The Real Estate News Brief: Two Inflation Reports, Fed Minutes on What’s Next, Mortgage “Sweet Spot” for Homebuyers

In this Real Estate News Brief for the week ending April 15th, 2023… we have two inflation reports, the minutes of the last Fed meeting, and the results of a survey on an acceptable mortgage rate.   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 economic news from this past week. The government released two reports on inflation that show prices are rising more slowly, but that inflation is still too high. The Consumer Price Index or CPI shows a small .1% increase in March, mostly due to lower food and gas prices. Energy prices were down 3.5% while groceries fell .3% including an 11% tumble for egg prices. Grocery prices are still 8.4% higher year-over-year, but those declines helped slow the yearly rate from 6% to 5%, which is the lowest we’ve seen since May of 2021. (1)   The news isn’t quite as good for the core rate, which strips out food and gas. That was up .4% and “raised” the annual rate from 5.5% to 5.6%. The increase was partly caused by a 2.7% increase in shelter prices, although rents and home price growth are slowing.    The Producer Price Index or PPI for March was also released, and shows a big drop in wholesale prices. That typically means we’ll see retail prices coming down in the coming months. The data shows a .5% monthly decline which brings the yearly rate down from 4.9% to 2.7%. That’s the lowest it’s been since January of 2021. The core rate shows a slight increase of .1%. That also reduced the annual rate from 4.5% to 3.6%. (2)   Meantime, the Federal Reserve released minutes from the meeting in February which resulted in a quarter-point rate hike. The notes show that Fed officials are very concerned about rate hike stress on the banking system, and are now admitting that we’ll likely see at least a “mild” recession later this year. They raised the Federal Funds rate nine times in a row to a range of 4.75% to 5% at the last meeting. They believe that inflation is still much too high and that further rate hikes may be needed, but they will be looking closely at the incoming economic data ahead of their meeting in May. (3)   U.S. Treasury Secretary Janet Yellen spoke out at the end of the week, saying that banks are being more cautious, and that if they tighten their lending standards further, there may be no need for further rate hikes. She said that would serve as a “substitute for further interest rate hikes that the Fed needs to make.” (4)   Consumers are spending less, which is another sign that the economy is softening. Retail sales have declined four out of the last five months, and were down 1% in March. As reported by MarketWatch: “Retail sales haven’t fallen off a cliff, but they also aren’t rising rapidly like they did in 2021 and early 2022.” (5)   Jobless applications are slowly rising. There were 239,000 initial claims for the previous week, which is an increase of 11,000. That’s not much of a blow to the job market, but it does show that layoffs are slowly rising. Most of the unemployment applications were filed in California where big tech companies are handing out pink slips. Continuing claims are still very low at 1.81 million. (6)   Mortgage Rates   Mortgage rates held steady for the most part. Freddie Mac says the average 30-year fixed rate mortgage was down just one basis point to 6.27%. The 15-year was also down one point to 5.54%. (7)   In other news making headlines...   Mortgage Rate “Tipping Point”   The National Association of Realtors is predicting they will fall below 6% by the end of the year. NAR economist Nadia Evangelou says: “If rates drop to 6%, 3.1 million more households will be able to afford to buy the median-priced home compared to the beginning of the year.”   A survey by John Burns Real Estate Consulting shows the “sweet spot” for most homebuyers is lower than 6%. 71% of the participants taking that survey said they won’t accept anything higher than 5.5%. (8)   Sharp Drop in Single-Family Permits   There’s been a steep drop in the number of building permits pulled for single-family homes. The National Association of Home Buliders says the they are down more than 34% year-over-year with the sharpest decrease in the West followed by the South and the Midwest. They are down about 44%, 33%, and 31% respectively. The Northeast had the smallest drop of 23%. (9)   Multifamily permits are up slightly for the nation with a year-over-year rate of just over 8%. There’s been a steep drop in the Northeast for apartments while they have surged to almost 32% in the South.   Texas had the highest number of single-family permits, but those have dropped more than 40% in the last 12 months. Florida and North Carolina have also experienced big declines of just over 31% and 22% respectively.   That’s it for today. You’ll find more on all these topics by following links in the show notes at newsforinvestors.com. You can also learn more about how demand is growing for single-family rentals at our website and where it makes sense to buy them. Hit the “Join for Free” button to become a member with access to all parts of our website. And  please remember to hit the subscribe button, and leave a review!   Thanks for listening. I'm Kathy Fettke.   Links:   1 - https://www.marketwatch.com/story/consumer-prices-rise-more-slowly-cpi-shows-but-inflation-still-stubbornly-high-74611cd9   2 - https://www.marketwatch.com/story/wholesale-inflation-posts-biggest-drop-in-3-years-ppi-shows-3fc04750?mod=economy-politics   3 - https://www.marketwatch.com/story/fed-officials-at-march-meeting-were-keenly-worried-about-impact-of-bank-stress-on-economy-26f2d36d?mod=mw_latestnews   4 - https://www.cnbc.com/2023/04/15/yellen-says-us-banks-may-tighten-lending-and-negate-need-for-more-fed-rate-hikes.html   5 - https://www.marketwatch.com/story/retail-sales-tumble-in-march-in-a-sign-of-softening-u-s-economy-b9d35c44?mod=economy-politics   6 - https://www.marketwatch.com/story/jobless-claims-climb-to-239-000-and-point-to-rising-layoffs-5f07ceb5?mod=economy-politics   ​​7 - https://www.freddiemac.com/pmms   8 - https://www.nar.realtor/magazine/real-estate-news/mortgage-rates-move-closer-to-sweet-spot-for-buyers   9 - https://eyeonhousing.org/2023/04/steep-year-over-year-decline-for-single-family-permits-in-february-2023/