In the latest move by the Federal Reserve, the decision to maintain the benchmark Federal Funds Rate at a range of 5.25% to 5.5% comes after a string of eleven consecutive rate hikes starting from March 2022. This decision, which saw unanimous agreement, marks the fifth meeting in a row where rates remained unchanged.

Understanding why the Fed is making these decisions is crucial. While the Federal Funds Rate doesn't directly impact mortgage rates, it plays a significant role in influencing economic activity by affecting overnight borrowing costs for banks. Throughout this cycle, the Fed has been increasing the rate to manage the economy's rapid growth and rein in the persistent inflation seen in recent years.

Insights from key figures within the Fed offer valuable perspectives on the factors guiding monetary policy. For instance, Chicago Fed President Austan Goolsbee has proposed a bold strategy, suggesting three rate cuts in the current year. He believes that although inflation may seem subdued temporarily, the underlying factors contributing to it haven't fundamentally changed. His emphasis on the Fed's dual mandate highlights the need to balance maximum employment with inflation control, expressing concerns over rising unemployment rates. Essentially, Goolsbee suggests that the inflation spike might be temporary.

On the other hand, Atlanta Fed President Raphael Bostic takes a more cautious approach, supporting a single rate cut this year. His stance reflects less confidence in the trajectory of inflation, with uncertainties remaining about its convergence towards the Fed's 2% target. Bostic also notes the minimal changes expected in the unemployment rate, indicating that further rate adjustments may be necessary if unemployment continues to rise.

Moreover, Bostic's comments on the balance sheet reveal a nuanced strategy aimed at minimizing market volatility. He suggests reducing the balance sheet runoff, or Quantitative Tightening (QT), gradually to avoid disrupting markets.

In summary, the Federal Reserve's decisions reflect a delicate balancing act between stimulating economic growth and containing inflationary pressures. The diverse perspectives within the Fed highlight the complexities of navigating monetary policy amidst evolving economic conditions.

As for Quantitative Tightening (QT), it's a tool used by central banks like the Federal Reserve to reduce the size of their balance sheets. This involves selling off assets or letting them expire without reinvesting the money, aiming to prevent high inflation or market bubbles when the economy becomes stable or overheated. Implementing QT requires careful planning to avoid market disruptions, with central banks adjusting their strategies based on economic and market conditions.

Overall, the Federal Reserve's actions and insights offer valuable insights into the state of the economy and its future trajectory in 2024.

MARKET MOVING NEWS THIS WEEK

This week's headlines and market-moving news provide a deep dive into various economic aspects, offering insights into housing trends, economic growth, labor dynamics, and inflationary pressures.

Housing Market Updates: The focus begins with New Home Sales data released today and Pending Home Sales data on Thursday. These reports give crucial insights into housing demand, as signed contracts hint at future home sales activity.

Home Price Appreciation: On Tuesday, we'll get appreciation data for January from Case-Shiller and the Federal Housing Finance Agency, shedding light on the rate at which home prices are rising, a pivotal indicator of the housing market's health.

GDP and Labor Market: Thursday's attention shifts to the final reading for fourth-quarter 2023 Gross Domestic Product (GDP), offering a comprehensive look at the economy's overall performance. Alongside this, Jobless Claims data will be released, providing insights into the labor market's state and unemployment trends.

Inflation Insights: Friday's highlight is likely the release of the Federal Reserve's favored inflation measure, Personal Consumption Expenditures (PCE). This metric offers a detailed view of changes in consumer spending and price levels, crucial for understanding inflationary pressures. Given the current focus on inflation, this release will be closely watched by investors, policymakers, and economists to gauge future monetary policy decisions.

Focus on Job Reports and PCE: The job reports and PCE figures will be the center of attention this week.

Supply & Demand for Housing: Since the onset of the pandemic, both stock and house prices in the United States have soared, with stocks rising by 60% and homes by 50%. This surge has significantly increased household net worth, averaging $300,000 per household. While not all households benefit equally, this rise in wealth plays a vital role in the current success of the U.S. economy.

The Wealth Effect: A strong economy fuels further asset price increases, creating a cycle known as the wealth effect. As households feel wealthier, they tend to save less and spend more, boosting consumer spending—a key driver of economic growth. This trend distinguishes the U.S. from other countries, where consumers have been more cautious.

