🏁🚨FED WEEK! CRITICAL NEWS ON THE WAY FOR THE WEEK OF 09.18-09.22.23🚨🏁

MARKET MOVING NEWS THIS WEEK

September 18, 2023
 

We have some significant housing reports on the horizon, starting today with an update on home builder sentiment for this month from the National Association of Home Builders. Tomorrow, we'll get August's Housing Starts and Building Permits data, while on Thursday, we'll see the numbers for Existing Home Sales. Inventory remains a hot topic in the housing market. As long as it lags behind demand, home prices are likely to continue rising. Supply is the key metric to watch closely right now. A 10% increase in supply could put downward pressure on prices if mortgage rates don't improve. Fortunately, there are currently no indicators suggesting a surge in foreclosures. Defaults are at an all-time low, with 90% of mortgage holders enjoying rates below 5%, and only 3.3% of mortgages in the U.S. are delinquent.

On Thursday, be on the lookout for the latest Jobless Claims data and September's manufacturing data for the Philadelphia region. In the most recent week, Initial Jobless Claims saw a modest increase of 3,000, with 220,000 individuals filing for unemployment benefits. Concurrently, Continuing Claims also inched up by 4,000, indicating that 1.688 million individuals are still receiving benefits following their initial claim. It's worth noting that this latter figure has been on a declining trend since it peaked at 1.861 million in early April, reflecting a combination of individuals finding new employment opportunities and the expiration of benefits.

However, it's crucial to interpret these numbers in context. While the relatively low level of Initial Jobless Claims suggests a healthy labor market, it's important to consider that the reporting week included the Labor Day holiday, which may have influenced the data due to the shortened filing period. Additionally, Initial Jobless Claims tend to lag behind labor market trends. Typically, signs of a labor market slowdown appear first in reduced job postings, decreased hiring activity, and a decline in work hours before layoffs become more prominent. Recent reports have indeed shown these initial warning signs.

Looking ahead, it will be essential to monitor whether a sustained increase in Initial Jobless Claims emerges in the coming months, particularly in the context of the Federal Reserve's interest in identifying clear indications of labor market softening as they deliberate further rate hikes in the approaching autumn.

The Federal Reserve will take center stage as their two-day meeting commences on Tuesday, culminating in their Monetary Policy Statement, rate decision, and press conference on Wednesday. This will be closely watched as it can have a significant impact on various financial markets and economic outlooks.

INFLATION ON THE RISE AGAIN, WILL THE FEDS HIKE?

Let's dive deeper into the data from last week. The Consumer Price Index (CPI) for August showed a 0.6% increase in inflation, aligning with expectations. On an annual basis, CPI rose from 3.2% to 3.7% last month, though it remains relatively close to its lowest level in over two years. Core CPI, which excludes the volatile categories of food and energy prices, experienced a 0.3% uptick, while the annual reading decreased from 4.7% to 4.3%.

The monthly surge in inflation was primarily driven by rising energy and gasoline prices, while stable prices for food and shelter, along with decreasing costs for used cars, helped mitigate overall inflation. It's worth noting that an extended strike by the United Auto Workers could potentially impact the supply of new cars, potentially leading to an increase in used car prices.

Regarding wholesale inflation, the Producer Price Index (PPI) for August increased by 0.7%, surpassing expectations. On an annual basis, PPI doubled from 0.8% to 1.6%. Core PPI, which excludes food and energy, saw a 0.2% rise, with the year-over-year reading decreasing from 2.4% to 2.2%.

It's important to highlight that while annual PPI has increased, it remains historically low and significantly below last year's peak of 11.7%. Additionally, much of the increase in wholesale inflation can be attributed to rising energy prices, echoing the trends observed in consumer inflation.

The Federal Reserve has been actively raising its benchmark Fed Funds Rate to combat inflation, with the most recent hike in July marking the eleventh increase since March of the previous year, bringing the rate to its highest point in 22 years.

