Inflation, Interest rates, Annual, Quarterly Prices/ Appreciation and more!

Inflation, Interest rates, Annual, Quarterly Prices/ Appreciation and more!

  • Alexander Fromm Lurie
  • 04/18/24
2nd week of April inflation release:  Overall inflation ticked up in March to 3.5% from 3.2% in February.  The "Core" rate remained at 3.8%. The Fed's target rate is 2%. 

The discussion regarding the Fed's expected benchmark rate cuts this year has markedly changed in recent weeks. From today's WSJ:  "The latest data [regarding inflation] raises two different possibilities. One is that the Fed's expectation that inflation continues to move lower but in an uneven and 'bumpy' fashion is still intact...In such a scenario, a delayed and slower pace of rate cuts is still possible this year. A second possibility is that getting stuck at a level closer to 3%. Without evidence that the economy is slowing more notably, that could scrap the case for cuts altogether." That is a big change from the recent commonly held expectation of 3 cuts this year - but if CPI swings lower suddenly, the outlook could change very quickly.

Another article in the WSJ talks about another big issue  beyond interest rates in housing affordability, not just for buyers, but for existing owners, The Hidden Costs of Homeownership Are Skyrocketing:  "Rising insurance premiums, property taxes and maintenance costs show little sign of abating." Of course, how hard specific issues are hitting any particular market can vary enormously. As we know, some regions prone to natural disasters are seeing stupendous increases in insurance premiums. But virtually all markets have seen enormous home-price appreciation since 2019, with parallel effects on property taxes (except in CA where Prop 13 limits these for existing owners). And inflation has deeply affected the costs of maintenance and repairs. This is like a triple-whammy hitting the real costs of buying and owning, and one big reason why the market is being more driven by more affluent home buyers now.

Weekly Average 30-Year Conforming Interest Rates from Freddie Mac. Since it's a weekly average, it was not much affected by yesterday's inflation reading. From the year's beginning, it has been oscillating within a relatively narrow band of readings. 

Daily Average 30-Year Interest Rates (not limited to conforming loans). Today's headline on the Mortgage News Daily website:  "Basically The Worst Day for Interest Rates Since October 2022." As one can see these short-term changes can reverse direction very quickly, but the general trend since the year began has been upward, not what we were hoping for. Though so far, as we've seen, the market has been taking this in stride.

Stock markets have also been generally taking the latest CPI reading in stride, falling a bit yesterday, but already rebounding today: This is a daily rate chart for the S&P since 11/1/2023, when the market began its huge surge. Stock markets have a big effect in more affluent markets, on household wealth and consumer confidence.

The preliminary Consumer Sentiment (or Confidence) is here.

Foreign-Born Map just released by the Census. CA has the highest state percentage of foreign born residents, and some Bay Area counties see percentages significantly higher than the state. 

The price of oil has been rising in 2024

CAR came out with their final county median sales prices for 2023, so I updated annual price charts and added year-over-year annual and quarterly price change charts. The quarterly y-o-y appreciation charts generally show recoveries from the negative appreciation that showed up after the pandemic boom ended. Appreciation is typically measured year over year (not month to month, or quarter to quarter) to adjust for seasonal home-price trends. 

Interest rates have been climbing since the latest inflation reading came out. Headline in yesterday's WSJ:  Powell Dials Back Expectations on Interest-Rate Cuts -  "Federal Reserve Chair Jerome Powell said firm inflation had introduced new uncertainty over whether the central bank would be able to lower rates this year."

Stock market indices have declined since the beginning of April due to concerns about inflation and the Fed. 

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