Wednesday Wire on Friday – w/ Drew
It has been a crazy week here at Better Homes and Gardens Real Estate Journey, hence the “Friday.” But don’t worry, we didn’t forget about you! Last week we were on a downturn in interest rates as multiple Economic Reports released showing a continuous but slow drop in inflation. Shortly after bonds begin to sell off as there was a spike in volatility which pushed interest rates sharply in the opposite direction. A 10-day slow decrease in interest rates quickly subsided to a 5-day rapid increase bringing rates back into the upper 6’s showing us that volatility still has the ability to rear its ugly head and turn things upside down. This brought rates to their highest point since March.
The selling spree today continued which kept rates at their high point despite an attempted rally yesterday. By close of day, bonds had settled down. This spike in volatility has been a trend over the last 10 plus months as we edge closer to the upcoming FED meeting with the looming question of will they hike rates again?
The answer to that is heavily debated amongst many economists, I for one feel very certain that the unfortunate answer is – YES. With the persistently slow decrease in inflation, the calming of the short but impactful financial sector crises, and the still looming risk of long-term sustained inflation, it is safe to assume that the FED will unfortunately come in with yet another 25-bps hike. The FED is well aware of the fact that they blatantly missed their opportunity to take an early stance against inflation in mid-2021 (believing it to be just a transitionary phase that would correct itself), fast forward to 2023 and they seemed bound and determined to correct that mistake even if the result is an over correction.
On the opposite side of the coin, the housing market continues to thrive, especially here! On a national level there has been an increase in Single-Family housing production according to the NAHB (National Association Home Builders), overall starts were down in early March but saw a 2.7% increase coming into April. This increase is attributed to a low level of available pre-existing homes on the market vs the surge in buyers. This lack of existing inventory continues to support builder sentiment, with current data from NAHB showing almost 33% of housing inventory is new construction where historically it has been closer to 10%. I can’t help but quote Field of Dreams, “If you build it, they will come.”
Current NAR (National Association of Realtors) Economists along with many other Economists in the Financial Sector still predict a fall of interest rates to below 6% by the end of 2023. While this is supported by some recent data that showed a deceleration in rent, I still am forecasting that the FED will hold their ground through the end of 2023 with rates tipping below 6% in early 2024. Remember that it was only last summer when inflation reached 9%, falling only a short way to 8% in the fall. While we may have a way to go, the strides being made to get us there are quite evident.
Contributor: Drew Waack
NMLS #: 1573539