It’s blockbuster Friday! If are an 80’s child like me, you might remember Friday nights fondly. When you’d ask your parents if we could get a rental at Blockbuster – to watch after TGIF obvi – and pizza, maybe a friend sleepover if we were feeling lucky. Life was so good. We got a blockbuster today too. It didn’t feel as nice or nostalgic. It was a blockbuster jobs report that quickly turned into a bad news for mortgage rates. US companies added 353,000 jobs – the most in a year. Cool, cool. This turns the whole narrative about an economic slowdown and inflation cooling and Fed rates cuts in March upside down.
Or does it?
While strong hiring is likely to delay Federal Reserve rate cuts, there’s always more to this report than the headline. We’ve talked about that already so let’s consider that while Powell may call the labor market strong – many employees and applicants don’t feel that way. They feel discouraged with their prospects, they aren’t using their degree or earning the salary they expected. They are taking multiple jobs to make ends meet. This update isn’t career focused or about job prospects though; it’s about real estate. The jobs report matters because it influences Fed policy, which influences the activity in the mortgage bond market, which drives interest rates up or down, which is probably the main driver of the real estate market. So here’s what we need to watch for my friends. When the unemployment number hits 4.2%, that is when we are likely to see the Fed start cutting interest rates.
The Political Conspiracies
It’s all speculation, but the whispers have been that regardless of economic data – the Fed will be pressured by the current administration to cut rates before summer, so people head to the polls in November with a skip in their step. Incumbent presidents have hugely favored odds of reelection, except during a recession. So Biden would want us all to feel good about the economy as far in advance of the election as possible. That’s the conspiracy.
It's a conspiracy because technically (minor, minor technicality here) the Fed is supposed to a neutral. An autonomous decision-making agency orchestrating monetary policy. Politically independent. While some might say that’s actually the conspiracy theory in and of itself, I’m just relaying how it’s supposed to be. This week though, I heard something that gave me some faith that maybe they are. Jerome Powell is a Republican, but he’s a Republican who hates Trump. He also isn’t in Biden’s pocket, because he knows Biden didn’t want to reappoint him. So maybe he is apolitical, based solely on the fact that he hates Biden as much as he hates Trump. Maybe that means he’s not inclined to take actions that would sway the election in either of their favor.
Just food for thought.
What does politics have to do with Real Estate?
Why does it matter? Again, because the Fed cutting their Fed Funds Rate or more importantly – getting serious about their balance sheet and how it compares with the GDP, will have serious implications for the real estate market because of interest rates. I have high hopes of 2024 being the year of UNLOCK, for renters hoping to afford a home but also for homeowners trapped in a home they don’t like anymore. So I’m watching for when and how interest rates will decline.
You should too.
Not because you are trying to time the market and buy when you can lock in some kind of magical (read: mythical) interest rate. You actually want to consider all of the implications an interest rate has on your financial strategy, beyond a number to brag to your friends about at happy hour. Real estate folks like to tell you, “interest rates don’t matter, buy or sell now!” I don’t blame you for rolling your eyes at that. Interest rates do matter, but probably in ways more intricate than you are considering. So let’s set up a time to talk about that.