Friday Market Update: October 20th 2023

So, What did Jay Powell Say?

Happy Friday, Brian Manning, here with the weekly update.  First of all, 9th annual Fall Fiesta taking place Saturday, November 11! We’re gonna have some incredible live music. It’s catered by McDevitt tacos, all you can eat, open bar. It’s going to be a ton of fun if you have not RSVP, Please RSVP! Also, it’s a benefit for Conscious Alliance. We asked for a minimum suggested donation of $30 per person. I just had someone donate $500 the other day!! 100% of your donations go to Conscious Alliance. Please help us raise money for them. In return, you’re going to have an amazing night, I promise you. We look forward to seeing you there!

Let’s get to the updates. So Monday this week, we had NAR national home National Association of Realtors, they released their affordability index, this one down from 93.9, down to 91.7 is the lowest number since 1989. Listen, we know that affordability has been challenged because we’ve had interest rates rise, we’ve had home prices go up, we’ve had home prices remain steady. The challenge with their index and the methodology behind it is that they use median income across the country. So you know, if you have a really wonderful person that’s working at a fast food restaurant, and minimum wage and they couldn’t buy a home, they’re going to be part of this equation.

And they’re going to be impacted by the affordability index here. So we know affordability has changed but incomes have gone up as well over the last several years. And I’m not questioning it. I understand rates move higher. But I do question the methodology behind it with using the median income across the country.

Tuesdays we got retail sales, retail sales were stronger than expected up seven tenths of a percent. This is for the month of September. It definitely was a mover in the markets because the markets are looking at this and they’re just saying hey, the US consumer is still spending it’s a very robust economy. What does this gonna do for the Federal Reserve? How do they look at this and it definitely was a market mover something we need to keep an eye on there was is we got NAACP, this is National Association of Homebuilders gives this gives us consumer confidence or assuming builder confidence for the month of October, this move from 44 down to 40.

So this is in a range of zero to 100. Anything above 50 is considered growth. Anything below 50 is considered contracting. So they certainly would say homebuilders think that they’re in their confidence index that it’s contracting. If you look at single family, home stars, these are we’re on track for a million homes.

Part of the challenge for single home builders, though, is that when the Federal Reserve hikes interest rates as they have, it takes away from the incentive of a home builder to go out build new homes because it increases their financing costs. So you’re seeing kind of retraction in homes in the market as far as new construction is concerned, because their rates and financing have increased their carrying costs are higher. So they’re bringing less homes to the marketplace.

Thursday’s we had a lot of Fed talk. We had Christopher Wallace. He’s a Fed governor. He says he sees signs of the US economy weakening. And he really I think it’s important to know because he previously had a hawkish tone. So to hear someone that’s very hawkish before really focused on Fed rate hikes now kind of changing their tune, saying that they see a sign of a weakening economy. It’s just good to see multiple Fed members right now just talking about this is really keeping an eye on rate hikes because we also had Jerome Powell talking Jerome Powell had a lot of tough talk. The markets did not love what Jerome Powell had to say. He’s definitely more hawkish and his tone right now.

But what’s interesting, if you look at what the Federal Reserve does, and we go back many, many years and their cycles, they always go through a boom and bust cycle every single time you look at the Federal Reserve does, they leave rates too low for too long as they did this time, we had very cheap borrowing costs for too long, inflation was going up, they left rates really low for too long. Because rates were low for longer than they should have been, then you have more consumer spending, you have a boom in inflation, unfortunately, then they freak out the pendulum shifts really hard the other way, they raise rates really fast.

And if the brakes something like pushing the economy into recession, once they break it, then they have to drop rates drop rates dramatically, as fast as they can to try and get as a swing back. And the pendulum is always shifting and it’s never balanced in the middle. It’s always raised too low for too long, promote consumer spending boost inflation, which is not great or raise too high for too long, too fast, strengthen I’m sorry, weaken the US economy push us into recession, and it’s always swinging back and forth. And it’s never just kind of balanced right in the middle.

They’ve done this over and over and over through many cycles. The good news is every time they do this, say Hi Grace, they push us into recessionary pressures. If you look all the way back to the 50s, when you experienced recessionary pressures, mortgage rates go down and housing usually does typically well so I have to wait and see what happens. But we’re definitely going through these these boom and bust cycles.

We also had Raphael Bostic on the news today talking about the economy. He is not a Fed voting member but a lot of people pay attention to what he has to say because the Fed governor and Raphael Bostic a little bit conflicting. He was saying that you know, I think we’ve done enough to hike rates you probably don’t have to hike anymore. But when asked you know when when we’re gonna see rates lower the first comment he said was the middle of next year. The second comment is that was the end of next year. Well, that’s a little bit conflicting in the answer there so we’ll have to wait and see but it is good to see some fed tone out They’re a little bit more dovish saying hey I think we might be done with rate hikes let’s see what happens with the US economy. I’m around all weekend if you have any questions let me know if you want to learn how we’re closing purchase transactions in 15 days give me a call!

Happy Friday. Have a great day!



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