Last week we got more of the same from Jerome Powell. Tuesday while giving remarks about the economy and policy he reiterated the need for the Fed to remain focused on Price stability, but also made it very clear that the Fed will not become a “climate policymaker”.

No big surprises, so no big changes leading up to the February 1^st Fed Rate Hike announcement.

CPI data that we kept a very close eye on came in exactly as projected. It’s not bad, but it’s also not the GREAT signal that inflation is reversing course.

And consumer sentiment was not earthshattering.

Collectively this means nothing was startling enough to shake up the markets ahead of the February Fed meeting

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With that let’s get on to this week’s market outlook!

Monday is actually a bank holiday in honor of Martin Luther King Jr. day. No banks are open, and the markets are closed.

The real fireworks start Wednesday January 18^th when we get all PPI data. Month over month, year over year, and CORE PPI all come out before the market opens. If these come in better than expected, then the case can be made that inflation may be tapering off, flattening, or maybe reached it’s peak.

Remember, the Producer Price Index is a lagging indicator, but a projections of future consumer expenses that end up in our Consumer Price Index. Keep an eye on all things PPI this week. Higher than expected is bad news, Lower than expected will be treated as GREAT news.

And there’s even more important news on Wednesday this week when we get the latest in retail sales…remember we just talked about consumer sentiment a minute ago? The question we’re hoping to answer is “will this retail sales number reflect that same attitude we just got in consumer sentiment or will it conflict and create confusion in the markets?”

And then really important data for us know about in mortgage and real estate is the NAHB Housing Market Index – The National Association of Homebuilders.

This monthly reading is a survey of about 900 home builders which asks respondents to rate the relative level of current and future single-family home sales. Any number above 50 is a favorable reading. But this index is getting clobbered month after month after month, falling from 83 a year ago, to 55 by July 2022, all the way down to 31 in December, just last month. So in 1 years time it plummeted from 83 to 31…an unheard of 52 point fall from grace.

Any turn around in this number would be very welcome news, but I wouldn’t be surprised if this eventually bottoms out in the low 20s or high teens….YIKES!

Thursday January 19^th we get unemployment claims and boy has this one been all over the place. Not to mention there was a recent revision that delicately admitted the government over stated jobs growth by 1-million jobs, but oh well, it’s not like we’re making monetary policy around here based on actual data right?!?! (sarcastic)

And we round out the week Friday January 20^th with Existing Home Sales. This is another interesting case of data because it HAS ALSO been declining month after month after month for well over a year. At one time it posted 6 consecutive months of readings of 6-million annualized sales, but most recently posted an annualized reading of 4- million in December. That was JUST last month, and it’s a 33% decline from the most recent high. This is another big black eye for the housing industry as a reflection of the overall economic impact of monetary policy that makes its way through the nation.

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So what’s all this mean for mortgage rates?

The markets are going to continue to gather all the data they can leading up to the next Fed Rate hike decision and press conference February 1^st. But if you need to make that next right step in mortgage and real estate in 2023, it’s imperative you get started now.

As we’ve been discussing, rates will likely hover in this range we’re in for quite some time until something obvious shifts sentiment and money in a defined direction. Until we start seeing progress made to reduce inflation, expect that elevated rates are what we’re contending with.

That being said, there’s a LOT less buyer competition in this market, and if the Home builder index is any indication, there’s not a lot of inventory coming to market anytime soon. Therefore, prices could stabilize or lightly correct vs. crash and burn. And someone else’s cold feet could be your opportunity to get in that dream house in 2023.

If you haven’t heard about the 3-1 buy down yet, that’s the focus of this weeks podcast coming out in a few days where we talk all about how people are using it today to win in the market. Take a listen and see if this is what can help you achieve your ownership goals in 2023.

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Well, the first week of the new year surely didn’t disappoint! The economic data we were waiting on came out mostly better than expected which initially sent mortgage rates up but they then eased to end the week.

The big deal of last week was the FOMC meeting minutes, which actually didn’t reveal anything new or earth shattering, so what could have been a rocky patch in the market was thankfully met with “Meh…ok”.

