthy by historical standards, though a meaningful portion of the excess savings and liquidity built up during 2020-21 has been depleted over the course of 2022. While employment gains and wage growth have helped support spending, it’s also clear consumers have dipped into savings accumulated during the pandemic and have bought more on credit cards. According to J.P. Morgan, “Credit card balances have risen at a quick clip in the last six months and were up 15% year-over-year at the end of the third quarter, the largest rate of increase in more than 20 years.”

Housing

After a couple of red-hot years for the housing market, there are indicators a correction is underway—but it’s been slow-going. According to Forbes, “Mortgage rates are still hovering around double what they were a year ago.” Nationwide home prices are still increasing on a monthly basis despite a decline in total sales. This continues to make it harder for many homebuyers to access affordable housing. Higher housing costs have taken a toll on home shoppers as mortgage applications are at their lowest level in over 25 years, according to the Mortgage Bankers Association (MBA).

At first glance, the rising mortgage rate environment would appear to favor the multifamily market, as deteriorating purchase affordability transforms buyers into renters. However, similarly to home prices, apartment rents have risen at a rate faster than household income growth.

The 2023 housing market could become a “nobody’s market,” not friendly to either buyers or sellers.

Labor

With many pandemic-related distortions now clearly normalizing, the largest remaining imbalance is in the labor market, where demand continues to outpace supply. Payroll growth in recent months remains well above longerterm averages, though it has slowed from the earlier pandemic-recovery pace according to J.P. Morgan. All sectors except for leisure and hospitality have surpassed pre-pandemic employment levels.

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