The Bureau of Labor Statistics released the Consumer Price Index (CPI) Report for the end of April 2024. The latest figure is at 3.4%, which is 0.1% less from last month. This number is not getting much closer to the 2% goal set by the Federal Reserve. Here’s what it means to you, mortgage interest rates, and the housing market.
The CPI measures the cost of goods and services, everything ranging from the cost of food to gasoline and shelter. This past month, the cost of gasoline and shelter (measured by the cost of rent) contributed to 70% of the costs. So it appears that though most items are going up in cost, people appear to be finding the money to maintain their lifestyle. Prices tend to go down as consumers stop spending. That is not happening. One interesting side note is that the national consumer credit card debt is the highest it’s ever been. One has to wonder if people are living off credit cards to pay for living expenses.
WHAT EXPERTS PREDICT
Most experts seem to think that based on the latest CPI report. the Federal Reserve will leave the federal funds rate as is.
THE EFFECTS ON HOUSING
In terms of housing, the CPI affects the decision of the Federal Reserve of bringing down the federal funds rate, which in turn will bring down the mortgage interest rates and the cost of borrowing money. The Federal Reserve looks at the CPI numbers and takes this into consideration before making their decision. Their goal is to bring inflation to 2%. If this happens, then they will bring down the federal funds rate.
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BOTTOM LINE
With lower mortgage interest rates, the hope is that home sellers who have been wanting to move and sell their homes can in turn find a new home with a lesser interest rate than the 7% averages we’ve been seeing recently. This would be a big relief to a housing market marked by record-low inventory of homes for sale. Buyers seem willing to pay 7% as homes are bought soon after going on the market in Northern Virginia. This seems to be our new normal.
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Also feel free to compare this update with last month’s Market Update – November 2023.
