Stocks and bonds are rallying after Chairman Powell sounded dovish for the first time at his December press conference following their last FOMC meeting of the year.
“The question of when it will be appropriate to begin dialing back the policy restraint” was clearly “a discussion for us at our meeting today,” Powell said. The Fed is “likely at or near the peak rate for this cycle.”
Plunging interest rates are best illustrated by the 10-year benchmark fixed rate Treasury note yield that sets mortgage rates. It has plunged below 4 percent for the first time since the pandemic.
And the 30-year fixed-rate mortgage fell for the seventh week in a row, averaging 6.95 percent as of Dec. 14, according to data released by Freddie Mac on Thursday. A year ago, the 30-year fixed-rate mortgage was averaging at 6.31 percent.
It remained below 5 percent from the end of the Great Recession until May 2022 when the Fed began to raise interest rates. I predict it should drop below 5 percent sometime next year as inflation continues to decline and the Fed begins its rate dropping schedule.
We are already seeing the results—holiday sales are booming. Retail sales are surging now, up 4.1 percent annually both online and in stores. Dining out is up 11 percent annually.
“Advance estimates of U.S. retail and food services sales for November 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $705.7 billion, up 0.3 percent (±0.5 percent)* from the previous month, and up 4.1 percent (±0.7 percent) above November 2022.”
The housing market is on hold until mortgage rates fall more.
NAR Chief Economist Lawrence Yun forecasts that 4.71 million existing homes will be sold, the housing market is expected to grow, and Austin, Texas will be the top real estate market to watch in 2024 and beyond.
Yun predicts home sales will begin to rise next year – by 13.5 percent compared to 2023, and the median home price will reach $389,500 – an increase of 0.9 percent from this year.
Builder confidence in the market for newly built single-family homes is improving slightly. It rose three points to 37 in December, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today.
“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB Chairman Alicia Huey. “With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory and lower inflation.”
The Fed’s abrupt change in course has also boosted Q4 economic growth prospects. The Atlanta Fed’s GDPNow growth estimate just leaped from 1.2 percent to 2.6 percent, due to “…fourth quarter real personal consumption expenditures growth, fourth-quarter real gross private domestic investment growth, and fourth-quarter real government spending growth.”
So I don’t believe it’s too early to predict a better New Year for investors and homeowners!
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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