Market Moving News This Week

Hi Friends!

This week is set to be a game-changer in the financial markets with several key events on the horizon. The Federal Reserve starts its two-day meeting tomorrow, culminating in a statement and a press conference by Jerome Powell on Wednesday at 2:00 PM ET. While it's widely expected that the Fed won't cut rates this time, they are likely to prepare the ground for a potential rate cut on September 18.

Nick Timiraos of the Wall Street Journal, often dubbed the "Fed mole," published an article last night titled “A Fed Rate Cut Is Finally Within View.” In it, Timiraos explains why the Fed might be gearing up for a September cut:

• Inflation has shown progress, giving the Fed confidence it will reach their 2% target.
• The labor market is cooling, with the unemployment rate rising over the past three months to 4.1%.
• Jerome Powell is worried about the risks of waiting too long to cut rates, which could lead to economic weakness or a recession.

The consensus is that the Fed will keep rates unchanged but adopt a softer tone, acknowledging the progress on inflation, the cooling labor market, and signs of a slowing economy.

In job market news, the ADP and BLS reports are expected to show 149,000 and 175,000 jobs created in July, respectively, with the unemployment rate anticipated to remain at 4.1%. However, the jobs report is known for its unpredictability, often overstating job growth only to revise figures down in subsequent months. A higher-than-expected job creation number could dampen bond market optimism, whereas numbers in line with or below expectations could spur a bond market rally.

An unexpected rise in the unemployment rate to 4.2% could surprise many Fed members and potentially prompt a more aggressive rate cut in September.

Here’s a quick summary of events to watch this week:

• CB Consumer Confidence data on Tuesday.
• JOLTs Job Openings data on Tuesday.
• Fed Rate Decision and Statement on Wednesday.
• ISM Manufacturing PMI data on Thursday.
• June Jobs Report on Friday.
• Earnings reports from about 20% of S&P 500 companies.

With such a packed schedule, volatility is expected to return to the markets in a significant way. From my perspective, the job reports are a wild card. We're hoping for lower-than-expected new job creation and a higher-than-expected unemployment rate to support a cut in September, especially following a flat inflation report last week.

The bad news is, this week will be stressful in the headlines. The good news is, the likelihood of lower rates all around has never been stronger since late 2022. We're getting there, and the last mile moves slowly.

Crashing Home Prices?

There are many confusing headlines and news stories about home prices, with terms like "crash" or "correction" being thrown around. These words can negatively impact your perception of the market. However, home prices aren’t going to come tumbling down. National data shows that prices are normalizing and will continue to climb, just at a slower pace.

During the pandemic, home prices soared due to high demand, low inventory, and low mortgage rates. This rapid appreciation was unsustainable, and now, data confirms that prices are still rising, but more moderately. This healthier pace is beneficial, signaling that home price growth is normalizing.

Danielle Hale, Chief Economist at Realtor.com, explains:

"In stock market terms, a correction is generally referred to as a 10 to 20% drop in prices. We don't have the same established definitions in the housing market."

In today’s housing market, a "correction" doesn’t mean dramatic price falls. It means that prices, which have been increasing rapidly, are now growing at a slower pace. While prices vary by local market, a significant national drop isn't happening.

From 2020 to 2022, home prices skyrocketed due to high demand, low interest rates, and a shortage of homes for sale. Such aggressive growth couldn’t last forever. Today, the price growth is slowing down, indicating market normalization. The most recent data from Case-Shiller shows prices are rising at a national level, but not as quickly as before. This year, price growth has been healthier compared to the pandemic years.

Looking ahead, Marco Santarelli, Founder of Norada Real Estate Investments, says:

“Expert forecasts lean towards a moderation in home price growth over the next five years. This translates to a slower and more sustainable pace of appreciation compared to the breakneck speed witnessed in recent years, rather than a freefall in prices.”

It always boils down to supply and demand. Increasing inventory and limited buyer demand, due to relatively high mortgage rates, will continue to ease upward pressure on prices. As mortgage rates improve, I am not sure the supply can outpace demand to drive prices down lower. You need a surplus of supply to shift into a buyer’s market.

If you’re thinking about buying a home, slowing price growth is welcome news. For many buyers, this is the exact headline we’ve been waiting for. Skyrocketing home prices during the pandemic left many would-be homebuyers feeling priced out. Now, while home values will likely continue to rise once you own a home, slowing price gains make homeownership more manageable.

Odeta Kushi, Deputy Chief Economist at First American, says:

“While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help — so the dream of homeownership isn't boarded up just yet.”

At the national level, home prices are not going down, and most experts forecast moderate growth moving forward. Prices do vary by local market, which is why consulting a trusted real estate agent is crucial. If you have questions about what’s happening with prices in your area, reach out for personalized advice. Always remember, the best time to buy a home, is when you’re buying within your means. 

A significant wealth gap exists between renters and homeowners due to the equity homeowners build as their property value appreciates and they make mortgage payments. Homeownership acts as a form of forced savings, providing a financial return when the home is sold. In contrast, renters do not gain any financial benefits from their monthly rent payments. Ksenia Potapov, Economist at First American, highlights that renters miss out on wealth generated by house price appreciation and equity gains from mortgage payments.

Home equity is a crucial component of most homeowners' net worth, significantly boosting wealth across all income levels. Data from First American and the Federal Reserve show that home equity makes up a large part of a homeowner's net worth. Nicole Bachaud, Senior Economist at Zillow, emphasizes that homeownership is a key financial asset that promotes stability and wealth preservation across generations.

If you're considering building your net worth, the current real estate market offers opportunities such as lower mortgage rates and increased inventory. A local real estate agent can help you navigate these opportunities and find your ideal home. Owning a home can enhance your overall wealth in the long run, regardless of your income levels