Trending News and Market Wrap-Up for the Week Ending 5/17/2024
Hotly Anticipated Inflation Data Keeps Hope Alive ???
As a Real Estate Attorney serving the vibrant Long Island community, I understand how critical inflation trends are to our local housing market. This week, we saw the release of the Consumer Price Index (CPI), a report that has become paramount as inflation continues to be a top concern for financial markets. Interestingly, stocks and bonds both improved significantly, despite the CPI results merely matching forecasts.
The market’s current relationship with inflation is such that the absence of bad news is considered good news. This CPI report was indeed slightly better than the previous one, with the core month-over-month metric hitting its 0.3% forecast. This figure aligns with the average reading over the past 12 months, which explains why the annual rate of core inflation remains well above the 2.0% target.
To achieve the 2.0% target, core inflation needs to drop to the 0.1%-0.2% range month-over-month. However, the Federal Reserve might consider cutting rates earlier if the monthly data indicates strong potential for reaching this target.
The Fed and financial markets are also closely watching other components of inflation data for reassurance about further cooling. Among these, the metric measuring home payment inflation, known as Owners' Equivalent Rent (OER), is particularly important. This makes sense since it accounts for the largest portion of the most problematic inflation category. OER's trends are gradual and well-correlated with timely rental data from private market sources, which boosts confidence in its future direction.
OER had been trending positively before it unexpectedly paused at elevated levels, creating confusion among market participants and Fed officials. Theories about what it will take for OER to progress further vary, but most include the factor of time.
Another critical factor is housing supply, especially multi-family housing, which directly impacts rent price trends. According to new data from the Census Bureau, multi-family residences were completed at one of the fastest paces in decades, despite a slight dip from recent highs. However, new multi-family construction projects are starting at a much slower pace than a year ago. With annual starts just over 300k, it’s only a matter of time before completions can no longer remain in the 500k+ territory.
The slower pace of new construction isn’t limited to the multifamily sector. Overall building permits and housing starts have been in a holding pattern while completions continue to add up. Analyzing housing supply to anticipate improvements in inflation data is highly forward-looking.
Mortgage Rates and Market Movement ????
In the present, mortgage rates ended the week significantly lower than last week, despite some pushback on Thursday and Friday. Rates have pulled back slightly after a solid winning streak. While it's true that rates only managed the winning streak because they were at their highest levels in over five months by the end of April, the current trend is still positive.
To see meaningful improvement, big-ticket inflation data needs to move closer to the Fed's 2% target. The next significant data won't be available until the first week of June, so market movement might remain relatively stable until then.
Next week, the Fed could influence market volatility despite no new Fed announcements. Multiple Fed speakers are scheduled, and the minutes from the most recent Fed meeting will be released. While the market is likely well aware of the Fed's current stance, it's always wise to consider potential market reactions to any major Fed communication.
Key Takeaways:
As a Real Estate Attorney on Long Island, I am here to assist mortgage and real estate professionals navigate these complex times. Whether you need legal advice on transactions or guidance on how market trends might impact your business, I'm here to help.
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