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A look into the Markets!

By
Real Estate Broker/Owner with Hamm Homes

A Look Into the Markets

 

This past week, rates crept to two-year highs, while stocks were able to bounce higher after their recent selloff. Let's discuss what's happened this past week and what to watch in the weeks ahead.

"Come on Down"...Bob Barker - Legendary host of The Price is Right

Prices are Soaring

"Inflation is at the highest level since the 1980s and is having an overwhelming impact on owners' ability to manage their businesses." - NFIB Chief Economist, Bill Dunkelberg

Inflation is the archenemy of bonds and rates. When inflation is low, rates can remain low. The opposite is true. On Wednesday, the Consumer Price Index (CPI), a reading on consumer inflation, showed prices surged 7% year over year in December. The last time inflation rose that high, Michael Jackson released his "Thriller" album, back in 1982!!!

To make matters worse, the Producer Price Index, (a reading on what price increases producers or wholesalers pay) also rose at a scorching 9.7% year over year in December.

What is of concern is these reports are from December or backward-looking. The sharp rise in Omicron cases since mid-December has put millions of people temporarily out of work, causing further supply chain and production issues. Bottom line, we should expect further price increases in the months ahead.

"If we see inflation persisting at high levels longer than expected, then if we have to raise interest more over time, we will, we will use our tools to get inflation back." Federal Reserve Chairman Jerome Powell.

The Federal Reserve has a mandate, to maintain price stability. Currently, prices are not stable, but are rising and causing problems. The Fed has become "hawkish" and forecasts call for multiple rate hikes once they stop purchasing bonds come mid-March.

It is important to remember that Fed rate hikes do not have a direct effect on mortgage rates, but on short-term loans like credit cards and autos. However, if the Fed can raise rates a couple of times and the economy can comfortably absorb those hikes without a big economic disruption like a slowdown in economic activity, then you should expect long-term rates like mortgages to creep higher.

2022 is looking like 2018 where the Fed was eager to raise rates multiple times and shrink their balance sheet. Back in 2018, mortgage rates increased from 4 to 5%. Upon hitting 5%, home loan activity slowed materially. One would think the Fed learned those lessons back in 2018 and will not allow long-term rates to go too high.

Bottom line: The sentiment in the financial markets has shifted very quickly. The Fed went from a tailwind to a headwind as it relates to rates. If you are considering a mortgage, rates are still suppressed thanks to the Fed bond-buying program which will end in March. Don't delay.

Looking Ahead

Next week brings a bunch of different reads on housing. 2022 is set to be another banner for housing. The demand for housing remains strong and the labor market continues to grow. Remember that jobs buy homes, not rates. At the same time, we should also expect home loan rates to remain relatively low, further fueling the housing market.

Comments (11)

Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Will,

What an interesting article you shared with us.  Wishing you a great Saturday.  A

Jan 15, 2022 11:38 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello A and Ron and thanks for stopping by.

 

Jan 15, 2022 11:57 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Will:

Thanks for sharing this. We've certainly seen a lot of changes recently with Omicron, the economy and interest rates haven't we. Wonder what lies ahead?

Enjoy your weekend!

Jeff

Jan 15, 2022 12:59 PM
Lawrence "Larry" & Sheila Agranoff. Cell: 631-805-4400
The Top Team @ Charles Rutenberg Realty 255 Executive Dr, Plainview NY 11803 - Plainview, NY
Long Island Condo and Home Specialists

This is a different market for sure Will, but Real Estate is very strong and buyers are looking and anxious to find homes!

Jan 15, 2022 02:10 PM
Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate (435) 632-9374 - St. George, UT
St. George Utah Area Residential Sales Agent

Inflation has raised everything, Will, Fed rate hikes are expected. Thanks for sharing the article!

Jan 15, 2022 03:14 PM
Kathy Streib
Cypress, TX
Home Stager/Redesign

Hi Will- thank you for sharing this very interesting information on the economy and the markets!!!!

Jan 15, 2022 04:12 PM
Ray Henson
eXp Realty of California, Inc. (lic. #01878277) - Elk Grove, CA
Realtor

It is interesting that the Fed let inflation get so high before they even decided to address it.  It is a full 5% higher than they are supposed to allow.  I sure hope they have not waited too long.  Thank you for your thoughtful real estate market update.

Jan 15, 2022 06:21 PM
Brian England
Ambrose Realty Management LLC - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

That is a pretty good look into the markets.  I hope that you are having a fun weekend!

Jan 16, 2022 04:34 AM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Will. Interest rates need to rise. The country was better off when rates were over twice what they are currently. Enjoy your day 

Jan 16, 2022 04:41 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Will - inflation is certainly a very big problem and needs to be gotten under control.

Jan 16, 2022 05:08 AM
Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

Getting a sustained economy and people working is a must in order to maintain a strong economy.  Interest rates will vacillate, but a weekly paycheck helps as well.

Jan 16, 2022 09:25 AM