Home Values Under Pressure?

The bond market is near flat-line so far this morning, as economic news left investors unsure as to which direction to go. Most importantly, the Fed’s favorite gauge of inflation showed that inflation over the last month remained tame. According to the Personal Consumption Expenditures (PCE) report, inflation is running at a 2.2% rate. Although this met the market’s expectations, it is lower than the 2.3% year over year rate that was reported last month. This is overall good news for the bond market, as it shows that inflation remains within the 2% – 2.5% range. Given that the Fed’s target rate was 2% for several years, this is a victory for Fed members to see inflation exceeding their previous goal. In recent months, the Fed has stated that they plan to allow inflation to run above this level for a period before taking a more drastic approach to help tame the growth.

Signs of a housing correction continue to appear, with major housing markets now seeing downward pressure on home values. This happens to correlate with an increase in the supply of homes on the market. In our newsletter that is currently being mailed out to our database, I explain the models I use to help predict where we are in the current housing cycle. One of the final stages of an appreciating market is when the supply of homes listed for sale bottoms out and begins to climb. It’s no coincidence that this aligns with downward pressure on prices. If supply continues to climb, we could see a rush of homeowners list their homes in homes of catching the peak of home values. I feel that opportunity is either close or just passed. We will have to see what the data shows in the months to come.

There remains little incentive to float. We will maintain a locking bias.