In a review of the recent May 2023 FOMC meeting minutes, a landscape of caution amid economic uncertainties has emerged. The Federal Reserve, as reflected in the minutes, continues to walk a tightrope, balancing growth and inflation risks against each other while attempting to foster a conducive environment for sustained economic activity.
In the first quarter of 2023, economic activity expanded at a moderate pace. Employment statistics remained robust, indicating that companies are still hiring and the demand for labor remains strong. The unemployment rate remained low, showing that most people who want to work have jobs. This should give real estate investors some comfort, as a robust job market generally translates to stable demand for housing.
However, it’s important to note that inflation is still elevated. This led the members of the FOMC to raise the target range for the federal funds rate to 5 to 5.25 percent. Higher interest rates make it more costly to borrow money, including for mortgages, which could weigh on the housing market.
Simultaneously, FOMC members observed tighter credit conditions, which they expect may weigh on economic activity, hiring, and inflation. This tightening of credit could impact both households and businesses, potentially making it more difficult for would-be homebuyers to secure mortgage loans or for real estate developers to finance new projects. I’m a bit concerned with some core CRE markets, but just don’t think that will spill over into housing.
Despite these concerns, the FOMC stressed its commitment to its dual mandate of maximum employment and a steady inflation rate of 2 percent over the long term. This commitment underlines the intention to support economic activity while keeping inflation in check, which would help maintain the purchasing power of consumers and investors alike.
The Fed signaled its readiness to adjust monetary policy as needed based on incoming information. This data-dependent approach underlines the fluidity of the current situation and the need for investors to remain agile and informed.
To maintain transparency and manage public expectations, the FOMC placed significant emphasis on clear communication. This is of high importance to us as investors, as it allows us to anticipate and respond to changes in monetary policy that could affect our investment decisions.
The Federal Reserve’s actions reflect a cautious approach to managing a complex and changing economic environment. As real estate investors, it is crucial to stay informed and adaptable, and to consider how changes in monetary policy might impact our investment strategies. Tighter credit conditions and higher interest rates could present challenges, but also potential opportunities for savvy investors. By staying tuned into these macroeconomic indicators, we can navigate these changes and continue to make sound investment decisions.
If you ask me, now is the time to buy. Inventory is tight, and I think mortgage rates go down from here and are below six by the end of the year. That’s BELOW normal folks, not high. Load up before the institutions do.