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Are we partying next week?

We are headed into a big news week for the economy. First, let me recap the last week(s):

· Bank Collapses led to a flood supply of bonds available which drove mortgage rates up.

· The debt ceiling debacle also spooked everyone and had a negative impact on interest rates as the markets watched for what kind of spending would be built into the resolution.

· As usual, lawmakers resolved the issue at the 11th hour and then rates rallied a bit, but again got worried about the spending built into the deal, spending is inflationary.

· We got a wild jobs report showing $339,000 jobs added in May. Economists called this report a nightmare because it gives the Fed free reign to continue their rate hikes – labor market is strong, they can keep being aggressive in their battle against inflation.

What are we watching for next week?

· The Fed will have their two day meeting and everyone is waiting with baited breath. Will they pause their hiking campaign or will they increase the Fed funds rate from 5.25% to 5.5%?

· CPI Report

A couple theories on this…

Inflation is still double the Fed’s target of 2%. Part of the reason for that is a temporary spike in used car sales that’s already settled down and lagging shelter costs, which no one knows better than us in the real estate space – those are no longer rising. However, the reading is the reading and it’s not at their goal yet so they may keep spiking. Especially since the labor market is so “strong.” Check out our previous updates for why the labor market isn’t as strong as it appears. From this viewpoint, it looks like they will hike 25 bps.

Remember this doesn’t mean mortgage rates will jump up a quarter of a point. I actually think the hike will be less market moving than their commentary about whatever their decision. That’s what the markets are going to read between the lines on and react accordingly.

Or, it is possible they pause. I mean they have already done 10 hikes. Those 10 hikes since last year have led to mortgage rates at 7%, credit card rates above 20%, Auto loan rates pushing 7%, Federal student loans at 5.5%...basically, inflation is squeezing the American household into debt right as the cost of debt skyrockets. I read in Forbes that markets are betting that the chance of rate hike is only 1 in 5.

Then we are also looking at the CPI report next week which is the Bureau of Labor Statistics Consumer Price Index. Forecasts predict that headline inflation across all categories will slow but core inflation which doesn’t include food and energy costs, will still be above the Fed’s target of 2%. This report comes out the morning of the first day of the Fed Meeting. So I will break down both of these outcomes, whatever they may be, for you guys in next weeks’ video. Hopefully we’ll be celebrating and not crying. I’m running out of tears.

This morning – Zillow released their Home value Index that showed the typical home value increased 1.4% from April to May…interesting right? A single month jump of 1.4% - if we annualize that, it would be 20% appreciation year over year. I don’t know that it will continue like that for the next few months but it tells us that housing markets across the US are showing signs of a turnaround. Of a potential reacceleration of prices. Of an imbalance between supply and demand because that is what causes prices to go up. Not magic, not conspiracy, not evil realtors and lenders. There were 23% fewer listings this May than last May. Active inventory was down almost half as compared to May of 2019. But the population, the demand, the house formations compared to four years ago – all of that is higher. Higher demand, significantly less supply.

Yet when we get hyper local, we are still seeing some listings sit – many of which are priced appropriately. I host a monthly webinar to update consumers and realtors on the housing market and what we’ve seen change in the last few weeks. I offered to share listings on this webinar this week and I got LIT up by realtors asking me to feature their listing. Why would you guys have listings sit when inventory is so tight? Here are my thoughts –

1. Buyers don’t understand the opportunity in buying right now, they are simply scared of rates and need us to get out there and educate them.

2. Lots of realtors are not working as actively to find inventory for their clients and educate them on ways to make a house that doesn’t appear perfect, fit their needs with certain realistic adjustments.

The truth of the matter is this market requires a lot more collaboration. It’s not sellers versus buyers – it’s possible for buyers and sellers to win right now, and that’s a huge advantage of this market today. The realtors, lender and clients can all come to together to structure some really cool deals.


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