More Cooling Signs

Federal Reserve officials, in their recent policy meeting minutes, indicated a potential pause in rate increases. They emphasized proceeding carefully and expected upcoming data to clarify the extent of a slowdown in inflation amid higher borrowing costs. Since their last meeting, no strong case has been made to raise rates at the upcoming meeting in December. Officials now see better-balanced risks between raising rates too much versus too little compared to earlier this year.

  • Officials raised the benchmark federal-funds rate in July to a 22-year high, responding to inflation concerns. The minutes noted a shift in the perceived risks and highlighted concerns of higher-than-expected inflation and lower-than-expected growth.
  • Economic projections in September suggested another rate increase this year, but recent data indicates a slowing economy. Market expectations predict the Fed holding rates steady through early 2024, with a nearly 60% chance of a rate cut in May.
  • Despite steady economic growth, job additions in October slowed, and wage growth and inflation have decreased. The minutes stressed the need for more evidence to be confident that inflation is on a path to the Fed's 2% target.
  • The Fed's pause in rate hikes, now around six months, aligns with positive economic data suggesting a 'soft landing.' However, officials, including Chair Jerome Powell, are cautious about declaring victory over inflation, recognizing past instances of unexpected reversals.

Some officials express optimism about achieving a 'golden path' landing, with inflation falling without significant job losses. Chicago Fed President Austan Goolsbee highlighted the possibility, provided external shocks remain manageable.

Home Sales Fall

Home sales hit a 13-year low in October due to soaring interest rates and home prices, severely impacting the housing market. Affordability is at record lows, dissuading many potential buyers. Economist forecasts predict that existing-home sales for 2023 will be the lowest since at least 2011. In October, existing-home sales, a significant housing market component, dropped 4.1% to a yearly rate of 3.79 million, the lowest since August 2010. This represents a 14.6% decrease from the previous year, maintaining a trend seen in recent months.

  • Despite low demand, the limited supply of homes for sale persists, contributing to rising home prices nationally. The median existing-home price in October reached $391,800, a 3.4% increase from the previous year and the highest for any October since 1999.
  • Mortgage rates reached two-decade highs in the fall, impacting decisions made in August and September, contributing to the decline in October sales. While rates have fallen since late October, potential buyers may wait until after the holiday season to resume their searches.
  • Buyers, facing limited options and budget revisions due to rising mortgage rates, are navigating a challenging market. The time homes spend on the market has increased from 21 to 23 days compared to the previous year.

Despite the challenges, some buyers have found opportunities in the market, taking advantage of lower listing prices and increased negotiation power. Cash purchases accounted for 29% of October's existing-home sales. Finally, home-builder confidence fell for the fourth consecutive month in November, reflecting ongoing challenges in the housing sector. This downward trend underscores the broader difficulties in the real estate market.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Anne Nygård / Unsplash.