Inflation continues to trend towards the Fed's 2% goal. The housing market had some "shocking" home sales data - but that's not stopping buyers from coming off the sidelines as interest rates continue to fall. 

The average rate on a 30-year fixed rate conventional loan went to 6.37% (slightly down from the 6.39% reported last week).  Sign up for our weekly Friday rate texts to see our rates (a client recently told me our rates are "too good to be true" and that's the nicest thing I've heard in a long time)!

Inflation Continues To Fall

The personal consumption expenditures (PCE) price index - the Fed's favorite measure of inflation - rose 0.2% on the month and was up 2.5% from the same period a year ago, as expected. When you exclude food and energy costs, core PCE increased 0.2% for the month but was up 2.6% from a year ago, slightly less than the 2.7% estimate.

Shelter costs - as of July - are still the largest contributor to inflation. In fact, shelter costs alone have accounted for 35% of the rise in inflation year-over-year! Both mortgage rates AND real estate prices have contributed to the rise in shelter costs. But, keep in mind that the PCE data shown last week was from July and rates only started to dramatically fall in early August. The drop in rates seen in August should translate to a good shelter costs reading in next month's PCE numbers.

Even with shelter costs factored in, inflation is looking much more under control. Preston Caldwell, chief US economist at Morningstar noted that  “with the mild numbers for July and some downward revisions to the second-quarter data, core PCE inflation has dropped to just a 1.7% annualized rate in the past three months.”  Amazing given what we've had to live through in recent years and that 1.7% annualized rate is even below the Fed's 2% target!

Pending Home Sales Plunge To Record Low

The pending home sales index reported last week and it gave everyone in the industry a little shock! The index fell by 8.5% to the second lowest seasonally adjusted rate in the data’s history, topping only April of 2020 -aka peak pandemic when no one left the house.

I believe that these numbers are already stale. July was an unusually slow month for "the busy season of homebuying" because of higher rates and political uncertainty. With interest rates falling so much in the last few weeks, housing market activity has followed suit and we've seen a lot more transactions in the last 30 days. 

We'll also see an additional surge of buyers if the Fed cuts the Fed Funds Rate on 9/18, as many buyers have specifically noted that they are waiting for the Fed to start cutting rates before buying a home.

Fed Talk

San Francisco Federal Reserve President Mary Daly on Monday said "the time is upon us" to cut interest rates, likely starting with a 0.25% cut. Even better, when asked "Is there anything that could derail a rate cut at the U.S. central bank's Sept. 17-18 policy meeting?" Daly told Bloomberg TV that it "would be hard to imagine at this point."

 Federal Reserve Bank of Atlanta President Raphael Bostic on Wednesday said that it MAY be "time to move" on rate cuts, but he wants to be sure before pulling that trigger. Bostic said he will want to see confirmation from the monthly jobs report and two inflation reports due before deciding what to do on 9/18. [Note: These statements were made before the PCE report was released, so that hurdle has now been cleared]

RATE CUT WATCH:

There's a 100% chance of seeing a rate cut on September 18th! 67% believe we'll see a 25bp cut and 33% believe we'll see a 50bp cut. Odds are tilting heavily towards just a 25bp cut.

Between now and the next Fed meeting there are 2 more MAJOR reports that can have a dramatic impact on interest rates (and the Fed's decision on 9/18), the first is the August US Employment Report releasing this Friday (9/6). The next is the August CPI Report on 9/11. If both go homebuyers' way then even Fed members like Raphael Bostic can't deny the need for a rate cut!