Home Prices Will Skyrocket if the FED Slashes Rates in 2024
Powell is living his own inflation nightmare.
Good news, everyone!
The Federal Reserve thinks it’s just about done raising interest rates to tame inflation and is talking about when to start cutting rates again to juice the economy.
“We are seeing strong growth that … appears to be moderating. We are seeing a labor market that is coming back into balance … We’re seeing inflation making real progress,” Powell told reporters.
“These are the things we’ve been wanting to see … Declaring victory would be premature … But of course the question is ‘when will it become appropriate to begin dialing back?’”
The glory days are coming around the mountain!
Except they aren’t.
In case you haven’t noticed, inflation isn’t exactly at the 2% target the FED keeps repeating.
Core inflation, J-Pow’s favorite statistic, has been around 4% for the last three years. Core inflation already strips out food and energy (i.e., groceries and gas), so why is it still so high?
One word: housing.
Why is the core rate sticky?
The biggest culprit is the cost of shelter. It accounts for more than one-third of the entire CPI and is the single biggest expense for most families.
The cost of shelter rose 0.4% in November to leave the increase over the past year at 6%. Rents have risen even faster.
Even with 7% or higher mortgages, housing continues its relentless march upward, even now, in the worst time of the year for housing.
The supply is catastrophically low, and buyers are scrambling for any type of housing they can afford. They know that rent increases are coming in hard and fast; they can sense it in their bones.
That’s why so many people think the economy is horrible when the numbers are saying it’s great.
The economy is great for the blessed few who have the means to take advantage of the situation. For the rest of us, though, we are stuck with doggedly high prices for basic goods and the realization that the worst is yet to come.
If the FED starts cutting interest rates in 2024, already out-of-reach housing prices will start to go vertical, increasing exponentially in the blink of an eye.
The demand for housing is there, but the increased mortgage rates have capped it just a bit due to higher monthly mortgage bills. If rates come down, then more people can afford the monthly cost, the bigger the demand will be, and homeowners will jack up the prices to cash out as much as they can.
It will be a bloodbath for buyers.
Regardless of inflation and mortgage rates, the 2024 housing market likely will remain challenging, particularly for first-time buyers who are unable to leverage the proceeds from a previous home sale, summit panelists noted. Plus, amid record low inventory, finding a home to buy will be a top hurdle.
Homeowners remain reluctant to sell and give up the low mortgage rates they locked in two years ago. Further, homebuilders have underproduced for decades, leading to a shortage of 5 million housing units nationwide, according to NAR research.
So why is Powell so interested in cutting rates? The answer lies not in the economy, but government borrowing.
Powell’s predecessor Janet Yellen fucked up big time by not issuing long dated bonds when interest rates were near zero. Now, the government is stuck with bonds that are paying much higher interest, and the it’s going to kill the federal budget.
Powell knows that he needs to arrange for the government to pay less in bond payments, to the point where he’s will to give up his near-maniacal obsession with 2% inflation to reduce the nation’s debt obligations.
The Takeaway
I’ve said it many times before, but no one is coming to save you. Your financial future is entirely up to you.
While there are bigger things to face than buying a house to consider in the coming years and decades, finding a good place to live is still a pretty high priority.
Just like the stock market, you can’t time the housing market. For me, buying a house is a form of securing my base, letting my mind let go of the anxiety of someone else owning the home I live in.
I also get that for some people, renting is absolutely the answer.
Regardless of which answer is right for you, be safe out there. The world is getting crazier every day!