So far this year our discussions have focused on interest rates, loan originations, consumer financial health and the real estate market. This month I thought we could talk a little about the overall economy.
I feel like in the news today we have a plethora of contradictory opinions about where we are going next as it relates to inflation, rates, consumer demand. Examples would be major economists predicating a pending sell off in stock market, yet the Dow and S&P continue to be strong and even bordering on historic highs. The other would be how many in the past year have predicted a stabilization or even decrease in housing prices while the median sale price was up nearly 5 percent as of June 23 compared to a year ago to nearly $400,000. I need to use my secret decoder ring to understand all the information.
The truth is the U.S. economy in 2024 is navigating a complex landscape characterized by both resilience and challenges. After a period of robust recovery from the pandemic-induced recession, economic growth has moderated but remains positive. Consumer spending, a major driver of the economy, continues to be strong, fueled by a fairly healthy job market. However, inflationary pressures persist, compelling the Federal Reserve to maintain a cautious stance on interest rate adjustments. As we have discussed in previous articles while higher interest rates have helped to temper inflation, they also pose risks to consumer borrowing and investment. This was realized in the historically low transactions in the spring real estate market this year. Another reason for this is nearly 90 percent of American homeowners have properties where the cost of their mortgage is below 6 percent, according to Redfin, which is cheaper than what the current market is offering. This helps explain why the refinancing share of mortgage applications stalled for the week ending June 21 despite a fall in rates.
The labor market remains tight, with unemployment rates hovering near historic lows. This tight labor market has led to increased bargaining power for workers, resulting in higher wages and improved working conditions in many sectors. However, it also presents challenges for employers, particularly in industries facing labor shortages. The ongoing trend of remote and hybrid work arrangements continues to reshape the labor market dynamics, influencing everything from commercial real estate demand to urban-rural migration patterns. A potential obstacle for this migration is once again the lack of supply. Although housing starts were up slightly in the last two years builders maintain a conservative approach.
Current inflation in the U.S. remains a focal point of economic concern in 2024. While inflation has eased somewhat from its peak in previous years, it still runs above the Federal Reserve's target of 2%. Key drivers of inflation include persistent supply chain disruptions, elevated energy prices, and robust consumer demand. The Federal Reserve has responded with a series of interest rate hikes aimed at curbing price increases, but these measures also risk slowing economic growth. Core inflation, which excludes volatile food and energy prices, remains sticky, indicating underlying pressures in the economy. Policymakers continue to walk a tightrope, balancing the need to control inflation without tipping the economy into recession, while consumers and businesses adjust to the higher cost environment. As a result, we have currently seen tremendously high cost of living numbers and may be a contributor to the record high consumer debt and low household savings. I have been reading may consumers are waiting for interest rates to lower before making a housing purchase discussion, but would the predicted minor interest rate adjustment have that great an impact on mortgage rates and therefore originations?
In conclusion, the U.S. economy in 2024 is characterized by a delicate balance of growth and inflation management, with ongoing efforts to address structural challenges and promote long-term resilience. All the numbers seem to be moving in the right direction albeit slowly. The questions is will this impact consumer willingness for home purchase. Just this week CNBC announced applications to refinance a home loan jumped 15% last week compared with the previous week. This on continued minor interest rate reductions. Referencing back to the top of this article this all bodes well for lenders, consumer financial health and the real estate market.
Michael Harris is Managing Director and Partner of the Servicing Practice at BlackFin Group. Michael has over 20 years’ senior executive management experience in default servicing and mortgage servicing. He and his team are subject matter in all aspects of servicing strategy, investor relations, process, compliance requirements. Prior to BlackFin, Michael was the President & CEO of Jennick Asset Management and was responsible for developing the pilot outsourced management program for Fannie Mae, Freddie Mac, and HUD while working with the top 10 mortgage servicing and capital markets firms. For more information contact info@blackfin-group.com