WASHINGTON–Minutes released from the Fed’s July meeting make clear it remains concerned over inflation and even predicts a slowdown in housing—but it anticipates pushing rates up again when it meets in October.
Separately, a NAFCU economist has offered his thoughts on new data on home sales.
As CUToday.info reported here, the housing market recently fell to its lowest point in 18 months.
The Fed Minutes make clear members of its Open Market Committee did see trouble coming in housing, noting it had “weakened notably,” in large part because of higher mortgage rates. FOMC members “anticipated that this slowdown in housing activity would continue,” according to the minutes.
An analysis by the New York Times suggests a housing bust might force the Fed to stop raising rates, perhaps before it was able to tame inflation.
Hold On a Minute…
On the other hand, noted Peter Coy writing in the Times, “On the question of how many homes are being built, housing starts have dropped, but they’re still about twice what they were at the start of the pandemic, and three times the level they reached after the 2008 housing bust. As for mortgage rates, they generally follow the 10-year Treasury yield, which has been falling recently, and that has caused them to pull back a bit.”
The report further noted there are a number of factors at play that could stop any slowdown from turning into a slump, including that “there hasn’t been anywhere near” the kind of excess lending that took place more than a decade ago.
Comment on Home Sales
Meanwhile, NAFCU Chief Economist and Vice President of Research issued the following statement on the latest release of existing home sales data:
"Existing home sales fell for the sixth straight month in July. Outside of the immediate onset of COVID in 2020, July sales levels were the lowest of any month since 2014. Supply remains tight, but conditions are improving modestly as a result of the slower sales pace. Inventory levels reached 3.3 months of sales in July, which is the highest level in over two years but is still about half of normal levels," said NAFCU Chief Economist Curt Long. "Higher borrowing rates and lower demand have resulted in a slower construction pace, which limits trade-up possibilities for current homeowners. Price growth has cooled somewhat but the median price is still up 10.8 percent versus a year ago. Homes on the market sold in an average of 14 days in July, which was unchanged from the prior month and the lowest figure on record dating back to 2011. The housing market is starting to show signs of stabilizing, but improvement is unlikely without a large drop in rates or the appearance of a substantial quantity of inventory."
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