Market Update: Federal Reserve's Decision, Cooling Inflation, and Housing Inventory Impact

Market Update: Federal Reserve's Decision, Cooling Inflation, and Housing Inventory Impact

Last week brought significant developments to the housing market, including the Federal Reserve's decision to increase rates, indications of cooling inflation, and the ongoing impact of low housing inventory on sales and appreciation. In this market update, we will delve into these changes and explore how they are shaping the current housing landscape.

The Fed Rate Hike: An End in Sight?

Last Wednesday, the Federal Reserve made a unanimous decision to increase their benchmark Fed Funds Rate by 25 basis points, setting it between 5.25% and 5.5%. This move was aimed at slowing down the economy and curbing inflation.

Despite this being the 11th hike since last March, there is uncertainty about whether the Fed will proceed with another hike at their next meeting on September 20. Fed Chair Jerome Powell's cautious approach suggests that there might be a pause in September, providing some relief for potential homebuyers and mortgage holders.

Stepping Down Inflation

In a welcome development, June's Personal Consumption Expenditures (PCE) data revealed that inflation is on a gradual downward trend. While still elevated, inflation is now less than half of last year's peak at 3%, which could have positive implications for Mortgage Bonds and mortgage rates over time. This dip in inflation might ease some concerns in the housing market and offer some relief to buyers and sellers alike.

Expanding Housing Supply: A Critical Need

Despite a minor increase in Pending Home Sales from May to June, the ongoing lack of housing inventory continues to impact sales, resulting in a nearly 16% decline compared to last year. The National Association of Realtors (NAR) chief economist, Lawrence Yun, emphasizes the urgent need to expand the housing supply to meet the high demand, evident from multiple offers on available properties.

Increased Demand for New Homes Amid Low Inventory

The scarcity of existing homes for sale has led to increased demand for new homes. However, the availability of new construction remains insufficient to meet the surging demand. This persistent situation of high demand and low supply continues to support rising home prices, reinforcing the value of homeownership as an investment.

It's important to note that the median sales price drop from $432,700 last year to $415,400 does not indicate a depreciating property value. Instead, it reflects a mix of sales among lower-priced and higher-priced homes.

Home Prices on the Rise

Appreciation reports from the Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index indicate that home prices are experiencing a consistent upward trend. Additionally, recent reports from CoreLogic, Zillow, and Black Knight confirm that home prices are indeed moving upward. This ongoing growth in home prices signals a strong real estate market, benefitting both sellers and homeowners.

In conclusion, last week's events underscore the importance of closely monitoring economic data and understanding market trends to make informed decisions in the real estate market. The Federal Reserve's rate decision, cooling inflation, and the persistent impact of low housing inventory have far-reaching implications for buyers, sellers, and homeowners. As we navigate these changes, it becomes essential for all stakeholders to stay informed and adapt their strategies accordingly.

If you have any questions or need further clarification on any points mentioned, please feel free to get in touch. Our team is here to provide you with the expertise and support you need to make the best decisions in today's dynamic housing market.



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