The Russia/Ukraine Conflict Might Not Affect Proposed Interest Rate Hikes

Geo-Political

On Friday morning Russia said that they are willing to talk… IF the Ukraine army lays down their arms. This means they would be asking for an unconditional surrender, which is unrealistic. The US and Europe have imposed sanctions on Russia as a result of their invasion, with one key sanction that they are threatening to impose – The removal of Russia

from the SWIFT system, which is the dominant system for Global financial transaction. Putin said he would never attack a system he was part of, but if he was removed, would we have to worry about cyber attacks on one of the main global payment systems? In todays age, we not only have to worry about physical force, but also cyber.

Fed Interest Rate Hikes

Will the Fed change their plans on the amount of rate hikes this year due to the Russia/Ukraine conflict and drop in asset prices? Fed Governor and voting member, Chris Waller, doesn’t believe so. He wants to hike rates 100 bps by the middle of the year with four 25bp hikes at the next four meetings. He also said that a strong case can be made for a 50bp hike in March if the February CPI data runs hot.

Economic Data:

The Fed’s favorite measure of inflation, Personal Consumption Expenditures, showed that headline inflation rose 0.6% in January, which was hotter than expectations. This caused the year over year reading to increase from 5.8% to 6.1%...the hottest level in 39 years. The Core rate, which strips out food and energy prices and is the real focus of the Fed, was up 0.5%, which was in line with estimates. Year over year the index increased from 4.9% to 5.2%. Private sector wages/salaries rose 0.5% last month and if you were to annualize the past 6 months, private sector wages are up almost 10 annually.

Housing Market

This is a good thing for affordability on homes. In housing news, Pending Home Sales, which measures signed contracts on existing homes, fell 5.7% in January, which was weaker than expected. Last month’s reading was revised higher, and when factoring that in, it’s down closer to 4%. Sales are now down 9.5% year over year. There is no doubt that higher interest rates could be impacting demand, but the real story here is inventory. There were only 860,000 homes for sale across the country last month - If there were more homes for sale, there would be more sales. 

Triad Housing Market

Currently, in ALL of the Triad, there are 1,069 homes for sale.  There were 1,797 home sales in January 2022, according to statistics from the Triad MLS.  So the inventory level for all of the Triad is 0.59 - LESS THAN one month's inventory.  During the Great Recession of 2009-2011, there would be over 1,000 FORECLOSURES for sale in Forsyth County at any given time. 

Lewisville-Clemmons Housing Market

Lewisville-Clemmons has only 29 (TWENTY-NINE!!!) listings right now.  There were 58 home sale in Lewisville-Clemmons in January 2022.  So again, we have LESS THAN one month's inventory (0.5 inventory).  There just are not enough homes for sale most anywhere in the country, and our local area is no different.

Mortgage Rate Technicals:

Mortgage Bonds bounced off support at 99.984 this morning and are trading in a wide range between this strong and reliable floor and resistance at 100.617. The 10-year is trading at around 1.97%, in a wide range of its own, between support at the 25 day Moving Average and a ceiling at 2.054%. With geopolitical uncertainty still at play, we can continue carefully floating.