Fed Minutes of April-May Meeting Show Bankers Willing To Raise Rates… The bankers noted that while inflation had eased, it wasn’t making much progress toward the Fed’s 2% goal.
What It Means— Inflation is not falling fast enough and might turn higher. If that happens, several of the bankers said they would be willing to raise rates. That’s fair, but it might not be the whole story. The Fed raises and cuts rates, but not often. Most of the time, central bankers just talk about rates. The goal is to jawbone long-bond investors into nudging whichever way the Fed wants rates to go. A few participants might be on record as supporting higher rates to quash inflation, but that’s a long way from Chair Powell’s recent statements that while rates might remain higher for longer than expected, the next move will be down. To “follow the money,” bet on Powell.
Existing-Home Sales Fall 1.9% In April, Are Down 1.9%Over Last Year… The median existing-home sale price rose to $407,600, which is 5.7% higher than April of last year.
What It Means— The market is moving into equilibrium, but not in a good way. At the current sales pace, a 3.5-month supply of homes was available.
While that ratio is moving closer to the four- to six-month level that is considered balanced, we’re not getting there by increasing sales. Instead, potential buyers are fading, which means that the few homes on the market are taking longer to move. But, to paraphrase economist Herb Stein if something cannot go forever, it will stop. Eventually, people will need to move, and eventually, new buyers will capitulate. Many analysts thought that the Fed would lower rates by now (so did the Fed, by the way), which would have brought down mortgage rates and broken the log jam. Not too many people who have sub-4%mortgages are motivated to get another one at 7%. This is another outcome of 15 years of interest rate manipulation. The beneficiaries aren’t keen on giving up their gifts.
New-Home Sales Fell 4.7% from March and Fell 7.7% Compared to Last Year… March sales also were revised lower and the 30-year fixed-mortgage rate jumped from just under 7% to 7.5% last month.
What It Means— The median price of a new home rose to $433,500, or 4% higher than in April of last year. But the median new home isn’t sold to the median buyer. New homes represent about 12% of all home sales, and builders gravitate to the part of the market that is moving (high end, middle, or affordable). Median home buyers represent everyone. The data shows that home builders are focusing on higher-income buyers, because that part of the market is moving. It is good that a part of the residential real estate is moving, but that won’t do much to ease our home shortage. We need affordable homes by the millions, but that would create another wave of inflation. It will be a long time before we solve this problem unless we change the paradigm. Did anyone say, “accessory dwelling unit?” Think of a new, separate 350-sq. ft. home in your backyard. Tiny homes are happening.
Mariachi Band and a Fire Breather End Up in a Standoff Over Tips… Many people in Mexico work the streets for tips, doing everything from magic tricks to singing. Recently, a Mariachi band attacked a fire breather to drive him away from a lucrative corner, beating him as he fell to the ground. But the fire breather wasn’t done. Taking advantage of his trade, he turned his flames on his attackers, and soon the Mariachi band members were swatting fire off of their clothes and discarding burning coats. The Mariachi band members fled. Obama revived the old adage of, “You don’t bring a knife to a gun fight,” but what do you bring to a “Mariachi gang vs fire breather” fight. Maybe you just avoid them altogether.
Data supplied by HS Dent Research
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