New Projections by the Federal Reserve

The Federal Reserve, after chasing inflation for the better part of a year, will look ahead as far as 2025 in new projections this week that will show more fully the depth and length of the economic “pain” its policymakers expect to be needed to stop the current surge in prices.
The tale so far is not a pretty one. The pace of price increases, which by the Fed’s preferred measure are running at more than three times its 2% target, have hardly budged in the face of the most rapid set of U.S. interest rate increases in about 30 years.
The projections, due to be published alongside the Fed’s latest policy statement at 2 p.m. EDT (1800 GMT) on Wednesday, will show just how aggressively U.S. central bank officials feel interest rates must rise to respond to the inflationary wave, and what economic cracks they see appearing as a result in terms of slower growth or higher unemployment.
Hopes for a “soft landing,” marked by a slowdown in inflation toward the 2% target without a recession, may not be gone: Policymakers are unlikely to project an outright downturn even as the outlooks compiled each September extend an additional year, in this case through 2025.
Outside the Fed, however, there is a growing sense that the path to a soft landing is unlikely. Some analysts estimate the unemployment rate, which hit 3.7% in August, may need to rise as high as 7.5%.
Traders in contracts tied to the Fed’s benchmark overnight interest rate now expect that rate to end the year between 4.25% and 4.50% - 2 percentage points higher than where it is now and a level last seen in late 2007.
“The probability of a softish landing falls materially” after U.S. inflation data for August showed just how persistent rising prices have become, Evercore ISI Vice Chairman Krishna Guha wrote last week. “Even assuming...it is still possible to bring inflation down...without a proper recession, the data and the response it will provoke substantially increases the risk that the Fed ends up overshooting badly and causing a recession anyway,” with the policy rate perhaps hitting as high as 5.00%.
AN END IN SIGHT?
The updated economic projections will give the clearest indication yet of Fed policymakers’ sense of the endpoint for rates, key information for investors trying to value assets or homebuyers wondering what a mortgage might cost next year.
Some officials have lately shied away from discussing the issue in detail, wary of setting expectations and then having to shift gears. The new projections, though, will include anonymous estimates from each official for where the policy rate should be at the end of 2022 and the following three years. The so-called “dot plot” of estimates from the seven members of the Fed’s Board of Governors and 12 regional bank presidents also includes outlooks for unemployment, inflation, and economic growth.
As long as inflation continues to move sideways rather than downwards, however, they face a dilemma over whether to raise interest rates to levels even higher than currently foreseen or hope the increases already flagged will eventually do the job.

August 2022 - Luxury Market Report for Sacramento County

Is a Housing Market Crash Coming? Here's What Dave Ramsey Thinks

If you are thinking of buying a home, you may be hoping for a market crash. Home prices rose rapidly during the pandemic and mortgage interest rates have also been rising this year, so it may feel difficult to purchase a property under current conditions. But, if a crash happened and prices plummeted, houses would become more affordable. While some people believe a crash may be coming because they fear the real estate market became a bubble due to record low interest rates during COVID-19, this is not necessarily going to happen. In fact, if you listen to personal finance expert Dave Ramsey, no crash is likely to come at all for the foreseeable future. Here's why.

Dave Ramsey has a clear answer to the question of whether a housing market crash is imminent
Ramsey's opinion on whether a market crash is coming soon is unequivocal and very firm. "If you're in a position to buy or sell, don't wait on the 'Housing Market Crash' because it's not coming," the Ramsey Solutions blog reads.

Whether you're a buyer who is hoping for a crash or a seller who is fearing one, it's helpful to understand why Ramsey has such a definitive position on the direction of the real estate market. That's because he has a lot of data to back up his belief that prices are not going to fall anytime soon.

Here's why Ramsey doesn't believe a crash is coming
There are several key reasons why Ramsey thinks the housing market is not going to experience a major downturn anytime soon.

The first reason is that most projections suggest home prices are going to continue to rise over the coming year. While the increase won't be anywhere near the double-digit rise in prices that occurred in 2018 or 2019, it is expected costs will go up around 3% to 4% over the course of 2023. And this estimate makes sense because, as Ramsey points out, that "gets us back to the average increase for residential single-family homes the last 50 years."

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Ramsey also explained that supply and demand will drive the price of houses (and everything else). And demand is high while supply of homes is low. "Since we've had a shortage of homes for about the last two decades, plus the demand is high, the prices are therefore high." The supply dipped even more during the pandemic when no one wanted to sell a property and many people wanted to buy one as a result of record low mortgage rates.

But even post-pandemic, Ramsey does not believe that supply is likely to meet the demand anytime soon. There have been few new homes built in recent years, a lumber shortage cut construction rates further, and millennials have entered their prime home-buying years. "That's 12 million more households wanting to own a home today," Ramsey said. "This makes for too many buyers chasing too few houses."

Since all these points are valid ones, there's reason to suspect Ramsey is right about whether a crash is imminent, although no one can predict that with certainty. For that reason, those who are hoping to buy a home soon may not want to put off the purchase in hopes of a crash because that could backfire if high demand and continued low supply push prices even higher.

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Rates Rising, Demand Weakens

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.65% from 5.45%.
"Last week's purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity," said Joel Kan, an MBA economist.
Mortgage demand continues to weaken, still right around a 22-year low, but there was a sign in the weekly numbers that first-time buyers may be slowly returning.
Mortgage applications to purchase a home fell 1% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 21% lower than the same week one year ago. There was, however, a jump in demand for loans offering lower down payments.
"Last week's purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity," said Joel Kan, an MBA economist.
He also noted that the average purchase loan size continued to trend lower, as homebuying at the high end of the market weakens.
Mortgage rates increased for all loan types last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) rose to 5.65% from 5.45%, with points climbing to 0.68 from 0.57 (including the origination fee) for loans with a 20% down payment.
As a result of the sharp increase in rates, demand for loan refinances dropped 3% for the week and were 83% lower than the same week one year ago.
Borrowers also moved away from adjustable-rate loans, which are no longer offering the bargains they did just a few months ago.
"The spread between conforming fixed-rate loans and ARM loans narrowed to 84 basis points from over 100 basis points the prior week," Kan said. "This movement made fixed rate loans relatively more attractive than ARMs, thereby reducing the ARM share further from highs seen earlier this year."
Mortgage rates moved even higher to start this week, as the stock market sold off on renewed fears of a recession. Investors are waiting for what they expect to be hawkish sentiment from the Federal Reserve at a meeting later this week in Jackson Hole, Wyoming.