MARKET MOVING NEWS THIS WEEK

Key Events This Week: Fed Chair Powell Speaks - Today Note: Fed Chair Jerome Powell’s remarks will be closely scrutinized for any hints regarding future monetary policy. Any indication of concern about economic growth or labor market weakness could support expectations for a rate cut. Powell said what we needed him to say: "Inflation now shows signs of resuming its disinflationary trend." "We are getting back on a disinflationary path." "We've made a lot of progress." JOLTs Jobs Data - Tuesday Note: The Job Openings and Labor Turnover Survey (JOLTS) will provide insight into job openings, hires, and separations. A significant decline in job openings or an increase in layoffs could signal labor market weakness. Fed Meeting Minutes - Wednesday Note: The minutes from the latest Federal Reserve meeting will be released. Investors will look for any discussions or concerns about the labor market that might suggest the Fed is considering a rate cut. Stock Market Closed - Thursday Note: U.S. financial markets will be closed in observance of Independence Day, limiting trading activity for the week. June Jobs Report Data - Friday Note: The most anticipated report of the week, the June jobs report will include nonfarm payrolls, the unemployment rate, and wage growth. Weak job growth or a rising unemployment rate could bolster the case for a Fed rate cut. Important News: CoreLogic Home Price Index - Today: This report provides data on home price appreciation, which can offer insights into the housing market's health and consumer demand. In May 2024, U.S. single-family home prices increased by 4.9% year-over-year, marking the 148th consecutive month of annual growth. However, this growth rate represents a cooling trend as the housing market adjusts to higher mortgage rates and changing buyer preferences. The Northeast, particularly New Hampshire, led in annual appreciation, while the gap in price growth between detached and attached homes widened, reflecting a preference for more personal space and rising HOA fees. Dr. Selma Hepp, chief economist for CoreLogic, noted that the national cooling trend is evident across more markets due to the spring surge in mortgage rates, which dampened homebuyer demand and slowed price growth. Nevertheless, areas with low inventory levels, such as the Northeast, continue to see strong price gains. In contrast, more affordable markets in the Midwest experienced healthy growth, while markets with increased inventory, like Florida and Texas, faced annual price deceleration. The U.S. just experienced the fastest ever deterioration in housing affordability, driven by a combination of rapidly escalating national home prices and an unprecedented surge in mortgage rates. Over the past year, the average mortgage rate has jumped from 3% to 7%, creating a historic rate shock. This dramatic increase in borrowing costs, coupled with already overheated home prices, has significantly strained affordability for potential homebuyers, making it increasingly difficult for many to enter the housing market. Data from the Atlanta Federal Reserve highlights this sharp decline in affordability, underscoring the challenges faced by buyers in today's housing environment.

The chart will tell you that homeownership has become a luxury. In my opinion, we’ve reached the peak stages of fatigue. Sellers are tired of waiting, and inventory is rising. Buyers are frustrated with rates, and confusing headlines. Everyone wants to know, when the cuts are coming. What happens to home prices when the average 30 year fixed rate is in the low to mid 6 range?

THE FED’S INFLATION TARGET IS 2%

In May, the Personal Consumption Expenditures (PCE) report showed no change in headline inflation from April, with a slight year-over-year decline from 2.7% to 2.6%. The Core PCE, which excludes food and energy prices and is favored by the Fed, rose by less than 0.1% monthly, with the year-over-year rate dropping from 2.8% to 2.6%. This decrease supports the Fed's goal of stable prices. I expected nice movement in the market on Friday when this report came in, but we didn’t get it. Mortgage rates jumped .125-.25% since then, although the PCE report adds support to a rate cut this year. Counterintuitive behavior in the markets, again. We are seeing some relief today. This week’s jobs news is critical. The Fed has raised its benchmark Fed Funds Rate eleven times between March 2022 and July 2023 to curb inflation by making borrowing more expensive and reducing demand. They have kept rates steady since last September because inflation was decreasing but stalled early this year. While the Fed does not plan to cut rates until inflation is consistently near their 2% target, May’s lower inflation readings are a positive development. Weakness in the labor market is deflationary as it leads to lower consumer spending, reducing demand for goods and services. High unemployment increases financial insecurity, causing households to save more and spend less, further decreasing demand. Businesses respond to reduced demand by cutting prices to attract consumers, which contributes to deflationary pressures. THIS is why the Fed needs signs of weakness in the labor market, and rising unemployment to cut. Its not all gloom and doom, 5% would still be considered normal. For context, the unemployment rate peaked at over 14% during the pandemic. The Fed Funds Rate is now 2.7% ABOVE Core PCE, which is the most restrictive monetary policy we’ve seen since September 2007. If markets bets are correct, the monetary policy will soon be moving in the other direction, with a 65% probability of a rate cut in September.