Recent statements from various Fed members, including New York President John Williams ("monetary policy is in 'a good place'"), Dallas Fed President Lorie Logan ("skipping a hike this month 'could be appropriate'"), and Philadelphia Fed President Patrick Harker ("the Fed may be at a point to 'hold rates steady'"), suggest that the progress made in controlling inflation might lead the Fed to consider pausing further rate hikes. The final decision will be disclosed after the conclusion of the Fed's two-day meeting this Wednesday, with the expectation leaning towards a temporary pause in rate hikes.

ONGOING PHENOMENON OF RECORD-BREAKING HOME APPRECIATION CONTINUES

According to CoreLogic's Home Price Index, the upward trajectory of home prices has persisted for the sixth consecutive month, with a 0.4% increase observed from June to July. In comparison to the same period last year, home prices have seen a substantial surge of 2.5%. Looking ahead, CoreLogic foresees another 0.4% increase in home prices for August, with a projected 3.5% rise in the year ahead. It's noteworthy that CoreLogic's predictions have typically been on the conservative side. In fact, based on the monthly gains seen this year, the CoreLogic index is on track for nearly 9% appreciation in 2023.

Zillow has also reported a noteworthy uptick in home values, reflecting a 4.5% increase since the beginning of the year. Their index has consistently reached record highs in home values since May. If these trends persist, Zillow's index is expected to demonstrate a 7% appreciation by the close of the year.

In summary, the recent data regarding the ascent of home prices from CoreLogic and Zillow aligns with the robust growth observed in reports from Case-Shiller, Black Knight, and the Federal Housing Finance Agency. These consistent findings underscore the enduring appeal of homeownership as a reliable investment and wealth-building opportunity in the real estate market.

However, it's essential to acknowledge that higher interest rates and escalating home prices have placed significant pressure on homebuilder confidence and consumer demand. Demand for primary homes has experienced a 33% decline, while demand for second homes has plummeted by 47% compared to pre-pandemic levels. Currently, demand is at its lowest point since 1995, reflecting the challenges posed by these market dynamics.

IS NOW THE RIGHT TIME TO BUY?

The answer to this question is highly individual. The ideal time to purchase a house is when you can comfortably afford it within your financial means.

Begin by examining your net income and deducting your recurring expenses. How much do you have left each month? Are you using those funds wisely, or are you saving them?

If you're waiting for interest rates to drop to 2-3% or for home prices to decline by 20-30%, you may be anticipating a significant and unlikely economic downturn.

As mortgage rates improve, both buyers and sellers are likely to become more active in the market, potentially increasing inventory. We anticipate that buyer demand will surpass supply, given that more families are forming than there are homes being constructed today.

If you can manage a mortgage payment, buying a home typically makes more financial sense than renting. I can provide a detailed analysis of the specific difference in your local market over the next 5-10 years during a Zoom call.

For further information and a personalized assessment of your buying potential, please schedule an appointment with me using the link below.

With a decade of experience in mortgage banking, I am eager to assist you in achieving your homeownership goals.

DOWN PAYMENT REQUIREMENTS:

Conventional Loans

· First Time Homebuyers put 3% down with no upfront mortgage insurance costs.

· Subsequent buyers put 5% down.

· Loan limits vary per county, non-conforming loan amounts require 5% down.

FHA

· FHA loans are not only for first time homebuyers. They’re for anyone that wants to buy with the intent to occupy the home as their primary residence. The down payment is 3.5%.

· Buying a 3-4 unit property will almost always require a higher down payment to meet HUD’s self-sufficiency rule.

VA

· 0% down fo Veterans

· No loan limits

· No funding fee for any % of disability

USDA

· 0% down

· Property must be in a rural area

JUMBO

· 10% down

· Reserve requirements are 6-12 months

NON-QM

· 10% down is the minimum

· Credit score and reserve requirements vary per product