It’s no surprise that the Federal Reserve, with Jerome Powell at the helm, decided to continue the normalization process by raising rates this week. The move was well communicated, and it set the tone for a high likelihood of two more increases this year. Inflation concerns were downplayed in the prepared remarks, but there are hints on the consumer side that more is on the way. While the housing industry is worried about the corresponding rising mortgage rates, demographic tailwinds and buyer urgency point to another strong spring selling season.
Core CPI, a more stable indicator that strips out highly volatile food and energy prices, increased 1.8% YOY
While the 2.2% looks above the 2.0% target that the Fed outlines, CPI is not their preferred measure of inflation. The Personal Consumption Expenditure Index, the measure closely followed by the Fed, grew 1.7% YOY, similar to the growth in December
Higher inflation could cause the bond market to react and drive up yields, which are directly correlated with mortgage rates. Higher inflation could also trigger the Fed to raise interest rates more aggressively, also influencing mortgage rates and overall economic growth
Consumer Confidence At Highest Level Since 2000
The index came in at 130.8 in February, which is the highest reading since November 2000.
The primary driver of this consumer confidence read is the strong labor market. Nonfarm payrolls have increased for 89 consecutive months, the longest stretch on record
Looking forward, the Expectation Index rose 5.5% MOM. The reading reflects consumer optimism for the future state of the economy
The Fed chair noted that consumers will drive economic growth going forward as household balance sheets improve
Strong Momentum For Spring Selling Season
Housing market shows strength over last year despite higher mortgage rates.
Purchase mortgage applications rose 1.4% compared to last week and 4.0% above last year. The 30-year fixed-rate mortgage currently sits at 4.45%, higher than 4.44% last week and 4.23% last year
Mortgage applications are a leading indicator of the housing market that gives a pulse of future purchase activity. For example, the purchase mortgage data is updated through mid-March, while the existing home data released this week lags as its shows data through February
With mortgage rates steadily climbing since the new year, the refinance share of applications declined to 38.5%, the lowest level since 2008
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