It’s the End of the World as We Know It
This week’s “Rock” pick as it relates to current-day economics is the 1987 hit from R.E.M. “It’s The End of The World as We Know It (And I Feel Fine).” This song could relate to many aspects of our current economy and even many of our Federal Reserve folks who believe everything is fine and we need to hold rates where they are. So, let’s see what they obviously are not seeing and why they should possibly be looking at cuts sooner than later…
- Leading Economic Indicators have been down 21 out of 22 months.
- The average debt-to-income ratio for mortgage applicants nationwide has risen to 40%, which is the highest level in history. This means, before taxes, 40% of a potential homebuyer’s gross income is going to paying housing, credit cards, car payments and other installment debts.
- The NY Fed reports that delinquencies on credit cards have now risen to 7% from 3% at the beginning of the year.
- Housing prices have risen by over 47% since 2020, and mortgage rates have climbed from the high 2% range to their current levels of around 7%, which is creating severe affordability issues nationwide.
- Household-name companies are facing declining sales, which is forcing them to reduce stores, create “specials,” or file for bankruptcy… Red Lobster is filing for Bankruptcy, and Cracker Barrel is considering closing some of its stores. When have you ever seen a Cracker Barrel close a store? McDonald’s, Wendy’s, Krystal, and Burger King are all offering “special meal deals” to bring traffic back.
- Retail sales are showing signs of slowing.
The above examples are clear reasons that our economy is not “chugging” along as our Federal Reserve folks might think. The reason for these decreases is that the average American is either “tapped out” on their credit lines or can no longer afford the things they once could due to the “restrictive” Fed policies that are currently in place. They simply don’t understand that they are part of the problem as to why inflation is at its current levels. Did they think that these companies who are contemplating shutting down or reducing their stores did not pass on their increases in loan payments for their businesses? Of course not… they are simply focused on trying to get the inflation rate back down to 2%. We will see prices fall in the near future, but it will be because of people not spending money and businesses shutting down, which will lead to higher unemployment and even fewer purchases. Wow… what a great solution. Funny… in the Federal Reserve minutes from their April meeting, several of the members actually alluded to possibly tightening some more.
The bottom line is perhaps they should get out and go to a Cracker Barrel or a Red Lobster and see what is going on in America. I think, if they did, they would see that things are not as “rosy” as they might have thought, and avoiding a recession should be their biggest concern. I have talked before about John Q. Public’s debt problem. Holding rates higher will not solve that problem, which will ultimately hurt U.S. businesses and send us into a deep recession.
Is there any “good news”? Yes… I do believe that the Federal Reserve will wake up soon and realize that their “restrictive” policies went too far once again, and they will begin making their cuts sooner than many believe. Rising unemployment, stagnant wages (unless you work at a McDonald’s in California), and increased delinquencies on overall consumer debt will push them in the right direction. This will push mortgage rates back down sooner than we may think. I hate to be negative, but perhaps our Federal Reserve folks need to actually get to know who our average citizen really is and the pain they have caused them.
Remember… the BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
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Blog post date: Thursday, May 23, 2024
