Has the Austin/Georgetown Housing Market Reached a Dead End?
In my real estate world, professionals sift through terabytes of data points searching for the hidden decoder ring of macro-economics. The mega-wide implications, they assure us, will unlock the hidden secrets of an unknowable future.
After combing through many of their sleep-inducing reports, I’ve reached a conclusion. When predicting the future of the U.S. economy, only one data point matters: The decisions of The Chairman of the Board of Governors of the Federal Reserve, also known as the Federal Open Market Committee (FOMC). Currently, that chair is occupied by Jerome Powell.
This last week, Chairman Powell testified before the Senate Banking, Housing, and Urban Affairs Committee on Tuesday and the Financial Services Committee of the U.S. House of Representatives on Wednesday.
Bullet points from his two days of testimony regarding interest rates and their impact on the nation’s real estate market include:
“More good inflation would boost Fed confidence in lowering interest rates.”
“Recent inflation data have shown modest further progress. More good news would strengthen the Fed’s confidence in inflation returning to 2%, a condition for cutting rates.”
“Unexpected weakness in the labor market could also prompt a cut.”
To help us parse Powell’s finely crafted commentary, Hamza Shaban – Senior Reporter for Yahoo! Finance, wrote two days later, “Markets are saying what Powel can’t.” And what did the markets tell us in the two days between Powell’s testimony and Shaban’s reporting?
Two CPI Inflation Reports and a PPI Report
Report #1: CPI Report - The Consumer Price Index (CPI) measures the average change in the prices paid by urban consumers for goods and services. On Thursday, the June report revealed prices decreased for the first time in two years.
Report #2: Core CPI Report - The Core Consumer Price Index differs from its cousin by stripping out the prices paid for fuel and food, (yeah – the one that determines what we pay for groceries each week at H-E-B). It too eased back from the prior month.
Report #3: PPI Report - The Producer Price Index (PPI) measures inflation at the wholesale level. Think about the prices paid by H-E-B for goods and services before they decide to pass them on to you and me – or not. On Friday, The U.S. Bureau of Labor Statistics reported that the cost of goods (things) cooled further but the price of services (people – salaries, insurance, etc.) jumped.
The History of CPI Data from the St. Louis Federal Reserve. Note: CPI Shaded Areas Indicate U.S. Recessions.
What Does It Mean?
Granted, economic numbers and reports can be mind-numbing. Well, except for the econ-geeks who follow this stuff with the same passion as a tween Swiftie. The bottom line is this: in June we paid less for goods for the first time since the Pandemic.
What Happened in the Markets?
How did the markets interpret Powell’s testimony plus three inflation-revealing reports in the same week?
1) The CME FedWatch tool, which predicts the likelihood of interest rate moves, jumped to a 90.3% likelihood of a September quarter-point cut.
Graph Depicting the Price of the HTB (U.S. Home Construction) Exchange Traded Fund (White Line) and Three Local National Builders - Toll Brothers (Orange Line), Taylor Morrison (Magenta Line), and Century Community Home Builders (Blue Line).
2) The CPI reading boosted home builder stocks, which have struggled in 2024. The i-Shares U.S. Home Construction ETF (ITB) was up about 5.5% this week. Such a surge often signals institutional accumulation. “Money moves to where it is treated best,” and professionals are directing their money toward new construction stocks.
3) By Friday, mortgage rates eased down as well. The weekly rate slipped below its year-ago level for the first time since 2021. “There could be more declines where that came from,” said Sam Khater, Freddie Mac’s Chief Economist.
30 Year Fixed Mortgage Rate Since April 2021.
How did voting members of the FOMC respond to the reports?
1) On Thursday, Chicago Fed President Austan Goolsbe stated, “I think this is what the path to 2% looks like.” The CPI June report was “profoundly encouraging.”
2) San Francisco Federal Reserve Bank President Mary Daly added that she now supports cutting interest rates. “With the information we have received today, which includes data on employment, inflation, growth, and the outlook for the economy, I see it as likely that some policy adjustments will be warranted.” Daily added that in her opinion, one or perhaps two rate cuts this year would be appropriate.
What’s Next?
1). The June PCE Report (Personal Consumption Expenditures Price Index) will be released on July 26, 2024. This Fed favorite indicator measures consumer spending on goods and services according to the Bureau of Economic Analysis. The PCE accounts for about two-thirds of domestic spending. The FOMC values the report as a current indicator of US consumer strength.
2). The Fed’s next interest rate committee meeting will convene July 30-31, 2024. No rate cuts are planned, but markets anticipate the Fed providing additional rate cut clues for the rest of the year.
What Now?
My headline asked, “Has the Austin/Georgetown Housing Market Reached a Dead End?” I think it looks more like a U-turn sign. I imagine we’ll know in the next two months, won’t we?
If you are a seller, be patient. The fall real estate season looks more promising than did spring. Who knows, you may be celebrating Thanksgiving in a brand new place.
If you are a buyer, be patient. Interest rates are poised to fall more. Get your financial house in order. Text, call, or email me. I will create a personal custom-crafted search with your detailed specifics. Drop in on Open Houses to gain a sense of what your price point looks like. Explain to the hosting agent that you are working with me. And afterward? Drop by a paint store and start collecting color chips. You’re going to have so much fun!
