513 viewsGregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today we have good news on the economy and new homes sales, paired with a not-so-great report on pending home sales. And as a bonus, we celebrate a special day in baseball history. Yep, I'm talking about Bobby Bonilla Day!
Economic Growth Stronger in 1Q23 than Initially Thought
The Commerce Department released its revised data on first quarter GDP, which put economic growth at a 2% annualized pace. This was much higher than both the previous estimate of 1.3%, and the 1.4% figure economists were expecting. Higher consumer spending and exports were the main reasons for the large upward revision to growth in 1Q23.
I know you’re wondering if this good news will make economists—myself included—change their minds about a looming recession. My answer is maybe. Here’s the GDP figures for the past three quarters:
3Q22 - +3.2%
4Q22 - +2.6%
1Q23 - +2.0%
While growth has slowed over the past six months, this isn’t the data you’d expect right before a recession. So, I am less confident that we’ll see a recession this year, but you can’t yet rule it out completely. In the next two and a half weeks, we will have the June data for employment, inflation, and retail sales. That will give us a clearer picture of what’s to come in the second half of 2023, so stay tuned.
Two More Bits of Good News
1. Consumer confidence rose in June to its highest level since January 2022.
2. Weekly jobless claims fell by the largest amount in 20 months.
Enough said, let’s get to housing.
New Home Sales Surged in May, While Pending Homes Sales Fell
Last week, I mentioned why homebuilders should be optimistic about the future, mainly because of how few existing homes there are for sale. This week we received two reports that back that up.
Sales of new homes jumped 12.2% last month, to their highest level since February 2022. Sales are counted when contracts are signed, so this data is a good gauge of the current market for new homes.
Pending home sales—which are based on signed contracts to buy existing homes—fell 2.7% in May.
So why are many buyers picking new homes over existing ones these days? The answer is inventory. In May, there was a 6.7-month supply of new homes for sale, compared to just 3.0 months of existing inventory. The lack of existing homes has been driving buyers toward new homes since the end of 2022, and I would expect that trend to continue until we get a lot more existing homes on the market. But as many of you know, potential sellers continue to be hesitant to trade up, as it would mean a big jump in their mortgage rate.
Happy Bobby Bonilla Day
July 1 is a day all us Yankees fans look forward to, because each July 1st through 2035, the Mets have to pay Bobby Bonilla $1,193,248.20. Ha!
How did this happen, and what does this have to do with economics or finance?
In 2000, the Mets bought out the remaining $5.9 million of Bonilla’s contract, but instead of just giving him that money, they agreed to make 25 annual payments of almost $1.2 million.
Why would the Mets do this?
Because they’re the Mets. Ha…
The real answer to that question is where the finance part comes in. As you may know, Mets ownership was heavily invested with Bernie Madoff, who was promising them "amazin’"—get the reference?—returns on their investments. So, they figured, why pay now when they’ll have truckloads of money later. Furthermore, they already had made a similar arrangement to pay Brett Saberhagen $250,000 a year for 25 years.
Current Mets owner Steve Cohen has laughed off these payments, even hinting at creating a Bobby Bonilla Day each year. But with a current payroll of around $350 million for a team with a losing record, he might not be in the mood this year.
