This week we are graduating from ECON 201 to ECON 301. Welcome to the new class! I typically go over inventory levels and strong data analysis and interpretation to benefit my real estate clients. We’ll do that as well this week but we’re going to dive into some major economic headlines, as well as those that are coming in 2 weeks, to knit together a picture of the real estate market and where we are headed.
Today it was announced that inflation came out “higher than expected” at 9.1%, a 40 year high. It was only unexpected if you haven’t been buying anything for the last month. Earlier this week the Yield Curve inverted, meaning that rates on 10 notes were less than those on 7 and 5 year notes. This is probably the most historically reliable marker of a broader economic recession. Last month the FED also raised the Federal Funds rate 75 basis points (3/4 of a percent) which did not slow inflation as hoped. It would be unsurprising to see another 75 basis point, or even a 100 basis point increase in July, followed by another one in August. Inflation is the destroyer of worlds economically, impacting most egregiously those least able to bear up under it. Bringing it under control has to be the highest economic priority. The FED is trying to bring the economy in for a “soft landing”, avoiding a prolonged recession, but it is looking more daunting by the day. With regards to a recession, we are almost assuredly already in one, and it will be made official in about 2 weeks when economic growth for the second quarter is announced, with negative GDP widely expected. Definitionally a recession is 2 consecutive quarters of negative GDP growth, and the economy already shrank 1.4% in the first quarter.
So shake all that up, put it together, and what does it mean for the real estate market, or more specifically the Northern Virginia real estate market? It actually pre-sages potential good news on the interest rate front, because as I have noted in previous posts troubling economic times cause investors to put their money in US bonds, driving down their yield. This is somewhat moderated by the fact that the market has already priced in some of the factors that I enumerated earlier. It also should drive up demand as DC area real estate is really one of the few good hedges out there against inflation. So still a good real estate market on both sides of the aisle, but one trending towards more balance.
Let’s look at the local numbers. Inventory levels last week were at 3,511, and based on sales the previous week that translates into a 1.3 months supply of homes, a number you may have noticed is steadily increasing. For comparison look at the solid pre-pandemic years of 2018 (1.4 months) and 2019 (1.5). Showing activity, which is the rabbit moving through the snake, is up after a previous retreat. So despite the daunting national economic news I discussed earlier, and that you will hear repeatedly over the next few weeks, the real estate market locally is strong. Tom Ferry is fond of saying: “Headlines to more to terrify and clarify”. The national economic news is real and borderline catastrophic for many, but real estate in our area is a welcome haven. And it’s a haven that requires real market knowledge to navigate. So whether you are buying or selling, reach out to me to discuss how we create the best outcome for you!
It’s a good life.
Chris
