In this exclusive series on Inman, Windermere Chief Economist Jeff Tucker examines the impact of the war on Iran and the Fed’s latest moves.
The first news this week was that the Fed did not cut interest rates at its March 18th meeting. Additionally, in a post-meeting press conference, Chairman Jerome Powell said the Fed would not cut rates again this year until there was some progress in lowering inflation further.
To understand why this is happening, the first number you need to know this week is 3%. That’s the direction the Fed’s preferred inflation measure has been heading in recent months.
The personal consumption expenditure (PCE) price index typically runs slightly lower than the better-known CPI inflation rate, so recent data showing PCE inflation rising toward 3% gives the Fed even more reason to hold off on cutting rates than this winter’s positive CPI data suggested.
Impact of crude oil prices
The second known figure is about $100. That’s a measure of the price of a barrel of oil by major global standards, and is up more than 50% from just a few months ago when it was less than $60.
The cause, of course, is the war with Iran and the resulting disruption to most of the oil normally shipped from the Persian Gulf. This is a volatile and unpredictable situation where the news can change at any time, but for now the impact is clear. Rising energy costs ripple through the economy, making almost everything in the economy more expensive.
That’s the main concern about inflation this year, and Chairman Jerome Powell cited it, along with lingering tariff inflation, as a reason to wait and see before cutting rates any further.
Interest rate rise and spring market
So the third number to know is that mortgage rates are approaching 6.25 percent or higher. At the end of February, we reached a major milestone. 30-year mortgage rates have fallen below 6% for the first time in 41 months.
But the bad news I just talked about about persistent inflation, especially from the new oil crisis, has caused mortgage rates to jump by more than a quarter. This, on top of the negative effects of higher gas prices and lower consumer confidence, will dampen demand for home purchases this spring.
As for the housing market, there were 928,000 active listings at the end of February, slightly below the inventory at this time six years ago, on the eve of the pandemic, and about 8 percent more than last year.
This is yet another month in which inventories increased year over year, but the pace has slowed ever since May of last year. Taken together, this means buyers will have more options this spring shopping season than any other year in recent years, but they shouldn’t expect an oversupply.
The spring sales season always sees intense competition for competitively priced properties in desirable locations. So buyers should be prepared to take the plunge once they find their dream home. Sellers, on the other hand, need to do whatever they can to make their home stand out from the crowd of other properties.
Jeff Tucker is principal economist at Windermere Real Estate in Seattle, Washington. Connect with him on X or Facebook.
