The Fed, economic data, inflation, continued heavy Treasury debt and the housing sector are on the radar of market participants as well as the U.S. consumer.
The Fed. Back in January and early February the market was pricing in an almost 100% chance of a cut to the short-term Fed Funds Rate in March but that quickly receded to the point that now the first rate cut may come in June. Recent positive economic data and a reignition in inflation are the catalysts behind the reverse in sentiment. And where the inflation rate has dropped significantly from the highs seen in June of 2022, the Consumer Price Index in recent months has remained above the 3% level year-over-year.
The Economy. Weekly Initial Jobless Claims remain near historic lows while job growth was above a robust 300,000 mark in December and January. The recent national ISM Manufacturing Index and construction spending came in above expectations. Consumer Sentiment in February rose more than expected.
The Treasury. The elephant in the room and a big factor in the bond markets is the enormous Treasury debt offerings through notes, bills, and bonds to fund the government which are designed to minimize the cost of financing the national debt. Simply put, if there are more sellers than buyers, note and bond prices will fall and yields and rates will rise with the opposite being true. Speaking of debt, the U.S. national debt is at a record $34 trillion plus with household debt at a record $17.5 trillion.
The Housing Market. The recent Existing Home Sales report showed an uptick in housing inventory, says the National Association of REALTORS®. Redfin released findings that have listings rising 10% year-over-year during the four weeks ending February 18th, the biggest increase in two months. Sellers are hoping to take advantage of high prices: Sale prices are up 6% year-over-year, the biggest increase since October 2022.
Bottom line: You can take all the data and statistics but what it comes down to are two factors. Are potential home buyers in a sound job environment and are they able to afford the payments? The right opportunity is out there in the home-buying market but in the current state of the market, one must be a step ahead of the competition.
Source: Mortgage Market Guide
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