In only a couple of months, the world has changed substantially. In December, inflation was supposedly decreasing rapidly and the odds of a soft landing were non existent. Fast forward a few months and inflation is running hot, consumers are spending like crazy, interest rates have fallen, and the bull stock market has taken off. What has changed in the last two months? What does this mean for the spring selling season? Did the fed just pull off the softest landing ever?
What has changed in the last 60 days?
- Inflation continues to run hot: By any metric from Consumer price index to the producer price index to the core CPI every metric continues to outperform predictions. This means that inflation is considerably stickier than ever anticipated
- Consumer spending reaches records: One would expect consumer spending to pull back substantially in the face of higher rates, but this is not occurring. Just the opposite has happened with consumer spending hitting new records.
- Job market also stays hot: The job market continues to remain the tightest it has been in decades with some tech companies announcing layoffs, but more than enough demand for labor to keep the unemployment rate at record lows.
- Zillow, Airbnb and others outperform: Various real estate companies from Zillow to Airbnb shattered estimates with Airbnb reporting record revenues.
The Spring real estate market will be better than anticipated
With all the positive news, I think the spring selling season will be considerably better than I originally predicted. There is still very limited stress in the real estate market due to the strong job market which will hold back supply. At the same time, the golden handcuffs of low rates will further keep supply in check for the spring season. This should lead to a much better spring selling season than originally anticipated.
Did the Federal reserve just achieve the softest “landing yet”
It appears that most in the market are rejoicing a federal reserve miracle of a soft landing. Unfortunately, I would put the balloons and party shoes away. It is way too premature to even come close to celebrating a return to low inflation and a soft landing.
The plane has not even landed! With inflation continuing to run hot along with the job market and consumer spending, the federal reserve is a long way off from declaring victory. With the stickiness of inflation the federal reserve will have to raise rates higher and hold for longer to get the inflation number back to their 2% target. Remember inflation is running 300% above their target now and it will be next to impossible to raise rates considerably higher without something breaking.
If you were thinking about selling real estate, the spring season will be one of the last opportunities for a while where the market remains robust. Although the stock market has declared the “all clear” for the economy, the reality is drastically different. Inflation continues to show its stickiness and consumers are spending like crazy. The federal reserve will have to continue to tap the brakes on the economy through higher interest rates and hold them at a high rate for longer. This will ultimately lead to a much harder landing than the market is anticipating as rates will have to get high enough for something to break in order to cool the job market and demand.
Although real estate will have one last spring Hurrah, as rates continue to rise, real estate will ultimately fall. Ironically this should occur sometime late this fall as the economic landing of the economy has not been completed, merely delayed.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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