The Federal Reserve is closely monitoring the economy before its next rate decision next month. Fed Chairman Jerome Powell gave remarks to Congress this past week as part of his semi-annual visit to Capitol Hill where he updated the House Financial Services Committee on current monetary policy. 

"Inflation has moderated somewhat since the middle of last year," said Powell. "Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go." The Federal Open Market Committee did not raise interest rates at its June meeting in order to give time for some data to catch up after the previous 10 hikes. 

Powell did say that the FOMC does not foresee aggressive rate hikes for the rest of this year, referencing the central bank's 1980s strategy of four consecutive 75 basis point hikes that eventually hurled the economy into a recession. Powell said, "Given how far we've come, it may make sense to move rates higher but to do so at a more moderate pace."

Buyer demand increasing, newly-built homes provide inventory at a cost

Freddie Mac's 30-year fixed rate mortgage average fell by a very slight margin, hitting 6.67%. In their release, Freddie Mac's economists emphasized the rate sensitivity of borrowers saying, "Potential homebuyers have been watching rates closely and are waiting to come off the sidelines. However, inventory challenges persist as the number of existing homes for sale remains very low. Though, a recent rebound in single-family housing starts is an encouraging development that will hopefully extend through the summer."

While inventory for owner-occupied homes is still tight, homebuyers are looking at newly constructed homes. Homebuilder sentiment rose another 5 points in May, according to the National Association of Homebuilder's survey, hitting 55. Anything above 50 is considered positive and this is the first time the survey has crossed the 50 point midway threshold since July 2022. It should be noted, with increased demand, homebuyers may not see the same incentives others have received over the last few years.

The NAHB/Well Fargo Housing Market Index report shows that only 25% of builders reduced home prices to bolster sales in June. The share was 27% in May and 30% in April. It has declined steadily since peaking at 36% in November 2022." Furthermore, the average price reduction dropped by 1% from December 2022 to June 2023 and now sits at 7%. Agents and homebuyers should take note that newly constructed homes are providing much needed inventory, but homebuilders are increasingly reluctant to reduce their asking price.