Not Really Sure

Not Really Sure

How much will mortgage rates moving up a lot affect housing prices? Not really sure. We’re watching that quite carefully.”

No one knows — not even the world’s most powerful central banker. During the news conference following last week’s meeting of the Federal Reserve Open Markets Committee, Fed Chairman Jerome Powell acknowledged a sharp rise in mortgage rates. They’ve gone from 3% in August 2021 to 6 percent now, according to Bankrate’s national survey of lenders.

With home sales weakening across the nation (meanwhile, home prices are surging relative to the median, signaling higher-end homes dominating the sales) and homebuilder sentiment slumping, this morning’s Case-Shiller home price index data unexpectedly accelerated even higher. 

The latest data is from April and shows the 20-City Composite surging by a record 21.23% YoY (more than the +21.05% expected).

“We’re well aware that mortgage rates have moved up a lot, and you’re seeing a changing housing market,” Powell said in response to a question from Mark Hamrick, Bankrate’s senior economic analyst. “We’re watching it to see what will happen. How much will it really affect residential investment? Not really sure.

Does the FED really know what is going on?

Stephanie Pomboy the founder and president of the economic research firm MacroMavens, interestingly comments about what the FED will do with interest rates. Reading between the lines, she is implying the FED is only jawboning interest rates higher, but she thinks rather than seeing massive interest rate hikes to stop inflation, the economy really has a ceiling on rate increases at 3%. She believes that the economy is NOT as strong as many believe and the FED will chicken out and pivot to QE as the economy weakens.

What it Means for Home Prices

Housing economists don’t expect sharp drops in prices, at least not nationally. After all, supplies of homes for sale remain near record lows. And while a jump in mortgage rates has dampened demand somewhat, demand still outpaces supply, thanks to a combination of little new construction and strong household formation by large numbers of millennials.

The National Association of Realtors said Tuesday that rising mortgage rates have slowed home sales. Even so, the median price of homes sold nationally hit a record $407,600 in May, up 14.8% from May 2021, and the inventory of homes for sale remains below one-year-ago levels.

“It’s still a very tight market,” Fed Chairman Jerome Powell said during last week’s remarks to reporters. “Prices may keep going up for a while, even in a world where rates are up. It’s a complicated situation.”

I’m “Not Really Sure,” if the FED knows what is going on or how to fix it.

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