HOUSING MARKET SUMMARY

Here’s what you need to know: Inventory Currently, there are 646,000 unsold single-family homes on the market, up 1.8% from last week and 39% more than last year. Inventory increased by 11,000 units this week, slightly more than anticipated. With a late surge in inventory in 2023 due to rising interest rates, 2024 is expected to end with about a 20% increase in inventory over 2023, unless rates rise again. This week saw 71,000 new listings, 1.5% fewer than the previous week. Including immediate sales, 86,000 new sellers entered the market, 8% more than last year. The seller rate is expected to drop during the holiday week and generally decline in the second half of 2024. New listings could still exceed 70,000 per week in July. Unlike 2022, where new listings fell sharply after July 4th, and 2023, where sellers stayed away all year, the focus now is on how quickly sellers pull back. Pending Home Sales There were 67,000 new pending contracts for single-family homes this week, slightly fewer than last week and almost unchanged from last year. There are 398,000 single-family homes in contract, up slightly from last week and 3% more than last year. Pending sales data shows no significant improvement, indicating likely continued disappointments in sales rates, hovering around a 4 million seasonally adjusted annual rate (SAAR). Home Prices The median price of single-family homes on the market is $455,000, unchanged from last week and last year. The median price for newly contracted homes is just under $395,000, 4% higher than last year. The median price for all homes in contract is $399,950, a 4.4% increase from last year. Home prices are expected to ease down in the second half of the year, but the rate of decline remains uncertain. Price Reductions Currently, 37.6% of homes on the market have reduced their prices, up 70 basis points from last week. Although the level of price cuts is high, it is not alarming and is rising more slowly than in 2022 when rates jumped quickly, leading to rapid price cuts. The current trend suggests a soft market with potential price flattening by the end of the year, though this has not yet occurred.

OIL MONEY AND THE DOLLAR

This question came up on the webinar and I was vague in the interest of time. Let’s address it in more detail. Recent online chatter has claimed that the "petrodollar" has died, suggesting Saudi Arabia has abandoned using the U.S. dollar for oil sales, which would signal the end of American economic dominance. However, these claims are baseless and driven by misinformation spread by crypto speculators, and social media bots. Fear is a useful tool. Despite these rumors, Saudi Arabia continues to price and sell its oil in U.S. dollars, debunking the notion that the petrodollar system has collapsed. These false narratives are spreading quickly. The petrodollar system, which emerged from the U.S.- Saudi agreement in 1974, was primarily about recycling Saudi oil revenues into U.S. Treasury markets, rather than exclusively pricing oil in dollars. Over the years, the significance of the petrodollar has diminished as Saudi Arabia and other oil-producing nations have used their wealth domestically rather than recycling it into U.S. debt. Today, Saudi Arabia does not have a surplus to invest heavily in American assets, and it borrows significantly to finance its economic initiatives. Thus, the petrodollar's influence has been waning for decades, with current financial dynamics reflecting a much more diversified global economic landscape. The U.S. does face potential risks as four large economies in the Middle East and North Africa—Egypt, Iran, Saudi Arabia, and the UAE—join the BRICS economic union, aiming to reduce their dependence on the U.S. dollar. This shift could weaken the dollar's dominance in global trade and finance, as these countries explore alternative currencies for oil sales and other transactions. Although transitioning away from the dollar entirely is complex and challenging, any significant move in this direction could impact the dollar's value and its role as the primary reserve currency. The U.S. dollar has long been the world’s primary reserve currency, bolstered by its stability, the depth of the U.S. financial system, and its central role in global trade, particularly in oil transactions. However, increasing U.S. political instability, mounting debt, and the use of the dollar in economic sanctions have prompted many countries to seek alternatives to mitigate these risks. Central banks are concerned about the dollar's "weaponization" and the broader economic shifts driven by great power competition, leading to a reevaluation of their heavy reliance on the dollar. BRICS countries are actively working to build demand for their own currencies and reduce dollar dependency, focusing on non-dollar oil sales and exploring a common BRICS currency. Despite the challenges in creating a unified currency, the push for alternatives indicates a potential fragmentation of global reserves. While the dollar will likely remain strong, the growing use of other currencies like the renminbi and rupee will increase. This shift necessitates a coordinated approach to de-dollarization, with MENA countries diversifying their reserves and ensuring exchangeability with major trading partners' currencies, while also maintaining stability in their economic policies. The saga continues and you have to wonder how these powerful folks may be using the media and chatter as negotiation tactics and power plays. Its odd to bet against the dollar and even worse to bet against the US. Especially if you live here. Do your research before you put your life savings in the Dinar.

BET ON HOMEOWNERSHIP

With the constant headlines about home prices and mortgage rates, you might wonder whether it's better to buy a home now or keep renting. Here’s some information to help ease your mind: investing in a home is still a powerful decision. Experts at Gallup have ranked real estate as the top long-term investment for 12 consecutive years, consistently outperforming other investment types like gold, stocks, and bonds. Just look at the graph below – it speaks volumes. Why does real estate continue to reign supreme as a top-notch long-term investment? Because buying a home remains a golden ticket to building wealth over time. Unlike other investments that experience volatile ups and downs, real estate follows a more predictable and positive trend. History shows that home values typically rise, meaning your house is likely to appreciate in value over time, significantly boosting your net worth. As Realtor.com explains, “Homeownership has long been tied to building wealth—and for good reason. Instead of throwing rent money out the window each month, owning a home allows you to build home equity. And over time, equity can turn your mortgage debt into a sizeable asset.” If you’re on the fence about whether to rent or buy, remember that real estate is consistently voted the best long-term investment for a reason. If you’re ready and able, it may make sense to go ahead and buy. Bottom Line: When it comes to building lasting wealth, real estate is the way to go. If you’re ready to start your journey toward homeownership, let’s connect today.