Arthur Burns: shorthand for Fed failure? – History remembers Arthur Burns as the Fed chair who didn’t raise interest rates during the 70’s, and let inflation run away, an outcome current Fed Chair Powell is striving to avoid. Burns was a friend and Fed chair appointee to President Nixon who often made very public comments ‘joking’ about keeping interest rates low (Fed is supposed to be independent of politics). In Burns’ journal he did write about feeling political pressure from Nixon to keep rates low. At that time inflation was around 5% he eased up on interest rates. Some folks believe that it wasn’t political pressure, it was fear of shoving the economy into recession which would cause much job loss and pain. A difficult tightrope to walk – let inflation go nuts, or plunge the economy into massive recession?

Mortgage rates improved nicely midweek before bouncing back up to slightly below their level at the start of the week. Mortgaged-Backed Securities (MBS) tested the 200 day moving average but couldn’t break above. Rates are up approximately 2.375% from this time last year.

Jobs – the BLS jobs report (not pictured) reported 517,000 job creations in December, way above expectations. The labor force participation rate increased slightly, and unemployment dropped marginally to 3.4%, the lowest level since 1969. There were negative revisions to the previous months report so the numbers should be taken with a grain of salt. The number of people filing for unemployment for the first time (pictured) declined again to 183,000 and continuing unemployment claims decreased as well.

Home Values – declined 0.6% in November which is typically considered a slower time for Real Estate during the year. Over the previous 12 months values are up 7.7% an incredibly strong number and down from the peak in March of 20.8%. Historically values have appreciated at closer to a 4.5% annually when averaged over long periods of time.

Rents – Apartment List Rent Report showed that rents fell 0.3% in January and are up 3.3% year over year, down from 3.8% in the previous report. This deceleration of growth will eventually help with inflation readings, but that element is very delayed in indices. Vacancy has surpassed 6%, the highest since October 2021. Will we see a shift to a renter’s market in 2023?

Mortgage Applications to purchase homes declined by 10% last week after increasing 28% over the previous two weeks. Purchase applications are down 41% year over year. Refinances are down 80% year over year.

Fed – the Fed unanimously voted to hike the Fed Funds Rate by 0.25% bringing the current rate that banks lend each other money at to 4.5-4.75%. Remember that the Fed Funds Rate sets the tone for HELOCs, Auto Loans, and credit cards. An increase in Fed Funds rate typically helps mortgage rates as the Fed raises their rate to slow inflation, the arch nemesis of mortgage rates. Fed chair Powell did final acknowledge that inflation has been coming down and has signaled the plan of 2 more 0.25% rate hikes.

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