Author: Eric BernsteinPublished:
Everyone is expecting (and hoping) for the Federal Reserve to start cutting the Fed Funds Rate in March 2024! However, "good policy is based on data and not hope" as stated in Fed Governor Christopher Waller's speech last week -- which, along with statements from other Fed members, casted doubt as to whether March is the right time to start cutting rates. Because of that doubt, the average 30-year fixed rate conventional loan ended the week trending up to 6.725%!
Sign up for our weekly Friday rate texts to see all the great options LendFriend provides to homebuyers!
The Labor Market isn't cooling!
The labor market needs to cool for interest rate cuts to begin, but instead, the labor market seems to be getting hotter again, even at these more elevated interest rates. Initial jobless claims had their best reporting in a year (187,000 actual vs 208,000 expected). This news was a heavy blow to the bond market and sent interest rates higher. While big companies like Google, Amazon and Macy's announced significant layoffs last week, we need to see broad layoffs across a number of industries and little growth in hiring to have the labor market cool in the way the Federal Reserve wants to see it cool.
Housing Data Analysis from Last Week's Reporting
Housing market data from the end of 2023 came in last week, and thanks to lower interest rates, builders are starting to become more confident in the future. Home builder confidence increased for the second straight month! That confidence showed in the number of housing starts and builder permits in December. Both reports beat analysts expectations. With housing inventory at record lows, it's critically important that builders continue pumping the housing supply with new product!
Good news for homebuyers - the data released on Friday for existing home sales shows that as of the end of 2023 the housing market was still incredibly slow. In fact, existing home sales in December slumped to the lowest level since August 2010 and the total amount of existing home sales in 2023 slumped to its lowest level since 1995!
The bad news is that, despite high interest rates and a frozen market, home prices continue to rise, up 4.4% year over year, with December marking the sixth straight month of annual gains. The median price of $382,600 was the highest for the month of December on record. Even worse, sellers are giving less price cuts. "Sellers are holding firm on prices," Nicole Bachaud, Zillow senior economist, previously told Yahoo Finance. "Likely thanks to the slower paces of price growth helping sellers (and buyers) know what to expect when it comes to setting a price."
The reason for the home price appreciation and lack of cuts that we've seen is because while demand may be low relative to what we saw in 2020 and 2021, inventory is far lower! Analysts believe more inventory will slowly come on the market as interest rates fall, but that hasn't happened yet. Inventory of existing homes as of December was recorded at 1 million units, down almost 12% compared to a month ago, NAR data showed - meaning there was a 3.2-month supply of unsold inventory at the current sales pace. We need at least 6 months of supply to be considered a "healthy market"
Fed Members Say Don't Put the Cart Before The Horse
Fed members still want to see 3 rate cuts in 2024, but the timing of those rate cuts is very uncertain. Everyone wants to see rate cuts start in March, but the data needs to be there in order to do so. Cutting rates too soon could put us right back in the mess we came from - causing inflation to start skyrocketing again and everything becoming EVEN MORE expensive (if you can imagine that).
Nearly every member of the Federal Reserve Committee who spoke last week said the same thing - they are committed to get inflation back to the 2% target and data needs to support that inflation is definitely under control before rates start being cut. Mortgage rates went up quite a bit shortly after San Francisco Fed President Mary Daly spoke last Friday. She said "it's really premature to think that [policy adjustments are] around the corner" and "it's far too early to declare victory". Probability for a rate cut in March plunged to 44.1% (down from 70% last week).
This week is also a big week for corporate earnings with big names like United Airlines, AT&T, Netflix, Microsoft and Blackstone all reporting this week. There's also important labor and inflation data coming out on Thursday and Friday this week!
The Labor Market isn't cooling!
The labor market needs to cool for interest rate cuts to begin, but instead, the labor market seems to be getting hotter again, even at these more elevated interest rates. Initial jobless claims had their best reporting in a year (187,000 actual vs 208,000 expected). This news was a heavy blow to the bond market and sent interest rates higher. While big companies like Google, Amazon and Macy's announced significant layoffs last week, we need to see broad layoffs across a number of industries and little growth in hiring to have the labor market cool in the way the Federal Reserve wants to see it cool.
Housing Data Analysis from Last Week's Reporting
Housing market data from the end of 2023 came in last week, and thanks to lower interest rates, builders are starting to become more confident in the future. Home builder confidence increased for the second straight month! That confidence showed in the number of housing starts and builder permits in December. Both reports beat analysts expectations. With housing inventory at record lows, it's critically important that builders continue pumping the housing supply with new product!
Good news for homebuyers - the data released on Friday for existing home sales shows that as of the end of 2023 the housing market was still incredibly slow. In fact, existing home sales in December slumped to the lowest level since August 2010 and the total amount of existing home sales in 2023 slumped to its lowest level since 1995!
The bad news is that, despite high interest rates and a frozen market, home prices continue to rise, up 4.4% year over year, with December marking the sixth straight month of annual gains. The median price of $382,600 was the highest for the month of December on record. Even worse, sellers are giving less price cuts. "Sellers are holding firm on prices," Nicole Bachaud, Zillow senior economist, previously told Yahoo Finance. "Likely thanks to the slower paces of price growth helping sellers (and buyers) know what to expect when it comes to setting a price."
The reason for the home price appreciation and lack of cuts that we've seen is because while demand may be low relative to what we saw in 2020 and 2021, inventory is far lower! Analysts believe more inventory will slowly come on the market as interest rates fall, but that hasn't happened yet. Inventory of existing homes as of December was recorded at 1 million units, down almost 12% compared to a month ago, NAR data showed - meaning there was a 3.2-month supply of unsold inventory at the current sales pace. We need at least 6 months of supply to be considered a "healthy market"
Fed Members Say Don't Put the Cart Before The Horse
Fed members still want to see 3 rate cuts in 2024, but the timing of those rate cuts is very uncertain. Everyone wants to see rate cuts start in March, but the data needs to be there in order to do so. Cutting rates too soon could put us right back in the mess we came from - causing inflation to start skyrocketing again and everything becoming EVEN MORE expensive (if you can imagine that).
Nearly every member of the Federal Reserve Committee who spoke last week said the same thing - they are committed to get inflation back to the 2% target and data needs to support that inflation is definitely under control before rates start being cut. Mortgage rates went up quite a bit shortly after San Francisco Fed President Mary Daly spoke last Friday. She said "it's really premature to think that [policy adjustments are] around the corner" and "it's far too early to declare victory". Probability for a rate cut in March plunged to 44.1% (down from 70% last week).
This week is also a big week for corporate earnings with big names like United Airlines, AT&T, Netflix, Microsoft and Blackstone all reporting this week. There's also important labor and inflation data coming out on Thursday and Friday this week!
If corporate earnings miss expectations and labor and inflation data show a positive trend towards cooling, it can go a long way in helping to increase the probability of a rate cut in March.
.png?width=1200&height=244&name=Homebuyer%20Tools%20Header%20(10).png)
About the Author:
Eric Bernstein is the President and Co-Founder of LendFriend Mortgage, where he helps homebuyers make smarter, more confident decisions in today’s fast-moving housing market. With over a decade of experience guiding hundreds of clients—from first-time buyers to seasoned investors—Eric brings a mix of market insight, strategy, and personalized service to every mortgage transaction. Each week, Eric breaks down the housing and economic headlines that matter, giving readers a clear, no-fluff view of what’s happening and how it might impact their buying power.