Concerns and Future Outlook: However, there are concerns about overvalued asset prices, especially if the Federal Reserve fails to meet expectations and cut interest rates. The Fed knows that keeping rates higher for longer could lead to adverse consequences, including a sharp decline in asset prices, which could dampen economic growth and consumer spending.

Signs of Weakness: There are signs of weakness ahead, with US Retail Sales increasing only 0.8% over the last year, but falling by 2.3% after adjusting for higher prices—well below historical averages. Consumer confidence remains critical to housing and the overall economy.

Stable New Home Sales Amid Rising Rates

New Home Sales, measuring signed contracts on new homes, held steady in February at a 662k annualized pace, showing resilience despite media attempts to cast a negative light on the report. This stability in home sales is notable given the increase in rates compared to January, which climbed above 7%.

Year over year, sales are up by 5.9%, reflecting ongoing demand in the housing market. With 456,000 new homes available for sale by the end of February—nearly identical to January—the market maintains its momentum. However, the current pace of sales translates to an 8.4 months' supply, a slight increase from the previous month's 8.3%. Yet, when considering only completed homes (available supply), there is merely a 1.55 months' supply, showing a marginal increase from January.

Despite media reports highlighting a decline, the median home price reported at $400,500 in February is down 3.5% from January and 7.6% from last year. However, this isn't indicative of price cuts or increased discounts by builders. In fact, data from the NAHB reveals that only 24% of builders cut home prices, the lowest level since July 2023, down from 36% in December. The decline in median home price is attributed to the sales mix—more lower-priced homes were sold in February, contributing to the average price reduction.

Looking Beyond the Headlines

It's crucial to delve into the details, as headlines may suggest price cuts when, in reality, homebuyers are simply gravitating towards lower-priced homes, influencing the median price downward.

Upcoming Insights on Demand

Wednesday's release of mortgage applications data will offer further insight into demand. Despite fluctuations, demand remains robust in my opinion.

Inventory Trends

Inventory levels remain below pre-pandemic levels, with approximately 513,000 homes available for sale as of March 22nd—a slight increase from the previous week's 507,000. However, this figure still falls significantly short of pre-pandemic levels. While there's been a 23.9% increase in inventory compared to last year, the difference from 2019 remains substantial at 38.2%. Inventory is gradually rising and could approach "normal" levels this year, provided rates remain elevated.

These insights underscore the nuanced dynamics of the housing market, suggesting resilience despite external factors like rising interest rates.

Thinking about buying a house? Before you take the plunge into homeownership, it's crucial to ask yourself some key questions to ensure you're making the right decision. Here are five important questions to consider:

1. Can I afford it?Take a close look at your financial situation. Consider your income, savings, debt, and credit score. Figure out how much you can comfortably afford for a down payment, monthly mortgage payments, property taxes, insurance, and maintenance costs. This step helps you understand where your money is going and may inspire necessary financial adjustments.

2. What are my priorities and needs?Think about what features and amenities are essential for your new home. Consider things like location, size, layout, number of bedrooms and bathrooms, proximity to schools or work, neighborhood safety, and access to amenities like parks, shopping centers, and public transportation. Your realtor can assist you in conducting research and finding options that meet your criteria.

3. Am I ready for the long-term commitment?Buying a home is a big commitment that requires careful planning and financial stability. Consider your future plans, such as career goals, potential family changes, and lifestyle preferences, and assess whether homeownership aligns with your long-term objectives.

4. What is the state of the housing market?Research the current conditions of the housing market in your desired area. Look into trends in home prices, inventory levels, and interest rates. Understanding the dynamics of the market can empower you to make informed decisions and negotiate effectively. Working with a local, experienced realtor can provide you with the best data and insights.

5. Have I explored all financing options?Explore the various mortgage options and financing programs available to you, such as conventional loans, FHA loans, VA loans, or USDA loans. Remember, there's no one-size-fits-all solution in lending. Your unique qualifications, financial story, and budget can make a significant difference. Consult with me today to explore these options and find the best fit for your situation.

By asking yourself these questions and thoroughly evaluating your options, you can make a well-informed decision about whether buying a house is the right choice for you at this time.