President’s Message – July/August
Inflation has been on everyone’s mind for several months now, hitting everything from home prices to cars and services. The CPI rose a full 1% just in the month of May and is up 8.6% vs. 12 months ago. Groceries have risen 11.9% in only a year, and this is the steepest rise in this category since 1979. Inflation had taken off well before Putin started his war in Ukraine, which added fuel to the fire.
These alarming increases, which have left no one untouched, caused the Federal Reserve Bank to apply the brakes rather more sharply than their guidance had previously indicated, going for ¾% on June 16th, rather than the one-half percent increase they had been talking about. The rise on that Thursday was the steepest increase in the Fed Funds rate since 1994. The Fed has indicated that it may raise the rate again, by the same amount, and as early as July.
Another concern for the housing market is the marked increase in volatility in the stock market, and the decline in values across the board, even in so-called “defensive” companies like Walmart and Home Depot. Unlike the housing stock, inventories in these retail stores have been rising, as consumers face much higher prices. The S&P is now in a bear market, having fallen by more than 20%. The decline in stock values affects most Americans, even those without substantial portfolio holdings since retirement accounts are heavily weighted in equities.
There have been 21 bear markets since the Great Depression. The average length of those bear markets has been 11 months. The current bear market is five months old.
One more casualty of a crash in value is cryptocurrency. Just back in November, Bitcoin reached its all-time high, and since then has fallen almost 70%. Ether and Dogecoin have also both dropped by 70%. Supporters of cryptocurrency have touted it as a hedge against inflation, but it hasn’t turned out that way. The total value of all cryptocurrencies globally ballooned to an estimated $3 billion in 2021. Today that value stands at about $1 billion. Many cryptocurrency companies have announced layoffs, and trading in some currencies has been stalled as firms face internal financial problems.
With all of this going on, it is not surprising that more and more economists are voicing skepticism that a soft landing may be possible.
What does this mean for the housing market? We are seeing the beginning of the end of the sellers’ market. The inventory of housing had fallen rapidly from 2019 through early 2021 when the 12-month drop was a record 55%. Inventory across the US rose in May for the first time in three years. Inventory remains below the levels we say before the pandemic, but it will continue to rise.
In the Capital District, we have seen a leveling-off in the heady rise of home prices, and the frenetic bidding wars have abated to some extent. We certainly live in interesting times.
