Friday Market Update: September 16th 2022

Friday Market Update: September 16th 2022

Have you been asking yourself…When will inflation calm down?? Then this one’s for you!

Happy Friday! Brian Manning here with the weekly update. Let’s get right to it.

Monday this week, we got the CoreLogic equity report. This gives us feedback on home equity across the United States. Since Q1 202, there’s been an increase in equity at $3.6 trillion. That’s an equity gain at 20% on a year-over-year basis. It’s just astounding to see how much home equity is out there. It’s just unbelievable.

Tuesday this week, we got the big report for CPI. That was probably the biggest market mover of the week, especially as far as mortgage rates are concerned. CPI stands for the Consumer Price index. There’s really two gauges of inflation. There’s the PCE, that’s the personal consumption expenditure, and there’s CPI, which really see CPI is more accurate because CPI takes into account out-of-pocket medical expenses and out-of-pocket housing expenses.

Specifically, we’ll look at what’s called the core rate of inflation. So, the core rate does exclude volatile items such as food and energy. The market mover here is that the core rate of inflation in the month of August was up 6/10th of a percent. And expectations was that it would be up 3/10th of a percent. So, we’ll look at the chart here in a minute, more on inflation, just talk a little bit more about when we think inflation is going to peak. But that was, certainly, a lot hotter inflation than anyone was expecting. And then rents were up from 6.3%, up 6.7%. So… All this information right here definitely ensures the Federal Reserve is going to do a… 75 basis point or 0.75% rate hike here in September.

You know, the challenge right now is that, you know, the Federal Reserve is so focused on inflation, it’s almost like they’re driving a car strictly by looking in the rear view mirror and making decisions on what’s already passed. The thing about inflation, and I do agree that they do need to hike rates because we still have some pressure on inflation. Of course, everyone’s experiencing everywhere. There’s going to be future rate hikes as well. The problem with the Federal Reserve is they want to see inflation get down to the 2% target. And if you just keep hiking rates, hiking rates, hiking rates, and you don’t stop at some point in time when you start to see inflation abate and you just continue to hike until you get the 2%, it will absolutely just wreck the economy. So… I’m not really convinced that they know what they’re doing.

You know, as the Federal Reserve hikes rates, it does take three to six months to see the impact of what’s going on there. If you look back in history like Paul Volcker, Paul Volcker came in, which is really what Jerome Powell was needed to mimic right now. If you look back in history and learn, you know, inflation peaked in 1980 and it peaked at 14.6%. But Paul Volcker, who was hiking rates at that point in time to really combat inflation, he raised the Fed funds rate from 8.5% to 20%. Can you imagine getting to 20%? But he did. And the thing about Volcker is when inflation came down from as high as 14.6% down to 11.8%, that was when he paused his rate hikes and he looked at this and he said, hey, I’m starting to see some impact on inflation abating.

Let’s sit back and wait and see what happens.

My concern is that the Federal Reserve is not going to do that. We have to watch the Federal Reserve and see what they’re going to do going forward. But they’re also focused on hiking rates until inflation hits 2%, which definitely would be not good for us.

Thursday this week, we had the railway strike averted. Thank goodness, that would have been 100,000 People have stopped working. It definitely would have wreaked havoc on the economy. So, it’s certainly good to see that that was fixed.

Friday this week, today, we get just kind of, I would say recessionary warnings everywhere. We’re starting to see recessionary-type conditions. A really good leading indicator, unfortunately, we had the CEO of FedEx come out. FedEx says that they see a recession globally. You know, the reason why I say they’re good leading indicators because FedEx is looking at shipments that are taking place, consumers that are buying products, and then what’s happening with the disbursement of products that are being purchased.

So, FedEx is seeing a reduction in purchases, they’re seeing a reduction in shipping and they’re seeing a reduction in their potential profitability. That’s a really good leading indicator for us for what’s going to be happening in the future. And then we have the World Bank come out. The World Bank also is a good indicator of what’s going on. And the World Bank says that since they see most central banks across the globe hiking, that’s going to really head us into recessionary conditions as well. So that’s just some feedback from the World Bank of what’s going on there.

I do want to look at a report here, sorry, just a chart on inflation to give you all an idea of what it looks like and when we think inflation might peak. So, the way inflation works and the way the readings work is that we are always going to be looking back at the last twelve months. And when we get a reading, currently, it’s replacing the one from the prior year. So, when we got inflationary reading this month, this was for the month of August, it was replacing this reading that we got here. And in August of 2021, inflation had only gone up 2/10th of a percent. Well, if inflation had only gone up 2/10th of a percent and then we went up 6/10th of a percent, that’s running hot and that’s causing the inflationary numbers to increase.

The not so good news is that the inflationary numbers for July, August and September of 2021 were very low numbers. So, likely, when we get September’s reading for inflation, this will be coming the beginning of October, September 2021 was only up 3/10th of a percent. If we get another hot reading there, that’s going to give us a lot more pressure on inflation and that’s going to cause mortgage rates to rise as well.

The good news, though, is that October, November, December, January, February, we start to see easing of inflation. So, I really feel like we just need to get through the month that we’re in. We need to get through September. We got to get through October because we’re not going to get October’s inflationary reading until the month of November and the beginning of November. But when we get that inflationary reading at the beginning of November, because we’re wiping away a number that was up 6/10th of a percent, we’re probably going to see a really good reading there. And that’s going to be helpful for interest rates. So, I know if you’re looking at mortgage rates right now, probably create some stress and anxiety. But I will tell you that looking at this information, if we just get through the next month or month and a half, it looks like we have some better times in front of us.

As far as the recessionary information, I’m not as concerned about it right now because historically, recessions are real estate friendly, especially, when you start to think about what the impact on interest rates. If you do start to see more recessionary pressures and then you start to see an easing of inflation like we just looked at October, November, December, January, I would say that’s probably going to bode well for interest rates. So, looking forward, I definitely see some brighter futures for us.

I’m around all weekend. If you have any questions, let me know. If you want to go through our strategic buyer consultation, give me a call. I’d love to help you any way I can. Happy Friday. Have a great day!



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