Housing Market Expected to Stay Strong Despite Rising Rates

Well, Cinco de Mayo was no party for the mortgage market as Freddie Mac reported on May 5th that average rates for a 30-year fixed-rate mortgage have reached their highest level since 2009. Regardless, people still need to buy homes, and the housing market is expected to remain strong, although we’re starting to see price growth decelerate some.

Also last week at the conclusion of the Fed Meeting, Chairman Powell calmed markets announcing a 50 basis point rate increase and shared that it would start letting its balance sheet holdings run off gradually, as expected. Powell also told reporters 50 basis point rate increases were on the table, with no active consideration of larger rate moves, which put fears of larger hikes to bed and calmed markets for now.

Powell went on to say that the Fed would return rates to neutral “expeditiously” and that policy-makers are “highly attentive” to inflation risks associated with supply chain disruptions and China’s shutdowns. Powell said he saw a good chance the Fed can engineer a “softish landing.” I’m keeping my fingers crossed.

As we know, inflation causes prices of just about everything to rise, including mortgages, so the sooner inflation comes down, rates may improve as well.

And speaking of inflation, we’ll get a look at two critical inflation numbers this week. The first is the CPI (Consumer Price Index), which follows the prices consumers pay. We are expecting a modest rise of 0.2 percent on the month in April versus March’s 1.2 percent increase which was the largest monthly advance in 42 years.

The year-over-year CPI is expected to slow to 8.1 percent versus March’s 8.5 percent which was the largest yearly advance in 41 years. The core rate is seen up a less-than-modest 0.4 percent on the month, versus a 0.3 percent rise in March, and 6.0 percent on the year which would be down from 6.5 percent.

The report on wholesale prices (Producer Price Index) follows. After surging past expectations in March, producer prices are expected to slow in April to a consensus 0.5 percent increase versus 1.4 percent in March.

Friday’s report on Consumer Sentiment is expected to show a not-surprising slip backward as rising prices continue to plague consumer activity.