Equity Markets Bounce Back As Inflation Firms
The near-term trajectory of interest rates became increasingly ambiguous this week. GDP growth rates slowed more than forecasted while inflation firmed up, indicating a prolonged path to reach the 2% inflation target. The ten-year Treasury yield remains steady above 4.500%, with expectations of staying within a range of 4.500% to 5.00% in the near term. Additionally the upward trend of core PCE, the Fed’s preferred inflation measure, further dampened prospects for a near-term rate reduction. Speculation suggests the first rate cut may not occur until December 2024. Chair Powell is likely to adopt a more hawkish stance given the rise in inflation, consumer spending, and the overall resilient economy.
While the economy appears robust and recession concerns have eased, underlying issues remain. Credit card debt has increased, accompanied by a rise in late payments. This is a strong indication that the surge in living costs is becoming increasingly burdensome, particularly with credit card rates exceeding 20%. Commercial real estate, especially office and some multi-family projects is under considerable stress. With interest rates on the rise, more defaults will be coming. With mortgage rates for conforming loans reaching the high 6’s to mid-7’s and high-quality jumbo loans hovering around the 6’s, there’s apprehension about a potential slowdown in the home purchase market, particularly in existing home sales. Despite this, the new home market continues to attract strong interest driven by home builders, incentives, and access to inventory.
Navigating the real estate and lending landscape in today’s environment poses significant challenges. Banks facing capital constraints and market volatility affect lenders’ ability to lower interest rates in a dynamic landscape. Constantly surveying the marketplace has become a daily practice for our team, enabling our boutique brokerage to secure deals effectively. Understanding the nuances of the market is paramount, given the notable variance in rates—sometimes up to 1/4% – 1/2% —among lenders offering similar products. This underscores the importance of being a broker and having access to a diverse range of products, from private banking and niche portfolio loans to government and conforming loans.
