March 21, 2023 – Did the first two months of this year’s data enable the Fed to grant itself an extension regarding raising short-term interest rates?

Economic Commentary

Did The Fed Get an Extension? The Federal Reserve Board meets today, and the big question is – did the first two months of this year’s data enable the Fed to grant itself an extension regarding raising short-term interest rates? To answer this question, let’s review the two most important pieces of data. First, the economy created approximately 800,000 jobs in the first two months of the year, and the unemployment rate stands at 3.6% — extremely low by any standard. Based upon this point of data—the answer would be yes.

The second point of data encompasses several measures of inflation, including the Consumer and Producer Price Indices, wage inflation and the PCE Inflation Index (Personal Consumption Expenditures Price Index). Just about all of these measures were stronger in January after easing for several months. February data is not completely reported yet, but for example, the CPI was up 0.4% last month, a bit high for the Fed – but the PPI came in lower than expected. Based upon the second set of data, we would say that there should be almost no doubt that the Fed would be likely to raise short-term rates tomorrow—either .25% or .50%. This would have left only one open question — are they going to continue to raise rates in the coming months?

Before these points of data were released, the answer would have been 50/50. Based upon the data, it would have appeared that the Fed would be leaning towards one more increase and quite possibly a few more. Only, it is not only the data influencing the Fed. With major bank failures in the headlines, there are questions about the effects of higher rates on the banking sector. Some are now saying that the Fed could hold off tomorrow and for the near future. While others indicate the Fed will raise rates, but be more cautious in their statement. By tomorrow afternoon we will know more about the Fed’s thoughts. Meanwhile, in response to concerns about the banking sector, long-term interest rates, such as mortgages, have fallen precipitously in the past week or so — good news for homebuyers.

Weekly Interest Rate Overview

The Markets. After several weeks of heading upwards, mortgage rates reversed course last week in response to the reaction of turbulence in the banking sector – though they remain very volatile from day-to-day. For the week ending March 16, 30-year rates fell to 6.60% from 6.73% the week before. In addition, 15-year loans decreased to 5.90%. A year ago, 30-year fixed rates averaged 4.16%, more than 2.0% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates are down following an increase of more than half a percent over five consecutive weeks. Turbulence in the financial markets is putting significant downward pressure on rates, which should benefit borrowers in the short-term.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

The pandemic may be winding down, but the work-from-home revolution marches on. Nearly 30 percent of all work happened at home in January, six times the rate in 2019, according to WFH Research, a data-collection project. In Washington and other large urban centers, the share of remote work is closer to half. In the nation’s biggest cities, entire office buildings sit empty. The COVID-19 pandemic transformed the American workplace. The share of all work performed at home rose from 4.7 percent in January 2019 to 61 percent in May 2020. Some economists consider the remote-work boom the greatest change to the labor market since World War II. “It’s affected so many things,” said Nicholas Bloom, a Stanford University economist and WFH researcher. “It’s affected city structure. It’s affecting days of the week that people play sport: golf, tennis. It’s affecting retail. It’s completely skewed, mostly in a positive way, the American economy.” In 2021 and 2022, employers gradually summoned American workers back to the office. Last spring, the back-to-the-office movement hit a wall, and the work-from-home population stabilized around 30 percent. Workplace experts say remote work is here to stay. Workers love it. Employers have learned to live with it. “There’s sufficient and growing evidence that people do work well when they’re working from home,” said Barbara Larson, executive professor of management at Northeastern University’s D’Amore-McKim School of Business. “It’s not like everybody was working hard when they were in the office.” The average worker saves 70 minutes of daily commuting time by working from home — and spends almost half of that extra time doing work: a win-win. Source: The Hill

According to Chris Salviati, a Senior Housing Economist at Apartment List, the necessary adoption of remote work at the outset of the COVID-19 pandemic has played a key role in explaining the turbulence the rental market has seen in the last three years. But the advent of remote work is helping workers relocate from expensive markets to more affordable ones as the flee from urban cores to the suburbs and beyond in search of attainable housing. While some employers have mandated that remote workers return to the office full-time, remote work continues to be far more prevalent than it was before the pandemic. Census data shows that the number of those that work from home tripled between 2019 and 2021. Knowing this, Apartment List surveyed nearly 6,000 adults in December 2022 and overall found that those with a remote job were far more likely to migrate and move into a new home than those with a traditional job. Among workers whose jobs require them to be fully on-site, 17% moved in 2022. Meanwhile, 27% of workers in fully remote jobs moved, meaning that this group was 56% more likely to have moved than the on-site workers. The highest moving rates were observed among workers with hybrid remote arrangements—those who split time between working at home and on-site—31% of whom moved in 2022, a rate of mobility that was 78% greater than that of on-site workers. “Salviati added. “We found that those with remote working arrangements were not only more likely to move, but also considered different factors when they did so. A desire for more space was a major concern for both on-site and remote workers, with 25% of both groups telling us that they moved into a larger home. However, factors concerning geographic preference were far more important for those with remote flexibility.” Looking ahead, survey results seem to imply that this trend will continue throughout 2023. 27% of on-site workers told us that they are planning to move in 2023, compared to 36% of fully remote workers and 44% of hybrid workers. “Our survey also indicates that we should expect greater movement among remote workers to persist beyond 2023,” Salviati concluded. “Among those not planning a move this year, we asked about longer-term plans—11% of fully remote workers told us that they are very likely to move to a new city within the next three years, compared to 6.5% of hybrid workers and just 3.5% of on-site workers. Source: DSNews

Consumer Financial Protection Bureau (CFPB) released a report examining trends in credit reporting of debt in collections from 2018 to 2022. The report found the total number of collections tradelines on credit reports declined by 33%, from 261 million tradelines in 2018 to 175 million tradelines in 2022. The share of consumers with a collection tradeline on their credit report decreased by 20% in the same timeframe. The CFPB also released additional analysis examining factors that increase the likelihood of inaccurate medical collections reporting and may contribute to the decline in medical collections tradelines. “Our analysis of credit reports provides yet another indicator that, due to a strong labor market and emergency programs during the pandemic, household financial distress reduced over the last two years,” said CFPB Director Rohit Chopra. “However, false and inaccurate medical debt on credit reports continues to be a drag on household financial health.” Collections tradelines are furnished to credit reporting companies by third-party debt collectors. Commonly reported collection items include medical, rental and leasing, credit card, and utility accounts. Some third-party collectors work on behalf of original creditors for a fee (“contingency-fee-based debt collectors”) and others purchase accounts outright from creditors (“debt buyers”). Unlike most other tradelines, debt collection tradelines rarely report positive information like on-time payments, and result in reporting of collections tradelines being almost entirely harmful to consumers. Collections tradelines are visible to potential lenders, employers, landlords, and others who run credit inquiries or background checks. Collections tradelines can limit people’s access to jobs and housing, as well as decrease credit scores and increase the cost of credit. Given the potential damaging impacts of collections tradelines, reporting of inaccurate data is especially harmful. Source: CFPB