What Does the New Inflation Data Mean For Real Estate and the Economy?

The Weekly Recap

Treasury Secretary Janet Yellen believes that the US economy has hit its much desired ‘soft landing’. Yesterday was inflation day for wall street and economists as the new CPI data came in hotter than desired. Mortgage rates rose slightly for the second week in a row as refinance applications are up 19% week over week and 30% year over year. Manhattan renters are still getting no relief as median rents have increased for the first time since July to $4,050, up 1.3% from November. The SEC gave the green light for Bitcoin ETFs and people are going nuts over pink Stanley Tumblers which is weird.

What Does the New Inflation Data Mean For Real Estate and the Economy?

There was a lot of hope and optimism that the December CPI report would show a cooling level of inflation that would offer the Federal Reserve the empirical data necessary to begin dropping rates sooner than later. With the CPI number coming in a little hotter at 3.4%, .3% higher is an increase not seen since September, complicates things for a decrease in rates. Fueled by service costs and an increase in the price of goods such as cars and clothing, considered core goods which are separate from food and energy costs. Even with the rising CPI, a positive sign for inflation overall is that wholesale prices unexpectedly declined by 0.1%.

Even as Treasury Secretary Janet Yellen declared that we’ve accomplished a soft landing (where the inflation cools but the economy still grows and unemployment remains low), the high CPI number puts pressure on the 2% overall CPI goal for the economy. It puts into questions whether or not the economy is ready for the quantitative easing measures that investors, homebuyers and business’ have been hoping for over the last two years. Although the CPI number was higher, for most within the Federal Reserve it was an expected increase.

The positive news is that out of the 19 members on the board, none of them expect Fed rates to go higher than where they are currently. The head of the Cleveland Fed, Loretta Mester came out and suggested that March is too soon for rate cuts. This newsletter has maintained a belief that the Fed would not begin to cut rates until June and any sort of decrease in mortgage rates between now and then is a big bonus driven by market economies and speculation.

We might expect rates to continue to tick up slightly over the next few weeks as markets become a little more bearish, forcing treasury yields higher. Anecdotally, the beginning of this year is the most active January I’ve seen in my career and with the longer view of the short term in mind, people are motivated by the overall positive outlook for future rate drops and being able to enter the housing market.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Mortgage rates have not moved materially over the last three weeks and remain in the mid-six percent range, which has marginally increased homebuyer demand. Even this slight uptick in demand, combined with inventory that remains tight, continues to cause prices to rise faster than incomes, meaning affordability remains a major headwind for buyers.

News You Can Use

• Wall Street Is Trying to Nail Down Timing of Fed QT Taper Bloomberg

• US Inflation Picks Up, Signaling Bumpy Path for the Fed Bloomberg

• Consumer Prices Increase 0.3% in December, Higher Than Expected CNBC

• Yellen Declares US Economy Has Reached Soft Landing Yahoo Finance

• March Is Probably Too Early for a Rate Cut, Fed’s Mester Says Bloomberg

• Chastened Economists Hopeful for a US Soft Landing, Fed Rate Cuts Bloomberg

• The End of Fed’s Crisis Era Stimulus is Near Axios

• Manhattan Renters Get No Relief In a Still-Competitive Market Bloomberg

• Unpacking the December Jobs Reports Mixed Signals Axios

• Global Economy Set for Its Worst Half Decade of Growth Says World Bank CNBC

• US Consumers See Smaller Inflation Gains Ahead; New York Fed Yahoo Finance

• Pay Is Finally Beating Inflation Again Axios

• The SEC Approves Rule Changes that Pave the Way for Bitcoin ETFs CNBC

• How a 40-Ounce Cup Turned Stanley Into a $750 Million a Year Business CNBC

The Deep Insight

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