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Inflation shows signs of cooling, housing inventory remains low

By: Movement Staff
June 9, 2023

With the debt ceiling issue behind us, investors have shifted their focus forward to the next Federal Open Market Committee meeting. The initial feeling after the last meeting was that the Federal Reserve would take a pause and not hike rates again in June. 

Weighing into the Fed's decision is, as always, the current rate of inflation. The consumer price index (CPI) for April went up by 4.9% year-over-year, which was the smallest 12-month increase since April 2021. CPI measures the costs consumers pay for goods. The next CPI data release date is June 13, the first day of the FOMC's meeting. The Fed's preferred measure of inflation is the core personal consumption expenditures index (PCE), which increased at a 4.7% annual rate in April—just above the 4.6% expectation. The core PCE excludes the more volatile data points such as energy and food. 

The other major data point the Fed looks at is employment. The May jobs reports came in way hotter than expected, but jobless claims released in the first full week of June showed the Fed's quantitative tightening measures may be slowly working to cool down the labor market. First-time filings for unemployment came in at a seasonally-adjusted 261,000—well above the 235,000 forecast. This was also the highest weekly rate since October 2021. Keep in mind that no one is cheering for people being laid off or applying for unemployment benefits, but it is an important factor in the economy. A slower labor market means consumers switch from spend to save mode and that helps drive down inflation. 

While economists caution that this one week does not indicate a long-term trend, it did give them more confidence that the Fed will take a pause in June to allow more data to drive their next rate hike decision. The FOMC is set to meet June 13-14 at which time the group will vote to either raise rates for an 11th straight time or pause. Many economists predict the FOMC will still pause in June while a small minority believe we will see a 25-basis point hike. Currently, the federal funds rate stands in a range of 5%-5.25%. 

With inflation appearing to slow, many homebuyers are asking if now is a good time to buy a home. Founder and CEO of MBS Highway, Barry Habib, believes so. "Normally inflation is what drives rates. Inflation is coming down. We expect that to drive interest rates on mortgages to a more attractive level." He continued, "That's going to increase buying activity. The trick is to get in now, while you can, before prices move higher."

Inflation shows signs of cooling, housing inventory remains low


Anyone who has tried to buy a home in the last three years knows exactly how competitive the market still is. While there is some promise with homebuilders becoming much more confident and single-family building permits data coming in stronger, it does little to alleviate what's happening right now.

A recent report from in conjunction with the National Association of Realtors states that when it comes to existing home sales, "The housing market is short about 320,000 listings within the price range of buyers earning the median household income of $75,000 a year. These buyers can generally afford homes up to $256,000." 

NAR Senior Economist Nadia Evangelou is quoted in the release saying, "The country has the largest shortage of homes in the price range that middle-income buyers can afford." Evangelou added, "We hear again and again that in order to address the housing affordability issue we need to add more housing to the market. We need to add more homes that middle-income buyers can afford."

The good news is that many mortgage originators recognize homebuyers are struggling and have developed down payment assistance programs to help. FHA buyers may qualify for programs like Movement Boost. This program could cover the entire FHA down payment plus 1.5% to put toward closing costs via a repayable second lien with a 10-year amortization term and a rate at 2% above the first lien rate. Available nationwide with the exception of New York*. 

Keep in mind that homebuyers should always talk to a loan officer before house shopping to make sure they know what they can afford and they're looking at homes in their price range. 

*For qualified borrowers. Additional restrictions apply.

Author: Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.