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April 26, 2024
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April 26, 2024
Inflation Has Flatlined... What Does This Mean for Rates?
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Have you ever been on a diet and you just can’t shake the last 10 pounds? That’s where we stand with inflation.
The U.S. was able to shed the excess pretty fast. Inflation peaked at 9.1% in June, 2022, and the Fed put us on a strict diet, raising interest rates 11 times starting in March 2022. The Fed Funds rate skyrocketed from .25% to the current rate at 5.5%!
The Fed is most focused on the Core PCE (Personal Consumption Expenditure) to gauge their inflation target of 2%. The Core PCE strips out the volatile food and energy component. The March 2024 reading came in at 2.8% as of the release today which was the same as February 2024. No progress was made.
What’s the hold up on why inflation has gone flatline? The consumer doesn’t want to stop spending! They got used to spending during COVID with the infusion of cash into their bank account. Now they are maxing out their credit cards and spending all their savings! We just don’t know when the coffers will run dry.
So the last 10 pounds of inflation are going to be hard to shed. What does that mean for mortgage rates? Inflation is the nemesis of Wall Street. We'll likely be going - if not up a little bit - through the election.
Here is the opportunity for homebuyers and sellers. It has been talked about almost ad nauseam: when rates go down, home prices will go up. One of the most interesting things we’ve seen this year is that despite mortgage rates going up, the average home price has gone up almost 5% year over year! These rates are not stopping home appreciation.
We have a supply issue with homes and not necessarily an interest rate issue. There are simply not enough homes for sale, and there is enough buyer demand to keep prices steady.
Life happens, and people are tired of waiting. New babies, break-ups, new jobs, retirement, engagements... people need homes for a variety of reasons. Those that become creative, suck it up, and buy now will be rewarded long term.
If prices are going up with higher interest rates, can you imagine how fast prices could potentially go up when mortgage rates actually do come down?!
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Estimated Qualifying Income assumes a homebuyer has a FICO score above 740, no other credit debt, and a debt-to-income (DTI) ratio of 43%.
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