Fear has taken control of the stock market as the latest CPI report is released, but there could be opportunities for active buyers and sellers in the Real Estate housing market.
Today the Dow closed down 1276.37 (or -3.94%) as a reaction to the hot inflation report released this morning, with technology stocks leading the decline and bond yields soaring. The CPI (Consumer Price Index) rose 0.1% in August with economists looking for a 0.1% decline from last month. Year over Year (YOY) CPI is up 8.3% in August which is down from the YOY increase of 8.5% in July earlier this year.
Here's why this matters to you
The Federal Reserve has been trying to curb inflation by raising interest rates to bring down the cost of housing, energy, food, and consumer cyclical, but has been unsuccessful in their efforts, and as a result, the market is freaking out. The Federal Reserve may have no choice but to further tighten and raise rates once again to combat the latest increase in inflation, this will indeed affect labor markets, and housing markets across the country, and as housing prices begin to cool, buyers may find better opportunities to purchase a home, as for sellers, this may be one of the few opportunities left to sell before rates go up once again and home prices further decline.
Let’s explore the CPI further. According to the US Bureau of Labor Statistics “Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase. These increases were mostly offset by a 10.6-percent decline in the gasoline index. The food index continued to rise, increasing 0.8 percent over the month as the food at home index rose 0.7 percent.”
experts in finding your dream home
Start your search here
Gasoline vs. Energy (Utilities)
The 10.6% decline in gasoline is a bit misleading, let me explain; As interest rates increase, the cost of borrowing money for businesses and large corporations becomes more of a burden, and the result is a decline in production and manufacturing and a slowdown in the labor market. These economic slowdowns tend to place downward pressure on oil and gasoline if fewer trips are made and fewer goods are produced. This article can best explain the decline in gasoline, and it’s far from good news.
The cost of Electricity and Gas Utilities has increased 1.5% and 3.5% respectively over the last month and 15.8% and 33.0% Year of Year respectively. As any homeowner knows, these are enormous increases in home energy costs, and will likely drive homeowners to alternative energy sources (which are extremely expensive), or even downsizing and selling homes that are unnecessarily large. This is a trend with a high probability of continuing throughout the year, once again this may be the best time to sell for homeowners before energy costs continue to rise into the winter months.
Shelter Index
One of the leading factors increasing inflation in the latest CPI report was Shelter, which encompasses homeowner housing costs as well as housing rental rates, up 0.7% in August and up 6.2% year over year. The housing market has been red hot throughout 2021 and much of this year (2022), and as a result, the average home listing price has increased significantly, but can this trend hold? The answer is yes for many homeowners in the right market, REITS and investors alike are still buying homes hand over fist looking for renters to pick up any slack in the housing market to beef up their bottom line.
Don’t fear this housing market or the uncertainties surrounding the recent increase in interest rates, inflation may have run amuck but there are plenty of opportunities in this market for both buyers and sellers to take advantage of the fluctuations in home values. Interest rates may be rising but they are still historically low compared to pre-2010 levels, so if you’re considering purchasing a home, now is the time.
