Capital
Fed Watch: As Economy Revs Up, All Eyes Are On Interest Rates
At stake in what the Fed signals is a lynchpin of new-home sales momentum that kicked into overdrive practically with the onset of COVID-19 in late winter 2020.
The interest rate punchbowl – an X factor in one of new American homebuilding's career years in recent memory – may be reaching a point where there's less and less to ladle.
At stake is a lynchpin of new-home sales momentum that kicked into overdrive practically with the onset of COVID-19 in late winter 2020: the secret sauce of monthly payments, an unlived-in home with a yard, and hours of new-found time that were a direct byproduct of an economy put on pause with boatloads of free money to ease the pain.
Speculation on whether the Federal Reserve Federal Open Market Committee – meeting Wednesday – may send new signals on monetary policy and tactics as navigates tricky tides and a narrow passage of late- and post-pandemic economic activity, is amping up.
Among those who are keenest on knowing what the Fed may do next, 2021 is not the issue at hand, but rather, 2022 and beyond.
Tomorrow, an FOMC meeting is not widely expected to signify policy changes, but a number of analysts and Fed observers suggest that an array of trends that are running sharply in contrast to Fed prior expectations could mean a pivot.
Wall Street Journal reporter Paul Kiernan writes:
Fed officials’ individual March projections, charted in their so-called dot-plot, showed all 18 policy makers expected to leave interest rates unchanged through this year. Four expected to start lifting rates next year, and seven projected that rates would be higher by the end of 2023.
The new dot-plot coming Wednesday could show more individuals expect to raise rates in 2022 or 2023, analysts say. A June survey of 127 market participants by MacroPolicy Perspectives LLC showed 68% of respondents expecting at least one rate increase in 2023.
The deal is this. No strategic change is likely, but signals the Fed sends about what they're looking at, what they expect, and what that may mean for tactical shifts in monetary and fiscal action have historically had an effect on buyer sentiment, timing, and, ultimately, mortgage rates.
What it means is that the front-end heavy capital investment in land for 2023 and beyond begins to be clouded as strong structural demographic demand encounters cross- or headwinds on the housing finance front.
Enjoy the punch while this bowlful lasts, but don't expect it to be refilled again and again if the economic engines that are firing now pick up added steam in the months ahead.
WJS editorial writers reach a conclusion not many in the residential investment, development, and construction community may align with:
The housing market no longer needs the help if it ever did, and the rest of the economy doesn’t need the skewed incentive to over-invest in housing.
The idea, now, is to prepare for whatever may come on the Fed policy front, so that your firm can thrive whether or not the interest rate tailwind is a critical demand force.
