Living in a Material World…
Madonna’s January 1985 pop hit “Material Girl” may be more accurate now than in 1985. Our Federal Reserve sees our economy as healthy due to continued spending despite their unprecedented rate hikes, which are taking rates to 20-year highs. However, consumer spending does not seem to have been slowed very much by higher prices and higher rates, and this is why the Federal Reserve is reluctant to cut rates even though we are starting to see signs of unemployment moving to higher levels. Savings rates for the average American are at their lowest levels in several years, posting up at 3.6%, while consumer debt (non-mortgage and/or vehicle) continues to rise each month. I am not denying that consumer spending has risen unchecked for several years, but it is not because the economy is doing well. It is because the average American sees something, wants it, and then buys it, not with cash, but on credit. They are truly living in a “material world.” The “buy now, pay later” mentality is more the norm than the exception, keeping our economy at what appears to be “healthy.” The DOW Jones is within 1000 points of hitting 40,000. I am not saying we will see another Black Monday like in 1987, where the DOW fell 22% in one day, but many of the same factors existed then as they do today. We are currently bouncing on a DOW JONES all-time high while real estate sales are in their 2nd plus year of a slowdown, and real estate sales make up a large portion of our economy. Consumer spending and debt are at all-time highs. None of this seems to be a good recipe for a thriving economy. The Fed says we need to see inflation go below 2% so that rates can move lower. However, I stated in an earlier post that math does not work if we are averaging the inflation rate over the last 12 months. We will need to see monthly inflation numbers go below 0% for several months, which will most likely not happen anytime soon.
We are now hearing from several FED officials stating that cuts may come sooner if they start to see unemployment rise. Interesting. I am glad they are at least talking about it, as I believe we will see unemployment rise faster than the FED could force them into making cuts. Unfortunately, this will not solve the bigger problem of rising consumer debt as long as the credit card companies keep handing out credit cards or raising limits. This problem will probably come to an ugly end sooner rather than later. It is simply not sustainable. Lowering rates, which will lower credit card payments, may slow the overall issue, but the problem will remain. Solving this issue will be the topic of a future Weekend Update.
So, while rates continue to hover close to 7% on 30-year fixed-rate mortgages, it does appear that they will soon begin their move to lower levels by the end of the year.
As Madonna said in 1985…”The Boy With Cold Hard Cash Is Always Mister Right.”
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, April 4, 2024
