In the moment, it’s sometimes hard to realize that you’re experiencing change- something that will impact you in some way, large or small, for a period of time to come. Back in 1986, I didn’t realize, when responding to an ad in the UR’s Campus Times, that the trajectory of my life was about to change. I suddenly found myself caring for a 90-year-old woman in an apartment across from the George Eastman House. With her extended family, I moved to their summer residence on something called “Canandaigua Lake” and I began to meet and understand Rochester. My life hasn’t been the same since.
As I’ve experienced, sometimes change comes quietly and it’s not until some point in the future that you are able to look back and identify a liminal moment in time. I believe that, sometime next year, we will look back and realize that March 22nd was the day that the housing recession that has plagued the real estate market began to improve.
In the wake of the collapse of Silicon Valley Bank, all eyes were on the Federal Reserve. Would they, in their March 22nd meeting, raise rates and, in doing so, potentially create another bank foreclosure? Or would they make no move and, as a result, call into question the strength and viability of the US banking industry? This type of scrutiny could create panic, a run on bank deposits, and a collapse of world financial markets. Well, for the moment, it looks as if the Federal Open Market Committee made the right move. They raised the Federal Funds rate another quarter point and, subsequently, the banking industry seems to have stabilized and Wall Street has responded favorably.
During his March press conference, Jerome Powell signaled that, moving forward, the Fed was going to ease up on further interest rate hikes. Rather than continuing to raise rates and risk hurling the US into a painful recession, Powell and his governors are going to allow existing rate hikes and tighter lending standards to continue the task of taming inflation.
- The Fed has raised the Federal Funds Rate 4.5% in the past year. Because it takes time for a rate hike to reverberate through the economy, some of the largest increases are just now beginning to have an impact.
- Meanwhile, as a result of SVB’s untimely demise, regional banks are tightening their lending requirements. If it becomes more difficult for somebody to buy a new car or if it’s too burdensome for a small business to borrow money to grow their company, the economy will, inevitably, contract. Several economists have stated that the tightening of lending standards could result in cooling the economy by a minimum of half a percentage point.
This past Friday, it was reported that the PCE (Personal Consumption Expenditure- the Fed’s favorite measure of inflation) clocked in at 5% in February- less than the 5.3% rate that was reported in January. This was the latest data point showing that Fed policies seem to be taking hold. More broadly, back in July, the Consumer Price Index (the more commonly reported index of inflation) hit a high of 9.1% and has dropped a full 2.7% to 6.4%. Increasingly, pundits are speculating that, come year’s end, inflation will have fallen to less than 4%. The big question- one that has been posed repeatedly- is whether the Federal Open Market Committee will manage a Sully and engineer a soft landing. I’m no longer going to speculate because most economists seem to change their opinion on this issue more often than Claire Crawley’s decision to date or dump Dale Moss on The Bachelorette.
I am certain that, as the rate of inflation continues to drop, we will see mortgage rates fall and, as they do, more buyers will return to the market. Majuwa Kowai-Bell at Genesee Regional Bank is currently offering 30-year fixed rate mortgages at 6.125%, a drop from 7.1%. There is some conversation among real estate professionals that the housing market, currently populated by consumers who need to buy and sell, will become increasingly populated by those who want to buy and sell once mortgage rates remain below 6%.
The housing industry is usually the first sector of the economy to experience a slowdown and usually the first to pull out. The industry has been in a recession since last July, and I’m fully convinced that the worst is behind us. I’m not suggesting that, like an ad for a weight loss supplement in Men’s Health Magazine, we’re going to experience immediate results. However, with any luck, over the next nine months, we’ll experience slow, incremental improvement and, by the start of the year, if we’re really lucky, a resumption of some sense of normalcy.
I’ll conclude by saying, once again, thank you. The local real estate market has experienced an incredibly slow first quarter of the year. Colleagues and analysts are stating that, once final figures have been calculated, it will be announced that sales fell a full 25% from the first quarter of last year. My team and I are proud to announce that we beat expectations and, despite a small downturn, our sales were off by a mere 2%. I’m calling that a major victory! Many thanks!! We couldn’t continue to thrive without your support and your kind words! Happy Spring!