The finger pointing keeps going. It's as old as time. For months we bemoaned the pains of rising inflation. It was bad, and global, peaking briefly above 9%. We bemoaned the causes and blamed excessive government spending, covid, tax cuts, tariffs, supply chain disruptions, the Russia-Ukraine war, etc. We bemoaned rising interest rates. We bemoaned that the FED raised rates too late. Then we bemoaned that they were raised too rapidly.
Then inflation started to come down, and is now around or below 3%. We are still miserable. Now we bemoan that while prices are not rising as much, they're still much higher, although we are seeing some signs of price cuts, including housing! We're still not happy. The Fed told us what was needed was higher unemployment. So signs of that appeared yesterday and the markets agonized! Still not happy. Now many are bemoaning job losses.
Getting the balance right knowing that in all circumstances there are beneficiaries and losers can take time and the lag between raising or lowering rates can take some time to take effect. So what happens now? Are we really better off when people lose their job? Who pays for that? Here is a comment from the Financial Times this morning:
"FT comments once again dominated by
those happy to see people out of work to
save a bit on their house purchase. Selfish
bunch."
Are we being selfish, wishing and praying for lower rates to fuel the housing market knowing the Fed's mission was job losses? I don't think so. I think if anything the higher rates achieved the exact opposite in the housing sector than what they were supposed to. Prices kept going up as interest rates rose. Which is exactly the opposite of what is supposed to happen. But we were in a grossly UNDER-supplied environment, a huge difference when compared to prior rate-hiking moments. Our economy was not overheating in 2021 because of too much housing supply or speculation. Then, more recently, we started to see some price cuts in areas. Not unlike many sectors, pricing exuberance had gone too far too fast and needed some re-balancing. We complained about that too.
Will home prices plummet now that rates are dropping? Hardly. Will people be able to afford more with lower rates? Probably. The dream - or theory - and the reality are often far removed from one another. Will more buyers enter markets now and will more sellers be inclined to sell? Will more developers build now with finance costs coming down? Will some buyers be unable to buy because they lose their job?
These are uncertain times and it's difficult to predict what comes next. I for one believe many, many buyers who need to finance who had been on hold will now step in knowing that a surge in activity could produce more price hikes, more inflation with rates dipping for a while followed by rates rising again down the road.
There is only ONE certainty: we will complain about lots and continue to point fingers! We are reliably good at that.
