Portland Mortgage Market Update — June 14, 2024

It was VERY busy week with the Fed meeting and CPI and PPI reports dropping all within a 72 hour timespan. So I guess we will just tackle them in chronological order. First was the Consumer Price Index report which came in better at 3.3% vs the 3.4% market expectation. Then later that afternoon the Fed meeting adjourned with no change to rates and a newly released dot-plot chart (more on that below). Finally the Producer Price Index (which measures inflation at a wholesale level) was released yesterday showing a drop of .2%. All of these were favorable for rates and we saw some significant reduction as a result.

About that Dot-Plot. What is it? The Dot plot chart is a report the Fed releases each quarter that shows what the Fed is thinking for the future of rates over the coming year. The last report showed the Fed was anticipating 2 rate cuts this year but this has scaled back to just one cut in the most recent report. Fed Chair Powell also indicated in his post meeting that the current policy is sufficiently restrictive, meaning a hike is off the table. Interestingly, he also mentioned that the BLS labor survey might be "overstated" meaning they Fed realizes the employment reports we have been poking holes in for the past couple of months may be just as worthless we have been saying they are.

So things are looking good for rates, but we also got some housing forecasts today. The first one came from Zillow which showed a year over year increase of about 3.9% in home prices. Zillow thinks that by the end of the year home prices will moderate to an overall increase of only .4%, meaning they think home prices will drop by 3.5% over the next 6 months. I sincerely doubt this will be the case, considering the pent up demand of buyers that are waiting for rates to drop before they join the market. If rates continue to improve, they will bouy the housing market. I am not the only one that shares this belief, as Fannie Mae and Pulsenomics released their forecast wherein they survey the top 150 economists in the US and ask where they think home prices are headed. They expected a 4.31% increase this year and between 3-5% each year over the next 4 years which means a cumulative appreciation of up to 21% over the next 4 years!