I Volunteer *HOUSING* as Tribute

The Federal Reserve’s rate hike and policy announcement yesterday shows that the housing market could be the greatest victim of the fight against inflation.

After what seemed to be an initial response from Fed Chairman Jerome Powell that could have settled down the bond market, he went rogue in his statement and made contradictory comments that then caused mortgage interest rates to jump higher.

The higher interest rates will further sacrifice housing, as this will keep many from listing their homes and giving up their 3% mortgage interest rates.

As the market locks up and the supply of homes dwindles, we will face an unprecedented situation that even the most experienced economists are unsure of the full destruction this will cause.

The reality is that the 43% growth in home values over a 3.5-year time frame has been a strong contributor to the out-of-control inflation that we have been facing.

The cost of housing is the largest single component of the Consumer Price Index (CPI), which measures inflation. Therefore, housing expenses need to slow greatly for inflation numbers to fall.

As we see homes currently in construction finish, we will see many workers in the new build industry be out of work. This will help drive the unemployment rate higher and will also drive down the cost of new homes. This is unfortunately a needed process for the housing industry to go through to get inflationary pressures under control.

Once we get back to a balanced market, we will see growth once more. This could happen if rates fall to the 4.5% – 5.5% range.

Tomorrow’s Bureau of Labor Statistics (BLS) report will show how well the labor market did in the month of October. If the report is strong, we will see more upward pressure to mortgage interest rates. However, if the report shows that the labor market is finally showing weakness, rates will benefit.

Since the past few reports have shown strong growth, the risk of another lofty report is high.

Only float if you are willing to take the risk.