So you may have heard that the Federal Reserve met today. Frankly from their own published statement, I am not sure they have any idea what is going on…
The Fed has been trying to fight inflation for the last year. It’s been a real uphill battle between rising prices and all the havoc that is wreaking on the economy and the idea that now that “the genie is out of the bottle” on inflation, how far do you go to reign it in?
Their issues have been further complicated by two things. First is that monetary policy (raising rates) is a thing that exerts influence on the economy as a whole over time. It could take six months to a year to have a rate cut today impact the buying decisions of both businesses and consumers. The second issue is that the banking crisis that started with the meltdown of Silicon Valley Bank and spread to other institutions is just under the surface.
I know that most Fed watchers and armchair economists alike are falling all over themselves to explain how this time it’s different and the banking crisis is contained. It sounds alot like 15 years ago when Ben Bernanke and his minions were telling us that the mortgage crisis was “contained to subprime loans” right before the entire real estate, mortgage market and general economy collapsed.
I don’t know about you, but I feel like “Fool me once, shame on you. Fool me twice, shame on me. I’m not buying it and think there are bigger problems behind the curtain, so to speak that the Fed either does not see or is not wanting to discuss. It’s my personal opinion that the economy is going to take a hit. Is it more banking issues, higher rates, the war in Ukraine, Chinese aggression against Taiwan? No idea, but it feels like a rockier road ahead.
Does that mean that you shouldn’t buy a house in 2023? No, not at all, as long as you are certain of a few things. First is your need. If you are a first time buyer and going to stop renting, build equity and get control of your real estate, buy. If you are needing to move the suburbs because your kids are now school age, buy. If it’s time to downsize, get a place in Florida or wherever, sure, you should buy.
The one thing that WILL NOT happen is that home prices will fall as a result of anything going on. Long story short there are still too many buyers for too few homes. Even as of this writing, any quality house sells in a few days after coming to market. We have had multiple bidding wars on new properties as well and the demographic situation points to stable, or rising, home values.
The thing is that no matter what the Fed did today and going forward, things are likely to shake out like this:
- There is a shock to the economy because either the Fed raises rates too high or something like another banking crisis hits.
- Bonds receive a flight to quality over time because investors are fearful and rates drop.
- If you already own your house and had to take out a mortgage over 6% you likely have a chance to refinance it and lower your payment.
