Inflation Continues to Come Down

Hello everyone! We’re through the first week of the NAR settlement changes, and what a week it’s been! As pros in this ever-evolving industry it’s all about focusing on what we can control, staying adaptable, and moving forward with confidence! Now, let’s dive into the latest happenings in the mortgage world. Let’s go!

Read time: ~4 minutes

Rates ended FLAT compared to last week, and volatility was HIGH. Rates are in the mid 6’s for most loan types without paying discount points. Paying discount points can get you in the low 6’s.

Inflation Continues to Come Down ⬇️

For those of us who track economic data closely, the third week of every month is a blend of anticipation and nerves. We find ourselves up early on Wednesday, counting down to the 6:30 AM release of the monthly CPI inflation report, a key indicator for the mortgage market. If you’ve been following my updates, you know the CPI report, along with the Jobs report, holds significant sway over market conditions.

This past Wednesday, the July CPI inflation report came out with a reading of 2.9%, just under the expected 3.0%. While we're still striving to hit the Fed's target of 2.0%, the trend of easing inflation is clear, making a September rate cut from the Fed highly likely.

However, the one thing the report did not settle is the ongoing debate over whether the Fed will initiate a 0.25% or 0.50% rate cut. The market has already priced in a 0.25% cut, but a more significant cut might be on the table if the upcoming jobs data reveals weakness.

The spotlight now shifts to the next Jobs Report, which drops on September 6th. Should unemployment rate rise above the current 4.3%, don’t be surprised if the markets react strongly, pushing mortgage rates down as expectations shift towards a larger rate cut.

Harris Unveils New Economic Strategy 📝

Last month, I provided an overview of Trump’s economic plan and its potential effects on the real estate and mortgage markets. My goal is to keep the analysis non-partisan and focus purely on the market effects. Last Friday, Vice President Kamala Harris revealed her economic strategy and here are some highlights that could significantly impact the housing market:

• $25,000 Federal Assistance for First-Time Homebuyers: Harris's campaign promises that over four years, this program could help more than 4 million first-time buyers with an average of $25,000 in down payment assistance. While this sounds like a great opportunity, there’s concern that this surge in buying power could outpace the supply of available homes, potentially driving prices even higher. As we all know, the real issue is the shortage of affordable housing, and adding more demand without increasing supply could exacerbate this problem.

• Tax Incentives for Building Starter Homes: Harris proposes creating tax incentives to encourage the construction of starter homes. The U.S. needs about 1.5 million new housing units just to return to historic vacancy norms, according to Freddie Mac. Harris’s plan aims to add 3 million additional homes over the next four years. This goal is ambitious and, if achieved, could significantly ease the housing shortage. However, the logistics of scaling up construction at such a rapid pace could present challenges, as building homes involves coordinating numerous resources from around the world.

• Eliminating Medical Debt: One of the more impactful proposals in the mortgage industry could be the elimination of medical debt. Medical collections can severely impact credit scores, and erasing this debt could result in a larger pool of qualified buyers with higher credit scores.

• Ban on Food Price Gouging: Perhaps the most controversial part of her plan is the proposal to ban price gouging on food. Critics argue that rising prices are driven by inflation rather than gouging, and that government-imposed price controls in other countries have often led to shortages and black markets.

These are some of the key elements from Harris’s economic plan that could affect our industry. While there are some promising ideas—like encouraging home construction and addressing medical debt—the $25,000 down payment assistance program raises questions about its impact on the already tight housing market.

Key Data Points to Watch This Week!

This week is packed with crucial updates that could shape the economic landscape. Here's what to keep an eye on:

Wednesday: The Fed Meeting Minutes will be released, offering insights into the Fed's future plans on interest rates, inflation, and overall economic outlook. We’ll be dissecting these details to understand where monetary policy might be headed.

Thursday: The July Existing Home Sales data will drop, providing a snapshot of the housing market's health. Remember, though, that national data can differ significantly from local market conditions, so take this information as one piece of the puzzle.

Friday: All eyes will be on Fed Chair Jerome Powell as he delivers his speech at the Jackson Hole Symposium. His comments could provide key clues on the direction of future policy, particularly around interest rates and inflation. Powell's words have the potential to significantly impact mortgage rates, so stay tuned!

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