This inflation comeback story wasn't on anyone's bingo cards for 2024 and because of that, this new resurgence has taken everyone (and interest rates) by surprise. Interest rates continue to trend higher as the Fed makes it clear there's no path to lower rates until inflation is under control.

Last week was another bad week for mortgage rates. The average rate for a 30-year fixed rate conventional loan is currently at 7.17% - the highest levels since November 2023. Make sure you're signed up for our weekly Friday rate texts. It could make a HUGE difference in your homebuying decision. 

The Fed's New Stance

Frequent readers of my newsletter weren't surprised on Tuesday, April 16th when Powell  said that there has been "a lack of further progress so far this year on returning to our 2% inflation goal” because we've been painfully seeing that lack of progress all year long!

In fact - over the last 3 weeks - we've quickly seen the Fed change their rhetoric from a passive "wait-and-see approach" with a market expectation of at least 3 rate cuts to a more threatening "we're starting to consider all options to get inflation back towards the 2% target.

Here's a couple of example of Powell's pals (the other Fed members) supporting this new rhetoric:

San Francisco Fed President Mary Daly, who 3 weeks ago said that 3 rate cuts are reasonable, said last week that there is absolutely no urgency to cut rates and the Fed will maintain its current stance “as long as necessary” to bring down inflation.

Atlanta Federal Reserve Bank President Raphael Bostic said that if inflation does not continue to move toward the U.S. central bank's 2% goal, as he expects it will, central bankers would need to consider an interest-rate hike. 

Federal Reserve Bank of Chicago president Austan Goolsbee, who was a huge advocate for rate cuts is now saying "three months of higher-than-expected inflation data "can't be dismissed," and the Fed will need to determine if continued strong growth in the economy and job market is a sign of overheating"

The story (and my advice) remains the same as last week. Waiting until later this year to buy, will likely end up affecting your home shopping budget AND increasing your monthly payment if interest rates head higher from here.

Retail Sales point to rates heading EVEN HIGHER.
 
Why's that? Because retail sales have been the canary in the coal mine for inflation and the retail sales data we saw last week showed the economy is HOT HOT HOT.

So hot that Goldman Sachs upwardly revised their GDP growth estimate for the first quarter to a 3.1% annualized rate from a 2.5% pace. That's a big bump in the world of GDP. 

The bigger the increase in retail sales, the more that producers can charge without losing buyers and the more we'll see inflation tick up (or at least remain stubbornly at 3.5%). That will cause the Fed to continue to threaten (or perhaps even act on resuming) rate hikes.

Higher Rates = Less Buyers

That's the story that came from the existing home sales data we saw last week. Existing home sales were down 4.3% month-over-month, which isn't a huge surprise as higher rates cause affordability issues for many buyers.

However there was a silver lining in a week filled with bad news, housing inventory jumped 4.7% to 1.11 million units last month- up 14.4% from one year ago! I've been preaching that the best way to thaw our frozen housing market is through supply, not rate cuts. We need MANY MORE homes to come on the market. The more supply we see, the more purchasing and negotiating power buyers get.

While rate cuts helps affordability, it will only cause home prices to skyrocket even higher as million more buyers enter the market to buy the very few homes available for sale. Hopefully we see more and more homes come on the market over the coming months and get back above the 2 million homes available for sale before the pandemic.

While I haven't covered the labor market in a couple weeks, I want you to know that I am still constantly reviewing the labor market data, but there's nothing new to note. Jobless claims are still stubbornly low and the labor market remains hot.

We'll learn just how hot things are as Personal Income numbers are released on Friday.