Defying Recession Warnings: Fed’s Rate Hike Decision Threatens Banking Sector and Future of Mortgage Rates

Federal Reserve

The Federal Reserve is expected to raise rates by another 25 basis points, even though many believe this is a poor decision. This could exacerbate existing issues in the banking sector and potentially lead to a recession. Despite a tight labor market and inflation increasing, there is evidence that these factors are shifting and that the Fed should be more cautious in its approach.

Moreover, the ADP employment report for April showed better-than-expected job creation, but the markets are looking past this due to the inconsistency in the report. Wages have also declined for those who switched jobs, and mortgage applications remain steady. 

Additionally, homeowners are seeing increased home equity, providing an opportunity for debt consolidation.

The bond market seems to be holding up well and looking past some of the noise in the ADP report. The upcoming Fed decision, press conference, and BLS jobs report will be crucial in determining the direction of interest rates for the summer. 

Overall, the beginning of May could signal the start of a better period for mortgage rates if the Fed takes a more cautious approach.

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Housing Market Defies Crash Predictions: Resilient Growth Amid Fed Rate Hikes and Recession Fears

Recession

In the wake of the Fed’s decision to raise interest rates, many predicted a housing market crash with 20% drops in pricing. However, these predictions have yet to materialize as year-over-year housing prices have continued to rise in 2022 and 2023. A short period between July and the end of the year saw minor price declines, but they have since rebounded.

Mortgage bonds had a good day following the Fed’s decision, as many believe the Fed may be going too far and potentially sending the economy into a recession. This belief has been good for bonds, and data from various sources such as FHFA, CoreLogic, Black Knight, and Zillow show that housing prices are recovering and accelerating.

With interest rates potentially declining into the summer, housing prices could continue to rise, and inventory may become even tighter. Bidding wars are already beginning in many areas, and as rates come down, prices will likely accelerate.

Despite Fed Chair Jerome Powell denying any possibility of rate cuts this year, the market doesn’t believe him, and Fed futures are pricing in more than three rate cuts by the end of the year. Powell insists that the US banking system is strong and resilient, but recent large bank failures tell a different story.

While some areas of the country are experiencing stronger or weaker numbers, national data supports the idea that the housing market is not headed for a crash. It is thriving despite the Fed’s rate hike decisions and recession fears.

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