Existing Home Sales Sink Over 18%: What This Means For Gold

With 30-year fixed mortgage rates topping the 7% mark, it’s no surprise the housing market has ground to a halt. Existing home sales plunged 19.3% through the first eleven months of 2023, versus the same period last year, according to the National Association of Realtors.

Slowing home sales hurts more than just buyers and sellers, however. The housing market slowdown has a ripple effect throughout the entire economy, impacting consumer spending and even the labor market. And this, in turn, has positive implications for gold in 2024.

Low Inventory, High Prices, High Mortgage Rates

Wannabe home buyers have seen one of the most challenging housing markets in years, as the Federal Reserve’s interest rate hikes triggered a sharp jump in mortgage rates in 2023.

The Fed rate hikes created a scenario where would-be home sellers decided to stay put and not even put their homes on the market. Many current homeowners refinanced mortgages in recent years and have ultra-low mortgage rates, which they weren’t eager to trade in for a sharply higher mortgage rate if they moved.

So, home buyers across the country face a low inventory of available homes for sale. There were 1.13 million homes on the market by the end of November, the National Association of REALTORS® said. Before the pandemic, there were roughly twice as many homes on the market.

In turn, the low inventory situation pushed home prices higher. The higher home prices, combined with the higher mortgage rates ultimately priced many potential home buyers out of the market in 2023.

Housing’s Impact on the Economy

The housing sector has a surprisingly large impact on the overall U.S. economy and also has implications for the direction of the gold market in 2024.

Consider this: when someone buys a new home, they also typically must furnish that home with new sofas, dining tables, curtains, maybe even new appliances, patio furniture and a snow blower or lawn mower. The spillover impact is larger than you might expect.

During the first year after closing on a house, a typical buyer of a newly built single-family detached home spends, on average, $9,250 more than a similar non-moving homeowner, according to the National Association of Home Builders. A 2021 NAR study estimated that the housing market generated a median of about $113,000 in economic impact per home sale.

What about the job market? Here’s what the Wall Street Journal said on Dec. 19: “Less spending on housing means less need for workers in industries that are closely tied to the real-estate market, including at retailers for furniture and electronics, and at home-improvement stores. Employment is down across those industries this year.”

The bottom line? When home sales plunge, like we saw in the first eleven months of 2023, it’s a drag on the economy and consumer spending.

What Does This Mean for Gold?

The U.S. economy is estimated to slow down in 2024, with some firms even forecasting a mild recession. The Conference Board currently projects an overall gross domestic product (GDP) rate of 0.9% in 2024, down from 2.4% in 2023. However, other firms including bond giant PIMCO, Deutsche Bank, Vanguard, PNC and LPL Financial all expect a mild recession to emerge in the U.S. in 2024.

A slowing economy will open the door to higher gold prices ahead. As the economy slows down or falls into recession in 2024, the Fed will be forced to slash interest rates to remove the tighter monetary conditions. That will open the door for a run to new all-time highs in gold.

Indeed, JP Morgan expects a series of interest rate cuts between the second half 2024 and the first half of 2025 which they say could lift gold to $2,300 an ounce. Bank of America is even more positive on gold: they predict if the Fed slashes interest rates in 2024, that gold could climb to an impressive $2,400 an ounce in the New Year.

Gold set a new all-time high in 2023. Investors can expect new record highs again in 2024. Is your portfolio set up to benefit from the rising trend in gold? If not, explore options like gold coins, fractional coins or gold bullion bars today.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world, and the latest tangible assets news delivered to your inbox weekly.