Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today's topics include another Fed hike, a surge in home sales, and the latest on banking.
The Fed Hikes by 25
The Federal Reserve raised short-term rates by 25 basis points on Wednesday—their ninth hike since March 2022. I know you’re probably wondering why the Fed would hike rates in the middle of a banking crisis. The answer is that inflation is still way too high. While down from its peak of 9% last June, the annual pace of inflation was 6% last month, much higher than the Fed’s 2% target. While there are plenty of signs the economy is slowing—most notably the decline in consumer spending and a slumping housing market—the labor market remains unbelievably strong. In the first two months of 2023, 815,000 jobs were created in the U.S., and there are still 10.8 million available jobs out there. And despite all the recent layoff announcements, jobless claims fell again last week. The strong February jobs report led many economists—myself included—to predict the Fed would hike 50 basis points this week. But after the failures of SVB and Signature, and the prevailing concern about more failures, the Fed wisely chose a 25-basis point increase. Remember, their number-one job right now is bringing inflation down, with everything else secondary to that. Updated economic projections from the Fed indicate they expect one more quarter-point increase in rates before they stop hiking. Chairman Powell also said not to expect any rate cuts this year, even though markets are pricing them in. Basically, you can expect a lot of nothing from the Fed after their May meeting. That’s probably just fine with many of you, but it will give me a lot less to write about in these columns. I guess with baseball season starting, I can go back to picking on the Mets. Remember, it’s never too early to plan for Bobby Bonilla Day on July 1!
Existing Home Sales Rise for the First Time in a Year
Sales of previously owned homes jumped 14.5% in February, their first increase in a year and the biggest increase since July 2020. Sales were 22.6% lower than a year ago, but that’s not surprising given the sharp rise in interest rates over that time. So, what led to such a jump in existing home sales? Lower prices and lower rates. The median sales price was $363,000 in February, which was down slightly from a year ago. That may not sound too exciting, but it’s the first year-over-year decline in prices in almost 11 years. The median price is also now $50,000 lower than the record high of $413,000 in June of 2022. Since existing home sales are counted when they close, the majority of contracts for these homes were probably signed in December and January. That’s significant because mortgage rates were declining sharply during that time. The average 30-year mortgage rate fell a full percent from mid-November to the end of January. Rates did rise l