Inflation, Wealth & Market Moves
Insights on homeownership, economic trends, and navigating today’s market.
Join me in our ‘Weekly Market Update’ to decipher what to expect in the coming weeks & months.
Happy Friday! Brian Manning here with a weekly update. Let’s get right to it!
First of all, on Monday this week, there was a lot of talk about inflation. The interesting thing about inflation is the cost increase for goods. And yes, the inflation rate is slowing, but that doesn’t mean the cost of goods has decreased, right? So, if you look at eggs or orange juice, it doesn’t matter what the commodity is, you know that cost has already increased, and yes, the rate at which it’s increasing has slowed down and it’s reaching the Federal Reserve’s two percent target. But that doesn’t mean that the actual cost of goods is going down. We’re seeing across the country that it’s harder and harder economically for people to make ends meet, especially during the holiday season. We’ve seen more and more increases as far as the costs of goods are concerned.
Also, we got some feedback this week from the Federal Reserve. This talked about homeownership and net worth. I thought that this was something great and worth looking at. This looked at homeownership of renting versus owning. I’m bringing this up because I talk to a lot of people every single week about buying a house versus renting. “Should I buy a home or should I not? Should I wait? Should I rent? I think mortgage rates are higher right now”. The Federal Reserve looks at a comparison of renting versus owning and net worth. In 2019, the average renter’s net worth equaled $7,300 while the average homeowner’s net worth was $295,500. In 2022, the average renter’s net worth was $10,400, and almost $400k for a homeowner. Right now, a renter’s average net worth is $10,000 and the average homeowner’s net worth sits at $415,000.
Across the country, it’s proven over and over and over, that the most amount of wealth and generational wealth is typically created in real estate owned. I talk to a lot of people that are comparing renting versus buying and they’re stubborn not to buy right now. I think there’s plenty of proof here that owning will continue to be worthwhile.
This week on Wednesday, we got some feedback from the UK on their inflation. Inflation in the UK was hotter than expected. I bring this up because the world is globally interconnected right now. When you see inflation increasing in other places, it causes a little bit of concern. The concern is, will the cost of goods everywhere continue to increase? That had a little bit of an impact on the bond markets and a little bit of a negative impact on interest rates.
Then we also got Thursday’s feedback from the QCEW. QCEW stands for quarterly census of employment and wages. There are two types of employment reports that we get. We get one from QCEW. That’s going to be the most accurate. Then we get the BLS report monthly. QCEW takes their time, they’re more accurate and they report quarterly. This is a report that looked at Q2 2023 to Q2 2024. What’s amazing is the QCEW said at that time 1.25 million jobs were created.
The challenge that I have though, is the BLS says 2. 5 million jobs are created at that time. It’s such a difference, it’s unbelievable. The challenge that I have is that every single month we get these BLS reports, and the markets are going to react based on what the BLS report says. If it’s a very strong employment report, like for example, what we got at the beginning of October, which was September’s report, 200,000+ jobs were created which then prompted mortgage rates to go higher. But the QCEW came out and said, “Oh, no, I’m so sorry. BLS has been overstating jobs by an average of 100,000 people per month”. It’s frustrating because markets react based on what those reports say.
And as you’re starting to look at more and more data, I truly think that unfortunately, it shows that the U. S. economy is not as strong as the immediate reports make it seem. Then we got CoreLogic today. CoreLogic is a gauge of rent. This is on a year-over-year basis that shows rents went up 2%.
This is the lowest number in four years. The challenge that we have here is that the two inflation reports, the PCE (personal consumption expenditure) and the CPI (consumer price index) both consider the shelter component. We’ve been talking about this for years. Well, the PCE is the Federal Reserve’s favorite gauge of inflation. When we look at that, that component makes up 18%of the report. The challenge that we have is that the PCE right now is saying that rents are going up on average around 5.1% per year. But when you look at real-life data from places like CoreLogic, it shows rents are only going up at 2%.
So, the shelter costs are lagging. There are two problems here. One, when shelter costs were increasing because these numbers lagged by a year or two, the Federal Reserve was slow to hike rates as inflation was going up and shelter costs were increasing in real-time. The Federal Reserve was looking at this lag and they kept rates lower than they probably should have. Now we’re in a position where shelter is coming down and the report shows that it’s coming down not as fast as in real time and now the Federal Reserve is slower than it probably should be to cut rates. So, it’s always a pendulum shift back and forth. But again, as I said, unfortunately, it gets a little bit frustrating when you’re looking at real-time data. It gives you accurate, current economic information, and then you see what the Federal Reserve is looking at for their decision-making process, and it’s not as accurate as we’re seeing in real-time, and it’s impacting our markets from there.
Thanksgiving week! I can’t believe it’s already Thanksgiving. We’re rolling into the holidays. I hope everybody has an amazing time with their family if they’re going to spend time with their family or perhaps just get some time off. Our hours of operation Thanksgiving week starting this weekend through the next weekend and every single weekend 365 days a year are 8 a.m. to 8 p.m. If you’re looking at homes, you need pre-approval on Thanksgiving Day. I’m available. Call me, text me. I’d love to help you. Hope you all have a great day!
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