By Greg Heym, Brown Harris Stevens Chief Economist and host of Crossing The Line
Today, we present the latest on inflation, mortgage rates, and Wall Street bonuses, while ducking questions about the impact the election will have on the economy and housing.
Consumer Prices Rose 2.6% Over the Past Year
That headline might scare some of you, as it indicates inflation remains above the Fed’s 2% annual target. But here’s some reasons not to worry so much:
-
A few years ago, the Fed switched to something called “flexible average inflation-targeting”, or FAIT to his friends. This means the Fed can allow inflation to temporarily fluctuate above or below its inflation target while it makes policy decisions. This is why they can aggressively cut rates while inflation remains above 2%.
-
Both the monthly and annual increase in CPI last month came in as expected, as did PPI. It’s always nice and much calmer when that happens.
-
The Fed will most likely still cut rates by 0.25% next month.
-
Housing prices keep driving inflation—they accounted for over half the monthly increase— due in part to the way the data is collected. A recent paper by the San Francisco Fed predicts that housing inflation will ease next year as supply increases. Let’s hope they’re right.
-
After falling sharply in the past two months, which kept the headline number low, energy prices were flat.
Feel better now? Good, let’s move onto the next item.
Mortgage Rates Fell Last Week
After six-straight weekly increases, the average 30-year mortgage rate dipped from 6.79% to 6.78% this week. I know that’s a puny decline, but it still counts. This was needed, especially after the post-election spike in rates last week.
Mortgage rates have been on a wild ride over the past year, falling from 7.44% a year ago to a recent low of 6.08% at the end of September, then rising six straight weeks to 6.79%. I wish I could say things will calm down soon, but markets are so data sensitive these days you may need some motion sickness pills to get through the next few months.
Wall Street Bonuses Set to Rise For the First Time Since 2021
I know the small decline in mortgage rates probably didn’t do much for you, but this item should. According to Johnson Associates, Wall Street firms will be increasing bonuses for the first time since 2021. Increases will range from 25%-35% for investment bankers in debt underwriting, to 5%-10% for those in fixed income. I know many of you—and me—are jealous of these huge payouts, but they are good for the economy, government tax revenue, and housing.
Let’s hope they spend it all on real estate.
The Election, the Economy, and Housing
I’ve received a lot of questions the past week about the impact of the election results on the economy and housing market. It’s way too early to tell, as things take a while to go from campaign promises to law if—and that’s usually a big if—they ever become law.
For those still hungry for an answer, the Wall Street Journal put out a good article last week on the subject, you can find it here.
