Market Update 2/28/2023

ECONOMIC NEWS

The continued trend of inflation is a cause for concern. January data showed that the inflation rate is on the rise again, according to the Federal Reserve's preferred measure for inflation, the personal consumption expenditures price index (PCE). The PCE was up 5.4% from a year ago and rose 0.6% for the month, reversing seven consecutive months of slowing. This trend indicates a sustained increase in the cost of goods and services, which could lead to further rate hikes.

The wage growth during the pandemic has been uneven, with median real wages mostly remaining static as 40-year high inflation kicked in. However, as prices shot up, some have seen real wages decline. While many got new jobs or renegotiated with employers, some saw a lag in increases, and others saw no increase in nominal wages at all. This means that some people are finding it difficult to keep up with the rising cost of living.

Bond yields have been on the rise for the fifth straight week. After falling sharply after the most recent Fed meeting minutes were released, 2- and 10-year yields ended up higher. The 30-year yield scored its third consecutive gain. Yields and prices have an inverted relationship, so rising yields indicate that bond prices are falling.

REGULATORY NEWS

The Fed's recent meeting minutes indicate that the consensus is to continue interest rate increases. The meeting concluded with a 0.25% hike and cited the tight labor market, economic uncertainty, and war in Ukraine as reasons for the increase. After the release of the meeting minutes, stocks fell, and Treasury yields shed earlier losses.

Fannie Mae analysts predict that a 2023 slowdown is a near-certainty. While they now say that recent economic data make a first-quarter recession unlikely, high consumption relative to income and an increasingly inverted bond yield curve are causes for concern. As a result, the analysts expect 2023 home sales to be subdued.

Debt collection is down in the US. According to recent data, American debt collections dropped from $216 million in 2018 to $175 million in 2022, a reduction of 33%. Medical debt collections also dropped by 17.9% during that time. However, medical debt still makes up 57% of all collection accounts on credit reports, far more than other types.

In conclusion, the housing market is affected by a wide range of economic and regulatory factors.  While the housing market continues to experience ups and downs as the economy fluctuates recent actions such as the reduction of FHA's annual MIP fees and the trend of shrinking home sizes could make homeownership more affordable for those who may have been priced out of the market previously.  This is a good sign for buyers and sellers, alike. As always, it is important to stay informed and work closely with trusted professionals, such as loan officers and real estate agents, to navigate the ever-changing market.