Great news this week my friends! Good inflation readings, Fed pauses rate hikes, mortgage apps tick up, more inventory hitting the market (at least in Carson City - IYKYK). And the market’s reaction? Like an ungrateful, entitled little asshole. Our biggest problem right now seems to be that market builds in good news before we get it and then when the good news actually becomes real, it isn’t good enough to move the market.
Let me break down the news before I complain about the market reaction though, I’ll catch you all up in case you had a busy week. I sure as shit did so no judgement from me if you didn’t dive into every article the past few days.
On Tuesday, we got our CPI reading and this was a big drop. Markets were anticipating an improvement here, maybe two tenths of a percent. Instead we fell from 4.9% on headline inflation down to 4%. As you know, because we’ve discussed it right here, shelter costs and used car sales have been messing with our inflation readings. The data for shelter is 6-8 months old but currently all apartment rental indexes are showing decreases, lower rents. If we had real time indicators on these, headline inflation would have actually come in around 2%.
CPI is consumer price index. We also got the May Producer Price Index numbers this week. They were anticipated at 1.5% year over year inflation. They came in even lower at 1.1% compared to the previous month at 2.3% . This should be good news for us.
The Fed went for a full pause at their meeting this week. There was speculation as to whether they would “skip” or “pause” and if you’re wondering what the difference is, allow me to explain. If they had just skipped action this week, that would mean that maybe next time there would be a rate hike. They announced a pause which gives us all room to assume that next meeting may not have a rate hike either. They are taking a breather to assess the ever changing market and allow the impacts of the last ten rate hikes to settle. This is really, really good news.
Which is why we closed markets on Thursday with mortgage backed securities improved 40 bps. Today, Friday, we’ve given back about half of those gains…
While interest rates were hesitant to improve in reaction to the good news this week but they did eventually come around and we got a bit of relief. The question is will that continue next week?
So where is the next curveball going to come from?
The treasury is going to need to recoup some cash that it spent when it swooped in to rescue banks so there will be more bonds available, for sale. They have to offload those assets to re-establish liquidity following the debt ceiling debacle too. This liquidity squeeze could cause yet another bump or spike in interest rates though it should be short lived.
What to do with this information?
It’s really never wise to try to time the market. Your timing and strategy should always be more specific to your own circumstances than anything I’m predicting with the market. It’s always been important to know what’s forecasted but mainly focus on optimizing the pieces of the puzzle that you can control: your credit, your down payment, your knowledge of different financing strategies. However, at this point I think when we consider your timeline to buy – we should include a serious consideration of what could happen with interest rates over that time period because that will impact everything from your monthly payment and buying power to the appreciation and return on investment you are likely to see.