Mortgage Rates

With mortgage rates hitting multi-year highs, the real estate market continues to struggle. It is not because there are no buyers; there are. However, more and more buyers who are immune from high-interest rates are entering the home-buying market with cash offers or other alternative financings.
 
The real problem is a lack of inventory. There are simply not as many homes for sale, and this is impacting transactions. 
 
Home prices appear to be falling as sales dry up. This is not as it seems. Typically, prices fall when there is less demand. In this case, prices are falling because there is less inventory. 
 
With the economy continuing to remain fairly strong, one should not look at housing price headlines as an inflation indicator. Furthermore, slowing sales does not mean less demand. If interest rates were to moderate and fall slightly, I believe demand would immediately pick up (particularly given how strong the current jobs market is). 
 
Falling real estate prices do not necessarily indicate a slowing economy. It simply is a supply problem because of higher interest rates. For that reason, we do not expect the Federal Reserve to take action based on falling home prices; there are other inflation measures we believe they are carefully watching.
 
It is our view that interest rates will continue to moderate as we believe inflation is coming down. We believe the economy is slowing (though not at the pace some had expected). We believe a slowing economy will cause the Federal Reserve to continue to moderate its interest hiking perspective. 
 
We are investing portfolios on the assumption that rates will likely begin to slow in terms of the pace of increases. We think this makes sense given the current data.
 
If you have any questions about this information, do not hesitate to contact me.