New Home Sales Hampered by Q3 GDP: Does This Indicate the Fed’s Plan is Working? – Green Brick Partners (NYSE: GRBK), Greenlight Capital Re (NASDAQ: GLRE)

While the U.S. economy’s real gross domestic product rebounded 2.6% (seasonally-adjusted annual rate) in the third quarter, consumer spending remained relatively unchanged, the Personal Consumption Expenditure Index (PCE ) rising 0.6% to $113 billion in September.

This is good news for the US economy after reporting a weaker than expected first half for gross domestic product (GDP), with second quarter real GDP shrinking 0.6%.

What happened: Real estate agency on the Internet Zillow Group Zreports that residential fixed investment fell 26.4% in September, as new single-family construction and brokerage commissions fell.

Residential capital tracks purchases of private residential structures, new construction, home improvements, and brokers’ commissions on the sale of residential properties and residential amenities.

It was its third consecutive decline this year, as residential investment fell 18% in the second quarter, reflecting the housing market’s reaction to the Federal Reserve’s interest rate hikes.

Since the Fed funds rate has been raised to a range between 3% and 3.25% since March, the housing market has mirrored those increases as the online mortgage lender Rocket Companies Inc. RKT has a 30-year average fixed interest rate of 7.125%, as of October 28.

In addition, new housing starts fell 7.7% and new home sales fell 17.6% in September. Moderating consumer spending and a slowing housing market have signaled that the Fed’s hawkish policy is cooling the US economy, according to Zillow’s Orphe Divounguy.

Meanwhile, hampered residential investment and slowing new construction may be warning indicators that the economy is headed for a slowdown.

Also Read: Benzinga’s Complete Guide to Real Estate Investing

The last word: Greenlight Capital Re, Ltd. GLRE generates its income from premiums collected on reinsurance policies for P&C business assumed, and through investments.

For the first nine months of 2022, the reinsurer posted returns of 17.7% against the S&P 500 index, which fell 23.9%.

Although new construction and new home construction are beginning to decline, many new home buyers are still left in the twilight zone, deciding whether they should rent instead.

One of the fund’s biggest winners is a homebuilding and land development company Green Brick Partners Inc. GRBKwhich has increased by more than 12% in the last six months.

As the demand for housing exceeds the amount of supply in America, the demand for rental housing could continue to rise as the down payment for mortgages becomes more and more expensive. This could lead to more land development, especially in states like Texas, where Green Brick generates the majority of its revenue from building operations.

Photo: terng99 via Shutterstock

Sallie R. Loera