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Smoke on Cars

Auto Market Weekly Summary


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Article Highlights

  1. Existing home sales have bottomed out, but inventory remains low.
  2. Tax refund season is off to a slow start.
  3. The Fed takes its time cutting interest rates, which are now higher in 2024.

Existing home sales increased modestly in January, as the bottom in home sales was likely in 2023. However, the existing home supply remains only half of what is considered normal, and home prices still show above-average year-over-year increases.

Jobless claims so far this year are not showing any substantial change in trend, reflecting limited stress in the labor market.

Tax refund season is a major driver of used-vehicle demand and a major reason consumer spending is typically strong in the second quarter. So far, tax refunds are seven processing days behind last year. While 25% fewer refunds have been issued compared to last year, the average refund at $3,207 is up 2% from a year ago.

The Fed remains patient on cutting rate policy, and their rhetoric has forced financial markets to adjust rate cut expectations to match their projections. Rates have moved higher in 2024 and sit near 23-year highs.

Existing Home Sales Have Bottomed Out, but Inventory Remains Low

Existing home sales increased modestly in January, and December’s 13-year low was revised up slightly.

The existing home sales seasonally adjusted annual rate (SAAR) increased 3.1% to 4 million from an upwardly revised 3.88 million in December. At the January rate, existing home sales were down 1.7% from a year ago.

Sales were up for the month in all regions except the Northeast, where sales were flat. The West region saw the strongest monthly sales increase at 4.3% and was the only region to have sales up from a year ago. Inventory increased 2% to 1,010,000 units, up 3.1% from last year.

Inventory is moving relatively quickly, with the typical time on the market of 36 days. January’s time on the market was up from 29 days in December and 33 days in January last year. The months’ supply of homes for sale declined to 3.0, about half of what is considered normal. The median sales price declined to $379,100, up 5.1% from a year ago.

Labor Market Remains Stress-Free

Seasonally adjusted initial jobless claims declined by 12,000 to 201,000 for the week ending February 17. That was 13,000 less than we saw in 2020 before the pandemic began. Non-seasonally adjusted initial claims declined by 26,000 and were 47,000 lower than before the pandemic.

Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, declined by 27,000 from the previous week, moving the total down to 1.86 million as of February 10. That level of continuing claims was 25,000 less than before the pandemic.

The latest data show that the broadest measure of continuing claims increased by 11,000 to 2.17 million, which lags the traditional number and is not seasonally adjusted. That total measure is up 23,000 over the last four weeks and is 68,000 higher than the pre-pandemic level.

The labor market is not as strong as it was a year ago, and new claims are sticking longer, but stress remains limited and does not appear to be getting worse so far this year. However, leading indicators of weakness, including WARN notices of layoffs and hiring intention survey data, suggest that labor data will trend worse in the coming weeks.

Tax Refund Season is Off to a Slow Start

Tax refund season is underway and already running seven processing days behind last year. Through February 16, 25% fewer refunds have been issued, but at 20% of likely refunds, the season has just started. $67 billion had been issued as of February 16, down 23% from a year ago.

The average refund is now $3,207, up 2% from a year ago.

The Fed Takes its Time on Cutting Interest Rates, Now Higher in 2024

With the release of the minutes from the January Fed meeting and through multiple speeches by Fed officials last week, the Fed has reiterated that they are in no hurry to cut rates but expect to start cutting later this year. They expect to cut when enough data reflect that inflation is moving toward their 2% target.

As long as economic and labor market data show that the economy is remaining resilient, they are choosing to wait on official decisions. Their communications have already forced financial markets to adjust rate cut expectations that align with their expectations, which is for three cuts in the second half of the year and not the seven cuts financial markets were anticipating at the start of the year.

As a result, bond yields and rates for consumers have moved higher and sit near 23-year highs. The 10-year U.S. Treasury has increased 34 basis points (BPs) so far in February to 4.25% and is up 37 BPs in 2024. The 10-year peaked at 5.02% in late October.

The average mortgage rate has increased 33 BPs so far in February to 7.08%, which was up 26 BPs from a year ago. The average mortgage rate peaked at 8.03% in mid-October.

The average new auto loan interest rate has declined 1 BP to 9.68% so far in February, leaving it up 99 BPs from last year. The average new rate peaked at 9.95% in mid-October. The average used auto loan rate has increased 19 BPs to 14.35% so far in February, leaving it up 61 BPs from a year ago and back to the peak last seen in mid-November.

Jonathan Smoke
Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.

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