Are Rate Hikes Near The End?

One of the things I continuously emphasize to my clients is that “this too shall pass”. Much of the homebuyer sentiment concerns today are driven by actions from the Fed. The continuously rising Fed Funds rate, the concerns about how bad this might get, and what this all means to “me” (the homebuyer) have really impacted the market.

A point I make is that when the Fed stops its’ QT (quantitative tightening) there will be a pronounced shift in market sentiment. I think we are almost there, meaning the Fed is nearing the end of its tightening. The Forbes article I used in the graphic suggest the same stating, “At the December FOMC meeting, the committee eased interest rate hikes to 50 basis points (bps) from 75 bps. This time around,?the Federal Reserve?will likely raise rates by just 25 bps”

Make no mistake about it, and this is simply my conjecture, once the Fed stops the consumer response as it relates to housing will be pronounced. The reality is that pent up demand has only increased this past six months as buyers sat on the sidelines and yet the demographics have only increased the likelihood of increased demand.

As a January 24 Bloomberg story states, “With the Federal Reserve’s Feb. 1 interest-rate decision a week away, traders in the options market are contemplating a scenario in which the rate hike it’s expected to deliver ends up being the last one of the tightening cycle.” You see it’s not just one source highlighting this, it’s coming from multiple locations.

In the Morning Market Commentary, a daily newsletter sent inside the beltway, yesterdays stated this: “Excess capital is about to flood back into the stock and bond markets...Yesterday, we discussed how the current rate-hike cycle has been the most aggressive since 1980. And as a result, 2022 was one of the worst years on record for bond market returns and the traditional 60/40 portfolio.”

It went on to say, “However, based on what we're seeing in the bond markets and U.S. Treasury yields right now, it seems the aggressive rate-hike cycle is close to an end. And that means the upside potential for stocks and bonds is rapidly improving.”

My assumption is that consumer sentiment is as fickle as the wind on a lake. A shift in conditions will shift that sentiment and then we are left with the reality that demographics and supply are still tension points that will bring ever increasing demand over the next few years while putting upward pressure on home values as supply of homes remain short of market demand.

This is my nicest way of saying….buckle up gang, the purchase market will be far more active as we move into the second half of this year. Just wait for the Fed to signal it’s over and as the Market Commentary says, money will start flowing back in to Bonds’s and equities and that is good for confidence.