As Core Inflation Continues To Slow The Fed Will Likely Be On Track For A Pause In Rate Hikes

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The Bureau of Labor Statistics released the August Consumer Price Index This Week in Real Estate which showed inflation accelerated in August for the second consecutive month, however, core inflation continued to slow to its slowest pace since September 2021. The Federal Reserve meet next week to deliberate monetary policy. Fed officials pay closer attention to core inflation with many believing this week’s report likely keeps the Fed on track for a pause in rate hikes allowing the previous 11 increases to continue working their way through the economy. Recent remarks from officials have indicated a more cautious approach ahead. “Overall, there is nothing here to change the Fed’s plans to hold interest rates unchanged at next week’s Federal Open Market Committee meeting,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics. Below are a few newsworthy events from the second week of September that influence our business: 

What Experts Project for Home Prices Over the Next 5 Years. While you may have seen negative news over the past year about home prices, they’re doing far better than expected and are rising across the country. And data shows, experts forecast home prices will keep appreciating. Even though home prices vary by local market, experts project prices will continue to rise across the country for years to come. Pulsenomics polled over 100 economists, investment strategists, and housing market analysts in the latest quarterly Home Price Expectation Survey and the results show home prices will go up every year through 2027 – 3.32% (2023), 2.17% (2024), 3.24% (2025), 3.79% (2026) and 4.18% (2027). According to the experts, home prices are expected to grow over the next five years at a more normal pace.  Read the full story here.

A Fall Reprieve Unlikely as Mortgage Rates Inch Up. Mortgage interest rates inched upward this week, dampening hopes for some relief heading into the fall season. The 30-year fixed-rate mortgage averaged 7.18% this week, according to the latest Freddie Mac survey. That’s up from 7.12% a week ago, and rates have now been above 7% for more than a month. Rising inflation, coupled with an economy that remains strong despite a series of rate hikes, is keeping mortgage rates elevated, said Sam Khater, Freddie Mac’s chief economist. While most analysts are not expecting another interest rate hike at next week’s Federal Reserve meeting, a decline in mortgage rates in the second half of 2023, which many economists had predicted earlier in the year, hasn’t materialized. The combination of high interest rates and rising home prices is a double-whammy for homebuyers. The National Association of Realtors’ Housing Affordability Index was at 87.8 last week, the lowest level since July 1986. “The Fed needs to stop rate hikes as the impact on housing consumers is clear,” said Jessica Lautz, deputy chief economist at NAR. “Even as housing demand cools this fall, inventory will still be low and prospective home buyers who can make the numbers work at interest rates around 7% will still have to act quickly,” said Lisa Sturtevant, chief economist at Bright MLS. Mortgage applications dropped another 0.8% last week, according to the Mortgage Bankers Association. They are now down 27% compared to a year ago and are at the lowest level since 1996, according to Joel Kan, MBA’s deputy chief economist. Read the full story here.

Single-Family Permits Decline in July 2023. Over the first seven months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 527,158. On a year-over-year (YoY) basis, this is 18.4% below the July 2022 level of 645,877. Year-to-date ending in July, single-family permits declined in all four regions. The Northeast posted the lowest decline of 12.1%, while the West region reported the steepest decline of 25.1%. The South declined by 16.5% and the Midwest declined by 18.0% in single-family permits during this time. Year to date through July compared to the same time period prior year, Oregon and Washington reported declines in single-family permits of 16.6% and 23.1%, respectively. Year-to-date, ending in July, the total number of multifamily permits issued nationwide reached 337,730. This is 14.3% below the July 2022 level of 394,215. Year-over-year Oregon reported an increase of 2.4% and Washington reported a decrease of 32.7% in multifamily permits. Read the full story here.

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