A WEEKLY GLIMPSE OF REAL ESTATE NEW
6/8/26
Lower Rate Expectation: Amid rumors that the labor market might be slowing, last Friday’s data was the second report in a row with a far better jobs report than expected. The result is disappointing to those hopefully waiting for an interest rate reduction. The FED’s dual mandate is to control inflation and maximize employment. We have previously discussed the dichotomy between mandates as controlling inflation generally involves raising rates and lowering rates is the move to encourage job creation. Deciding which of these mandates to emphasize has been the source of speculation for the past couple of FED meetings. With no clear focus, the FED has opted to stand pat and make no change to rates.
Friday’s job report suggests that the labor component is stable, allowing the FED to focus on stabilizing inflation. New FED Chairman, Kevin Warsh, although said to want to lower rates, is confronted with an economy that is more likely to raise rates, mostly due to the ongoing Iran war and its inflationary impact .As noted before, rates are expected to be held in place at the FED’s June 16/17 meeting but could rise at subsequent FED meetings.
Don’t Even Think of Raising Rates: This was the comment made by a White House confidant the day after Kevin Warsh was sworn in as the new FED chairman. FED independence was immediately back in the news. I’ve discussed this theme several times already so I will not bore everyone with why FED independence is so critical. Although it is anticipated that no change will occur at the upcoming mid-month’s meeting there is conversation around the possibility of future rate hikes.
If thwarted in the effort to reduce rates, Warsh has expressed his desire to make FED changes. I indicated last week his desire to eliminate the “look ahead” reports wherein the FED shares its future economic expectations. Although not always accurate, the financial community has relied upon this information for decisions making. We will see after the upcoming mid-month FED meeting whether Warsh institutes this new approach.
Warsh has talked about changes regarding FED governor appointments, reducing the FED’s balance sheet and changing the index the FED currently uses to identify the rate of inflation. I will address these possible changes n the future but today I start with the idea of changing how the FED measures inflation – se the article below.
Dallas Trimmed -Mean PCE: Persistent inflation has been increasing recently (from 2.7 to 3.8 at the last reading) and contradicts the President’s regular remarks that inflation has been tamed. I made a tongue-in-cheek comment that suggested that if the administration did not like the Inflation reading, they would find a way to redefine inflation. Lo and behold, that might happen.
I had not heard of the Dallas Trimmed-Mean PCE prior to this week. A little background is necessary and the following is an effort to simplify this topic without negating its complication or importance. A Fed favorite measuring tool has been the Personal Consumption Expenditure (PCE) Price Index. Referred to as the core PCE, the index excludes food and energy consumption as these prices tend to move up and down more dramatically and often than others. Every measuring tool has it idiosyncrasies but consistent usage permits us to view the inflation trend line with a measure of confidence. The PCE has defined inflation as increasing to its current 3.8% level. In contrast, the Dallas Trimmed-Mean PCE measurement is at 2.3%. and is arrived at by “trimming” a percentage (31%) off the top of the fastest growing categories and 24% of the slowest growing categories off the bottom of the list. The theory is that the middle provides a “measured” spending -weighted inflation rate.
I am insufficiently informed to criticize one index over another as a measuring device. A question, however, regarding the newer index is whether the percentage and the actual list of deleted items from top and bottom remain the same month to month. And, if not, the who, how and why of the decision-making changes need be understood. Otherwise, trust will erode and abuse could easily occur if the FED is perceived to be selecting the “best” index each month when reporting on the economy. At the same time, it would be misleading to adopt a new defining method of reporting, without a clear explanation of how inflation had declined from 3.8% to 2.3%. Declaring such a precipitous decline in inflation would certainly support the President’s exclamations of a recovering economy. For now, be aware if you suddenly hear of a massive improvement in inflation on the 17th of this month.
The Sad Facts of Savings & Debt: Despite rising consumer prices and plateauing wages consumer spending remains strong. As savings evaporated consumers turned to home equity and credit cards to maintain their lifestyle. Both debt and savings rates approach historic levels – credit card debt way up and savings rate way down. No change is sight in near term.
Iran War Confusion and Home Improvements: With Congress potentially poised to regain its war powers responsibilities, we don’t know if we are now or will be at war with Iran. The markets continue to react as if the current stalemate in the Strait of Hormuz will continue and that consumer prices will likely continue to rise. Supply lines, especially for oil and agricultural materials remain tentative.. Home construction has already been impacted with higher prices for materials accompanied by a lack of labor (think immigrant policies being enacted). The renovation housing sector is the next sector to be impacted by the cost and labor difficulties.
How Dos This Affect Financing: The nomination of Bill Pulte as acting director of intelligence (18 separate entities that comprise the intelligence apparatus) has raised concerns in Washington. But how does that affect our mortgage financing community? Pulte currently is the director of the Federal Housing Finance Agency (FHFA) in addition to heading up both Fannie Mae and Freddie Mac. These are full-time tasks and adding the intelligence director’s role suggests that both jobs would become part-time endeavors or one or the other will be totally neglected. In the meantime, Pulte has overseen the recent promotion of credit reporting changes in our mortgage arena wherein we are currently deciphering the use of two scoring programs, FICO and Vantage (we’ve discussed these programs previously in the Glimpse). There is some criticism of how the rollout of the Vantage system was handled and more attention is required to fully integrate both credit reporting programs.
While our focus remains on the dilution of attention to the FHFA others have objected to the appointment because the law that created the Director of National Intelligence position requires, ‘anyone nominated for the post shall have extensive national security expertise’. Critics claim that Pulte has none of the requisite expertise, especially at a time when we are already in a conflict with Iran and realigning intelligence coordination with some allied countries. Bottom line, it would seem that these two positions require two difference people with different skill sets.
Weekend News: The Pulte saga (see above comment) was overshadowed by war news this weekend.. The President’s exclamation on Friday that Iran was desperate for a deal and that a soon to be completed deal would result in rapid decline in gas prices was shattered by Saturday. Amid competing claims of who broke the cease fire, bombs and missiles were being traded between Isreal and Iran with the President demanding that both stand down. This morning we seem to be in a very tentative cease fire arrangement. In site of a jobs report that exceeded expectations (most jobs were in lower positions in leisure and hospitality), the stock market reacted negatively and gas prices rose, much to the chagrin of the President. And then we have the elections and the constant drumbeat that they are rigged especially in California because of the delay in counting ballots. Welcome to Democracy! We don’t know how all of this will turn out but consumer prices are expected to climb and consumers remain frustrated with government.
Until next week, be good to yourself and kind to others.
*This Glimpse was researched and written completely without AI assisted editing tools.
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