Market Commentary 12/2/2022

Market Left In Speculation Re: Fed’s Next Move Amidst Stronger Than Expected Jobs Report

It was a very good week for stocks and bonds. Over the last couple of weeks, interest rates have been drifting lower (under 6%), bringing more borrowers to our local real estate markets. However, the better-than-expected jobs report will keep pressure on the Fed to continue its path of higher interest rates. Let me be clear, the rate of increase in interest rate will moderate. But for those who think interest rates are coming right back down, this Jobs Report should put those thoughts to rest in the near term. The reason is that wage growth remains strong and well above previous forecasts. Since employee wages make up for most companies’ largest expense, wage growth places great pressure on businesses to continue raising prices. While the Fed would like to see wage growth in the 2% to 3% range, today’s number of 5.60% was too high. Inflation can only come down so much with wages growing at this clip.  Additionally, with unemployment still under 4.00%, we anticipate another 50 bp increase in the Fed Funds rate when the committee meets later in the month.   

Some good news on the mortgage front.  Fannie/Freddie has now opened up their home loans to over $1 million in high-cost areas. This will help those borrowers looking to purchase in markets that may not have the perfect profile for a balance sheet lender. Fannie/Freddie tends to be less restrictive on post-closing reserves and credit at higher loan-to-values.  Also, as lenders adjust to the higher interest rates, we are beginning to see credit officers at local banks and credit unions approve exceptions with more regularity. A good sign for sure.