Fed Sees ‘More Restrictive’ Policy As Likely If Inflation Fails To Come Down, Minutes say

More Restrictive

According to meeting minutes disclosed on Wednesday, Federal Reserve officials highlighted the need to combat inflation in June even if it meant slowing an economy that already looked like it was headed for a recession. On top of the 75 basis point rise adopted in June, members predicted that another 50 or 75 basis points would likely be moved at the July meeting. A basis point is a fraction of a percentage point or 100th.

The Federal Open Market Committee, which sets interest rates, decided to take a more restrictive stance in response to statistics showing that consumer prices are increasing at an annual pace of 8.6 percent, and inflation expectations are rising. At the June 14–15 meeting, officials said they needed to act now to reassure the public and the markets that they are committed to battling inflation. The actions, along with information about the policy’s stance, “would be essential in restoring price stability,” the letter continued.

According to officials who predicted a succession of increases, the Fed Funds rate will reach 3.4 percent this year, exceeding the longer-run neutral rate of 2.5 percent. The minutes stated that following several rate increases, the Fed would be in an excellent position to assess the results of the changes before deciding whether to proceed. They said that “more restrictive measures” may be put in place if inflation doesn’t go down. The likelihood that the Fed will have to start lowering rates as soon as the summer of 2023 is factored into futures markets.

Redfin: Asking Prices Come Down from Record High

According to Redfin, a record-high percentage of sellers reduced their asking price over the four weeks that ended on June 26th, and the median asking price of recently listed houses for sale is down 1.5% from the record high it achieved in the spring. The most significant drop in pending sales since May 2020 was recorded, but there are indications that demand from first-time homebuyers is beginning to level off.

Leading indicators of homebuying activity:

  • Redfin stated that 30-year mortgage rates decreased marginally to 5.7 percent on June 30.
  • Google searches for “homes for sale” decreased by 7% from the prior year during the week ending June 25.
  • The Redfin Homebuyer Demand Index, which accounts for requests for home tours and other services related to home buying from Redfin agents, increased 7 points from the week before but was down 15% year over year during the week ending June 26.
  • According to home tour technology company ShowingTime, the amount of touring as of June 26 decreased 3 percent from the start of the year, compared to a 24 percent growth the previous year.
  • Compared to a year ago, mortgage purchase applications were down 24%, although the seasonally adjusted index increased 0.1 percent week over week during the week ending June 17.

Redfin also reports that the median home sale price increased 14% yearly to a record $399,249. Although it grew by 15% year over year to $405,547, the median asking price of recently listed homes fell by 1.5% from the record high established during the four weeks ended May 22.

MBA Weekly Survey July 6, 2022: Applications, Rates Take Tumbles

According to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending July 1, mortgage applications decreased for the first time in four weeks, and mortgage rates slipped for a second consecutive week. Results for this week have been adjusted for holidays to reflect early closings on July 1 due to the Independence Day holiday.

The Market Composite Index dropped by 5.4 percent from one week earlier on a seasonally adjusted basis. The refinance share of mortgage activity decreased to 29.6 percent of total applications from 30.3 percent the previous week. The seasonally adjusted Purchase Index fell by 4% compared with last week. Although the previous week’s unadjusted Purchase Index rose by 7%, it was still 17% lower than the last week a year earlier.

As per MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) dropped from 5.84 to 5.74 percent, while the number of points (including origination fees) increased for loans with 80 percent loan-to-value ratios from 0.64 to 0.65. Since last week, the effective rate has fallen.

Next week’s potential market moving reports are:

  • Monday, July 11th – 3-Year Inflation Expectations
  • Tuesday, July 12th – Small Business Index
  • Wednesday, July 13th – Consumer Price Index, Federal Budget (Comparison vs. Year Ago)
  • Thursday, July 14th – Initial Jobless Claims, Continuing Jobless Claims
  • Friday, July 15th – Retail Sales, Industrial Production Index, Consumer Sentiment Index

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (800) 216-1047.

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