And Now We Predict the Future
The latest Consumer Price Index (CPI) data for June provided the best news on inflation in two years. The CPI rose only 3% YoY and only .2% compared with the month prior- beating economists' and Wall Street's expectations. Considering inflation was at 9.1% in June 2022 it is becoming clearer that the FED's policies have had their desired effects in many (but not all) respects. Housing costs still make up the lion's share of inflation accounting for over 70% of the June increase, but there are signs that rental rates are falling from pandemic highs and we will continue to see numbers improve on that front. Job growth is tapering and GDP growth is moderating yet June's consumer confidence index was the highest since January of 2022.
So it would largely appear that the FED's actions are having the desired effect of a softish landing in slowing the economy and taming inflation without sending the economy into a painful recession. Most analysts expect at least another .25% raise in the Fed Funds Rate this year, but are hopeful that we could be at the end of the interest rate hiking cycle by the end of this year.
If the tightening cycle ends in 2023 as we expect it will and interest rates begin to fall, we expect housing price appreciation to further accelerate as we will see an increase in Buyer demand without a significant enough increase in inventory to balance it out. Eventually, if rates come down far enough (into the low 5's), we should see the lock-in effect subside to some degree which will help with inventory levels. However, we will remain in an inventory shortage for the foreseeable future as the strength of our economy - with 75,000 jobs added to our local job market YoY in 2023- will continue to outstrip the growth of our housing stock.