In November of 1969, Elvis’ song Suspicious Minds hit number 1 on the Pop Charts and describes mistrust and doubt in certain people where they felt they were “Caught In A Trap.” The same could be said today with some of our Federal Reserve members, where we still have Fed Governors stating we may need to raise rates further. Michelle Bowman, one of our voting Federal Reserve Governors, has said that more hikes “may” be necessary to achieve the FED’s goal of taming inflation, while also stating that she feels that the overall employment situation is strong and further rate hikes may be needed to curb our “strong” labor market. I am not sure what she is looking at, but we have seen the unemployment rate rise from 3.4% at the beginning of the year to its current level of 3.9% as of the October numbers. A .5% rise is impressive over a 10-month time frame, and we have yet to see what the November and December numbers will be. My guess is we will be at or even maybe above 4% when the December number is released. The FED hikes have driven the US housing market to a “crawl,” with overall sales falling by over 30%. Our Federal Reserve is unaware that housing makes up a considerable portion of our economy. In some cases, we have seen gas prices at the pump fall by over 30%, and we know that will affect other consumer goods. We have seen prices on average farm products also drop….Bacon was 10.7%, pork steak and ribs were down by over 6%, chicken was down by 2.5%, and eggs were close to 14%. Were these farm products priced lower due to the FED hikes? Probably not, and more along the lines of minimal supply chain issues today. The current inflation rate is now at 3.2% on a year-over-year basis. If we were not looking back and averaging the past 12 months to produce this average 3.2% rate (how our Federal Reserve does their math)… we would most likely be at or even below the FED’s “target of 2%”.
The bottom line is that our Federal Reserve has once again overcorrected and with housing sales down over 30%, unemployment most likely rising over 4%, and car sales down notably, their hope for a “soft landing” will not occur again. Even our “Wall Street Warriors” are now pricing in rate cuts, possibly starting sometime in Q1 of next year. While I wish mortgage rates would head below 6% by the end of Q1, I will be happy with a 6.5% 30-year fixed rate by March of 2024, and I do believe that is very possible.* The good news is that we have most likely seen the high point for rates, and we should be moving slowly back down over the next 12-24 months.
*This is not an offer of this rate.
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: Wednesday, November 30, 2023