ARE THE RATE HIKES OVER?

In a unanimous decision, the Fed hiked their benchmark Fed Funds Rate by 25 basis points at their meeting last Wednesday. The decision moved the Fed Funds rate to a range of 5.25% to 5.5%. The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to  slow the economy and curb inflation.

This was the Fed’s eleventh hike since March of last year. Though they chose not to hike at their meeting in June to give themselves more time to assess incoming data.

In his press conference following the meeting, Fed Chair Jerome Powell was non-committal regarding whether the Fed would hike at their next meeting on September 20. The sentiment was less hawkish leaving the door open for another pause after previously signaling two more rate hikes could be possible this year. The Fed will continue to monitor data before making a final decision. Last week, after the Fed meeting, the PCE report showed inflation improving, again. The PCE report is the Fed’s preferred inflation metric. The expectation was 3.1% and came in at 3%. Core PCE inflation fell to 4.1%, below expectations of 4.2%. PCE inflation is no the lowest its been since 2021.

This week’s news can help. Look for important updates on the labor sector starting Tuesday with news on job openings via the JOLTS report for June. Wednesday brings ADP’s Employment Report for July, which measures private payrolls while the latest Jobless Claims will be reported on Thursday. The biggest headline comes Friday with July’s Jobs Report from the Bureau of Labor Statistics, which includes Non-farm Payrolls and the Unemployment Rate. We’re expecting 200K in new jobs. Any number above expectations would not be good for the rate conversation.

The Fed is looking for signals pointing to less growth, more distress and lower inflation. We simply cannot expect inflation to continue to decline without higher unemployment numbers. In 2023, we have seen 223K layoffs in tech with 5 months left to go. That’s only 60K higher than it was for the entire year prior. Many companies, such as Bud Light, Funko, Pluralsight, and more plan to layoff more employees this year. I will watch closely and share important news as it comes in.  

HOME PRICES ARE UP

Affordability remains the top concern for homebuyers today. 37 states now require at least 30% of median annual income for new home payments. The median sales price of a home in the US is now 560% of the median household income. In 2008, it was 360% of the median household income. There is only one way to solve this problem, and that’s with more inventory. We’re not going to see more homes coming on the market until the mortgage rate environment improves. Demand will continue to outpace supply and home prices will stabilize. According to Zillow’s forecast, home prices will rise 6.3% over the next 12 months from June 2023 to June 2024. Zillow says 48 of the Nation’s largest markets will increase by 7% of greater. If you’re questioning your realtor who’s telling you home prices will rise, please take a closer look at the data. You must have a surplus of supply to lower prices. We don’t have it.

Median Monthly House Payment, by State:

1. Hawaii: $5,100

2. California: $4,800

3. Massachusetts: $4,000

4. New Jersey: $3,800

5. Washington: $3,800

6. Colorado: $3,400

7. New Hampshire: $3,400

8. Oregon: $3,300

9. Utah: $3,250

10. New York: $3,200

11. Rhode Island: $3,100

12. Montana: $2,900

13. Connecticut: $2,900

14. Idaho: $2,800

15. Maryland: $2,700

Hawaii makes history as the first state ever with a median monthly house payment above $5,000/mo. The median house payment in California now requires a record 64% of the median household income.