Fed Chair Jerome Powell spoke last Friday at the annual Jackson Hole Symposium. The symposium is a gathering of economists, central bankers and policy makers from around the world. While Powell acknowledged progress made in the fight against inflation, his comments were relatively hawkish. (Hawks are policy makers who favor higher interest rates to keep inflation in check). The bond market saw an uptick in price giving us some relief on mortgage rates.

Powell said, “Although inflation has moved down from its peak – a welcome development – it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” The objective is 2%. 

Remember, the Fed has been hiking its benchmark Fed Funds Rate to slow the economy and curb inflation. The latest hike in July was the 11th since March 2022. The Fed Funds rate is now the highest level its been in 22 years. Powell said that the Fed will proceed carefully in upcoming meetings as they assess incoming data and the evolving outlook and risks. The Fed is hyper focused on the extremely tight labor market. They want to see a weaker labor sector and weak Jobs report before their outlook changes.

Fed members will certainly be watching as crucial labor data will be reported this week, especially headline job growth in August’s Jobs Report coming on Friday.

The markets will be busy ahead of the Labor Day weekend. We’ll see an update on home price appreciation for June This week. The Case-Shiller Home Price Index and the Federal Housing Finance Agency House Price Index are reported on Tuesday. July’s Pending Home Sales follow on Wednesday.

Job market data will also grab headlines, starting Wednesday with an update on August’s private payrolls in ADP’s Employment Report.  The latest Jobless Claims will be reported on Thursday. Friday brings August’s Jobs Report from the Bureau of Labor Statistics, which includes Non-farm Payrolls and the Unemployment Rate.

The second estimate for second quarter GDP will be released Wednesday.

A crucial inflation reading will be delivered on Thursday via the Fed’s favored measure, Personal Consumption Expenditures.

With lots of market moving news on the horizon this week, pay attention to the bond market. As bond prices go up, rates go down. That’s what we’re looking for. 

So, when will mortgage rates drop?

We expect to end 2023 with rates around 6.4%. 5% by Q4 2024, and below 4.75% in Q4 2025. An improvement to rates will help with inventory, but it will also help a lot of approved buyers come off the sidelines. What will happen to home prices as rates improve?

OWNERSHIP CREATES 40 TIMES MORE WEALTH

The results of the Q3 2023 Home Price Expectation Survey are in. Of the 107 participating economists, only 5 forecasted a price decrease through 2027. The cumulative expectation is that home prices will rise by 18% over the next five years. This is down from the 23.3% projections earlier this year. 

Are you waiting for home prices to drop?

The housing market is certainly the most rate-sensitive sectors of the economy. Affordability impacts consumer sentiment. The truth is, with rates as high as they are right now, homeownership is out of reach for many. Buying a home for some folks means getting a co-signer, or renting out rooms to increase income. It could also mean partnering with someone to increase purchasing power. The sacrifices are worthwhile as homeownership becomes a luxury. Demand will continue to outpace supply in the years to come. At the very least, we know this creates price stability. In the best case scenario, the economists are right and home prices will continue to rise. 

Inventory is a key factor. While inventory levels increased 3.7% last month the housing supply was still well below normal levels. With just 3.3 months’ worth of inventory available at the current sales pace. Inventory is even tighter than that figure implies, as many homes counted in existing inventory are under contract and not truly available for purchase. In fact, there were only 647,000 “active listings” last month.

Homes stayed on the market on average for 20 days last month. 74% of homes sold in July were on the market for less than a month. That’s fast. 

More data: 

A recent housing report from the National Association of Realtors® reveals that middle-income homeowners gained $122,100 in wealth over the past 10 years as their homes appreciated by 68%. This report highlights how agents and Realtors® play a role in helping people buy and sell homes that contribute to generational wealth. 

The data shows that homeownership opportunities differ, leading to variations and inequalities in homeownership rates based on income and race/ethnicity. Low-income homeowners gained $98,900 in wealth from home price appreciation in the last decade, while upper-income households saw an increase of $150,800.

Lawrence Yun, NAR's chief economist said, "This analysis shows how homeownership is a catalyst for building wealth for people from all walks of life.

A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter."

Despite Black homeowners experiencing relatively smaller wealth gains compared to other groups, they still accumulated over $115,000 in wealth during the past decade. The report also identified the top 10 U.S. metro areas where Black homeowners saw the largest wealth gains over the last 10 years.

In places like Bellingham, Washington; Ocala, Florida; Palm Bay, Florida; Modesto, California; Greeley, Colorado; and Charleston, South Carolina, over 60% of Black households own their homes, and they were able to accumulate more than $125,000 in wealth.

In addition to the wealth gains, homeowners also reduced their debt by 21% over the decade.

Regardless of their income, homeowners living in expensive metropolitan areas saw the biggest increases in wealth. For instance, in the San Jose metro area, low-income homeowners saw their wealth grow by nearly $630,000 over the past 10 years, while middle-income homeowners gained $643,000. All of the top 10 areas where low-income homeowners experienced substantial wealth growth – exceeding $290,000 – were located in California.

For more information, or to read the full article, go to www.Nar.realtor.com/newsroom