The surprising and possibly troublesome part of last week would actually be Friday’s jobs data that came out better than expected. With the Fed’s recent comments that they need to see a softening labor market in order to know that they are winning the fight against inflation, the last thing they want to see is more jobs being created and unemployment going down at the same time. Which BOTH happened. That might sound counterintuitive but in order to achieve their objective they have to continue forcing demand destruction, meaning less dollars chasing less goods at their current prices…More jobs and less unemployment is the opposite of that and translated as consumers ability to keep this spending up for even longer.

Last thought on this is actually a couple of headlines that crossed the screen this week regarding mass layoffs coming. Most notably Amazon announced job cuts of 18,000 (Article Link) and Salesforce announced job cuts of 10%, which is roughly 8,000 jobs (Article Link). So just those 2 companies make up 24,000 job cuts. And if this is any indication of what we can expect from companies that are smaller on the food chain, then all this aforementioned positive labor data could just be a blip on the radar. And only time will tell.

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With that let’s get on to this week’s market outlook!

The economic calendar has 3 big things coming up this week.

First – Jerome Powell will speak on Tuesday January 10th, this is not expected to create any disturbances on the heels of a mild FOMC meeting minutes release last week; however, what most people ARE listening for are any clues about their February 1^st rate hike decision. Could Jerome signal or foretell what the markets can expect?…probably not, but let’s see how he plays it this week. He’s been exercising a heavy dose of caution as of late.

Second – We will get all CPI data on Thursday January 12^th. Month over month, year over year, and CORE CPI are all on display right before market open. Although each are important in their respective rights, I’ll be looking at the Core CPI with special interest as it also relates strongly to Core PCE and CORE PPI which give us an average understanding of where inflation lies in our overarching economy. Remember that any positive number (+) means inflation is still increasing, a Zero (0) means NO CHANGE, and a negative number (-) means inflation is going down. The going down part is key because in order to achieve the Fed’s target of 2% average inflation, we’re going to have to start seeing some negative inflation readings pulling down these highs we’ve seen over the past year. WATCH this closely. It WILL impact the Fed’s rate decisions in these first few meetings of 2023.

Third – Preliminary Consumer Sentiment comes out Friday, which will let us peer into how the consumer feels about the economy right now. We’re coming off a holiday season where some spending was higher than normal, and some intentionally spent less by choice (or force). This could all be a big toss up though because the Consumer Sentiment readings over the past 6 months have missed expectations to the upside and downside anywhere from 0.5% – 5.0%…which is a pretty big statistical variation here. So all in all, not a lot of credibility can come of this even though it’s considered an important reading.

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So what’s all this mean for mortgage rates?

The general consensus is that the markets are thawing out from December still, posturing and preparing themselves for the February 1 Fed rate decision, and press conference. We’re living in the middle of a time where what the Fed says or doesn’t say dramatically impacts and alters market fluctuations. There will be a point where the mortgage markets have to begin regaining some consumer appetite to borrow once again, and that can only come with rates easing and coming back down. The BIG QUESTION is when will that happen? When will enough be enough and the markets have to start enticing aspiring homebuyers to buy homes, and homeowners to refinance, no matter what the reason may be. This week and this month it’s all about needs and desires. If you need to buy, lean in and start preparing yourself for homeownership, connect with your loan officer to best prepare to buy in 2023. There’s a LOT less competition right now. So if you found yourself getting outbid time and time again, take another look this year, you’re home might just be on the market right now. Even though inventories are lower than usual, the time on market is longer than it has been, closing prices are AT and sometimes BELOW list price, and we are starting to see more and more agents tout “seller concessions” as an emerging buyer advantage in the market right now… It might be time to take that second look…or third…or fourth :/

And for those of you who need to refinance to access cash locked up in your property, build that room addition, ADU, or prepare to take in a family member who needs assistance living out their best days, please let us know how we can help you. There are many ways we can assist in closing the gap of where you might find yourself financially today, and where you’d like to be in 3-6-9 months from now.

Mortgage Rates aren’t going to be making any dramatic changes up to new highs or burrow out some new lows, they will fluctuate, and they might do this for months. With so much of our financial future hanging in the balance of the Feds decision in relation to fighting inflation, there really isn’t a clear defined direction for rates to head. Expect ranging rates until we reach a clearing and have a destination in sight.

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