The Real Estate News Brief: Two New Inflation Reports, U.S. Debt Default Impact, Gallup Poll on Investor Preferences

In this Real Estate News Brief for the week ending May 13th, 2023... some good news about inflation, how a U.S. debt default might impact housing, and a new Gallup Poll on investor preferences.   Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.   Economic News   We begin with two inflation reports from this past week. The first was a report on the Consumer Price Index for April. The CPI shows a .4% rise in consumer prices which is a slight increase from the previous month, but it brought the annual rate below 5% for the first time in two years. It hit a high of 9.1% last summer, but is now down to 4.9%. The core rate, which omits food and fuel, was also down .4%, with an annual rate of 5.5%. Shelter prices rose the most, but those prices are slowing down. It’s interesting to note that the three-month annualized rate is now at 3.2%. (1)   Producer prices are also coming down. The Labor Department reported a .2% increase in the Producer Price Index for April, with an annual rate of 2.3%. The PPI’s core rate was also down .2% but the annual rate is a bit higher, at 3.4%. As MarketWatch reports: “Inflation is moderating at the consumer and producer levels. This is adding to market expectations that the Federal Reserve will refrain from raising interest rates further at the next meeting in mid-June.” (2)   The Fed’s preferred report on inflation, known as the Personal Consumption Expenditure Index or PCE, will play a big role in what the Fed does next. That’s coming out at the end of this month.   Weekly jobless claims were a surprise on the upside, with 240,000 people filing for benefits. They were 22,000 higher than they were for the previous week. Economists had only expected an increase of 3,000. That’s the highest number of claims since October of 2021. The numbers have been steadily rising since January, for a total of 1.81 million continuing claims. Higher numbers indicate a softening of the job market and slower wage growth which the Fed wants to see in its fight against inflation. (3)   Mortgage Rates   Mortgage rates are still idling in the lower 6% range. Freddie Mac says the 30-year fixed-rate mortgage was down four basis points to 6.35% this last week. The 15-year was down one point to 5.75%. (4) Freddie Mac’s chief economist, Sam Khater, says: “A recent sideways trend in mortgage rates is a welcome departure from the record increases of last year.” (5)   In other news making headlines…   Mortgage Rates Would Skyrocket if U.S. Defaults on Debt   As lawmakers haggle over the debt ceiling, there’s concern about what would happen if they don’t come to an agreement and the government defaults. According to Zillow, it would have a devastating impact on the housing market, with mortgage rates potentially rising to 8.4%. That would increase a typical mortgage payment by 22%. (6)   Zillow says if mortgage rates get to the 8% level, existing home sales could fall from April’s 4.3 million to around 3.3 million in September. That’s a 23% drop. Zillow’s senior economist, Jeff Tucker, acknowledges that a default is “unlikely” but if it did happen, he says it would send the housing market into a “deep freeze.”   It is hoped that President Joe Biden and Speaker of the House Kevin McCarthy will hammer out a deal by June 1st. In a Bloomberg interview, Treasury Secretary Janet Yellen said: “There is no satisfactory solution for the U.S. that’s good for the economy and financial markets other than Congress acting to raise the debt ceiling.”   Fed’s Rate Hikes Are Now Hurting the Housing Market   Housing economists are not happy about the latest rate hike. The Fed hiked short-term rates another quarter point to a range of 5 to 5.25%. The National Association of Realtors’ Lawrence Yun and the National Association of Home Builders’ Robert Dietz call it “disappointing.” They say the high rates are freezing loan activity and hurting the economy. (7)   They say that consumer prices have been coming down for months and the last rate hike wasn’t necessary. Yun says that: “Regional banks are an important source of loans – but they are frozen.” He says: “They are shuffling their balance sheets and figuring out what to do.”   Dietz says that higher rates are making it harder for developers to build homes, which are badly needed to boost inventory. He says: “We need to be building more than 1.1 million homes a year to haVe a meaningful impact on the lack of inventory.”    Real Estate Still a Top Investment Choice, but Lead is Shrinking   A recent Gallup poll shows that real estate is still a top investment choice, but the lead is shrinking. In 2022, 45% of the participants said that real estate is the best long-term investment. This year, that percentage shrank to just 34%. (8)   Many consumers have turned to gold, which has now taken second place and pushed stocks into third. Gold was favored by 26% this year, compared to 15% last year. Stocks dropped from 24% last year to 18% this year. Savings accounts, CDs, and bonds are up slightly but they are still in fourth place.    Gallup asked some of the participants about crypto, but that has lost its luster with the recent collapse of the FTX crypto exchange, and a decline in crypto prices, especially for bitcoin. Only 4% of Americans are choosing crypto. Last year, it was 8%.   That’s it for today. Check the show notes for links, and the “Join for Free” button to become a member of RealWealth. 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I'm Kathy Fettke.   Links:   1 - https://www.marketwatch.com/story/u-s-consumer-price-inflation-cools-to-lowest-rate-in-two-years-in-april-ef69d854?mod=home-page   2 - https://www.marketwatch.com/story/u-s-april-producer-prices-rise-2-3-over-past-year-smallest-increase-since-january-2021-8afa903e?mod=economy-politics   3 - https://www.marketwatch.com/story/jobless-claims-hit-264-000-in-latest-week-highest-level-since-last-october-d63852a4?mod=economy-politics   4 - https://www.freddiemac.com/pmms   5 - https://www.nar.realtor/magazine/real-estate-news/mortgage-rates-are-steadily-edging-downward   6 - https://therealdeal.com/national/2023/05/12/us-default-would-send-mortgage-rates-past-8/   7 - https://www.nar.realtor/magazine/real-estate-news/housing-economists-fed-policy-now-hurting-real-estate   8 - https://news.gallup.com/poll/505592/real-estate-lead-best-investment-shrinks-gold-rises.aspx?utm_source=google&utm_medium=rss&utm_campaign=syndication