Mortgage & Housing Outlook
NAVIGATING THE REAL ESTATE CHESSBOARD: A CHALLENGING & PERSISTENT GAME WRITTEN BY DANIEL ARIAS INSIGHTS FROM OUR MORTGAGE PARTNERS AT NEW AMERICAN FUNDING
Persistent, challenging, and turbulent are just a few words that describe the mortgage and housing market of 2023. As we entered 2023, the future of the economy, housing market, and mortgage environment were extremely opaque, with many questions circulating after the Federal Reserve hiked the federal funds rate at an unprecedented pace in 2022. Picture the real estate industry's chessboard of uncertainty, where critical questions loomed like kings on the brink: How high would the Fed dare to elevate interest rates? Can the Fed get the inflation genie back in the bottle? Will the jobs market remain robust? Was the ominous shadow of a recession looming on the horizon? What happens to mortgage rates? Will home prices crash? And ultimately, what does it all mean for mortgage and housing demand? Although we may not have always been satisfied with the answers to
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those questions that developed throughout the course of the year, at least we now have answers that we can leverage in our framework for understanding the path ahead in 2024.
The Fed appears well positioned to get the inflation genie back in the bottle while doing minimal damage to the economy to return inflation to its 2 percent target. The Fed: Battling Inflation Say what you will about the Fed, but everything starts and ends with the monetary policy decisions they set. Most of the time, critics are quick to call out the Fed for raising or cutting rates too late. However, “hindsight is 20/20.” The Fed has a tough job with
much at stake for the decisions they make, so of course they want to measure twice and cut once by remaining data-dependent in their actions. So far, so good. Since peaking at 5.57 percent in February 2022, Core PCE (the Fed’s preferred inflation metric that excludes volatile food and energy components) fell to 3.68 percent in September 2023 with the Fed projecting a further fall to 2.6 percent at the end of 2024, and 2.3 percent at the end of 2025 before hitting their target of 2 percent by the end of 2026. While there is a lag between tightening financial conditions and labor market conditions (the other half of the Fed’s dual mandate to stabilize prices and maximize employment), the jobs market remains resilient. The unemployment rate ticked up to 3.9 percent in October 2023 from the near historical low of 3.4 percent set in April 2023 and well below the full employment
