Market Update - September 18th, 2023
Inflation Numbers Come In Higher Than Expected
The Fed’s battle to bring inflation down to their target goal of 2% just got a little harder. The August CPI inflation data was released last week and showed that the US inflation rose to 3.7%, above expectations of 3.6%. This is more proof that the Fed will need to keep rates higher for longer in order to continue to bring inflation down. The Fed’s job to lower inflation is still far from over and may prove to be more difficult in the coming months. There is another Fed meeting scheduled this week, and it could provide us with more information about their future strategy.
Key Takeaway: The inflation drop from 9% to 3.7% seemed like a breeze. However, the drop from 3.7% to the target inflation number of 2% is going to prove to be very difficult. As a result, expect the Fed to keep rates higher for longer.
Will the Fed Increase Rates Again this Week?!
The Fed meets again this week in what could be a pivotal meeting for mortgage rates. There is currently a minimal chance (9%) of a 0.25% rate hike at this weeks Fed meeting, which is good! However, the odds of another rate hike by year-end are back on the rise nearing a 50% chance. If Nick and I were betting men, we would bet on one additional 0.25% rate hike between now and the end of the year. Reason being, we think it will be very difficult for the Fed to get to that current target inflation rate of 2.0%.
Key Takeaway: High likelihood that the Fed will not increase rates this week. However, we are expecting Fed to raise rates one more time this year by 0.25% if inflation stays in the mid 3% range. As a result, we don’t expect to see any substantial decrease in mortgage rates anytime soon.
Second Homes in Freefall?!
According to a recent Redin article, the allure of owning a second home has quickly lost its luster, with demand plummeting 47% from pre-pandemic levels. Economic uncertainties, remote work options, and the desire to cut back spending have driven this sharp decline. As the world adapts to new realities, the notion of owning a second home is undergoing a fundamental reevaluation, making it one of the most notable shifts in the real estate industry.
We have noticed a considerable change with Airbnb’s and investment properties as well. When the economy slows, many people decide to cut back on vacations or look for cheaper housing accommodations. This is putting a squeeze on property owners as they purchased these properties using projected rental income from prior data when traveling and rent were at its highest levels in years. When money gets tight, one of the first things struggling property owners will do is think about selling that second home or investment property that may not be cranking out the profits they had anticipated.
Key Takeaway: The decline in the demand for second homes could quickly be followed by a wave of these property owners deciding to sell their existing inventory. Stay in front of your past clients as this could be an opportunity to pick up additional listings from sellers that are looking to cash out while inventory is still low, and the market is hot!
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