Fed Eyes Rate Cut Amid Rising Inflation, Tepid Mortgage Demand, and Record-High U.S. Home Prices According to Case-Shiller Index: Portafolio Capital Markets Recap for Week Ending 8/30/2024
Inflation Ticks Up in July as Fed Prepares for Possible Rate Cut
Inflation slightly increased in July, with the personal consumption expenditures (PCE) price index rising 0.2% month-over-month and 2.5% year-over-year, in line with expectations. Core inflation, excluding volatile food and energy prices, also rose by 0.2% for the month, marking a 2.6% annual increase, slightly below forecasts. Personal income saw a 0.3% rise, adding $75.1 billion, while consumer spending grew by 0.5%, reflecting a $103.8 billion increase, driven by expenditures on motor vehicles, housing, and utilities. Despite the increase in spending, the personal savings rate dropped to 2.9%, its lowest point since June 2022. The Federal Reserve is now expected to consider a quarter-point rate cut in September, with a slight tilt toward a smaller reduction as markets reacted modestly to the data. With inflation showing signs of stability, the Fed’s focus may shift toward supporting the labor market, as unemployment trends upward and hiring slows. The upcoming August nonfarm payrolls report is anticipated to provide further insight into the economic landscape.
The press release by the Bureau of Economic Analysis can be found here.
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Mortgage Rates Drop for Fourth Week, But Demand Remains Tepid
Mortgage applications inched up by 0.5% for the week ending August 23, 2024, according to the Mortgage Bankers Association (MBA). This slight increase came as the average 30-year fixed-rate mortgage dropped to 6.44%, the lowest rate since April 2023. While purchase applications rose by 1% on a seasonally adjusted basis, they remain 9% lower than a year ago. Refinancing activity remained nearly unchanged, down 0.1% from the previous week but still 85% higher year-over-year, with FHA and VA borrowers particularly active. Despite the ongoing decline in rates, potential homebuyers are showing caution, waiting for more significant rate reductions and increased inventory. The market saw small shifts in mortgage shares, with the refinance share increasing slightly to 46.6% of total applications and the VA share rising to 15.9%. Meanwhile, adjustable-rate mortgage (ARM) activity held steady at 5.5%. The report indicates a mixed response to the current rate environment as borrowers remain cautious in their decision-making.
The full press release by the Mortgage Bankers Association (MBA) can be found here.
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U.S. Home Prices Hit Record High According to Case-Shiller Index
The S&P CoreLogic Case-Shiller U.S. National Home Price Index hit a new all-time high in June 2024, despite a deceleration in growth. The index recorded a 5.4% year-over-year increase, down from 5.9% in May. The 10-City and 20-City Composites also saw slower annual growth, with increases of 7.4% and 6.5%, respectively. New York led the 20 cities with a 9% gain, while Portland saw the smallest increase at 0.8%. Month-over-month, the national index rose by 0.2% after seasonal adjustments. Analysts noted that home prices have significantly outpaced inflation, with the gap between the two wider than historical norms. The report also highlighted that lower-priced homes in many markets, such as New York and Atlanta, have appreciated faster than higher-tiered homes, reflecting ongoing challenges in housing affordability. Conversely, in San Diego, higher-tier homes have seen the most significant appreciation over the past five years. As the housing market remains a key issue in the political arena, affordability continues to be a major concern, especially for first-time homebuyers.
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