Three Things to Know: Inflation Drops, Oil Prices Rise, And There’s No Quick Fix In Sight
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By Ryan Casey Stephens, FPQP®
Special Contributor
Happy birthday, America!
Two hundred and forty-seven years ago this week, our founding fathers took a major step in the war against the crown when they ratified the Declaration of Independence.
They set in motion a long, complex history that led to each of us living here today. The year 1776 was difficult and uncertain, and in a poetic way, we can all sympathize today. The week of July 4 isn’t about eating hot dogs and pretending we live in a perfect nation. Instead, we consider the ways that we live in the greatest country on earth, while we simultaneously battle to keep and improve it for the next generation.
Our headlines are similarly dialectic. We have much to celebrate this summer, but there’s still a lot of work to do. Let’s survey the state of things in this week’s Three Things To Know.
Inflation Noticeably Slipping
Last week ended on a positive note after the Personal Consumption Expenditures (PCE), the Fed’s favorite inflation report, showed significant improvement. Inflation for May dropped to 3.8 percent – fantastic considering the report peaked at more than 7 percent. Every facet of the report came in lower than expected.
There were winners and losers in the data. Used car prices and housing costs each pressured inflation higher with stubbornly high prices.
Energy prices substantially decreased, which offset some of the trouble. The personal income of Americans only rose 0.4 percent as inflation continues to chew away at our take-home pay. That caused the personal savings rate for the average person to hover at 4.6 percent, much lower than the 10 percent average we saw pre-COVID.
First Thing To Know: We’ll take any good news we can get on inflation this summer, but it’s still a mixed bag. The cost of goods is still rising and the power of the dollar continues to decline. With income and savings lagging, we still have a long way to go before we can consider the economy healthy once again.
Not Everyone On Board
The battle against inflation is off to a rocky start in July, as news broke Monday that Saudia Arabia and Russia will continue pushing oil prices higher by cutting production. The Saudis originally planned to boost their production in August, but surprised the world by announcing their intent to continue depressing oil production through the end of next month. Russia will cut its output by 500,000 barrels per day in August.
The stated intent behind the cuts is supporting and stabilitzing global oil prices.
Projections for oil demand through next year look pretty grim. Data from a Chinese factory survey released Monday shows the nation struggling to recover from the pandemic with virtually no growth as companies cut staff. Speculation abounds, however, that there might also be darker motivations at play.
Second Thing To Know: Cuts to oil production will cause prices to rise just as our country begins to get inflation under control. This is also going to add unneeded strain to budgets as millions of us hit the road for summer vacations.
Potential Sellers Feeling Stuck
The painful, drawn out battle against inflation might be taking its toll on our housing market. Last week’s national inventory of homes was down 6,000 units lower than last year. There were 465,755 listings available at the end of last week, compared with a high of 1,183,390 the same week in 2015. I’m hearing from many of you that you’re feeling the lack of listings available right now.
The average 30-year fixed rate is back over 7 percent for the first time since May, home insurance companies are battling historic losses, and property taxes nationwide are skyrocketing on the heels of higher home values.
Nearly 90 percent of homeowners have rates lower than 6 percent, so any move would represent an increase in monthly housing cost. As previously mentioned, personal incomes and savings are struggling to keep up with inflation, so the odds potential sellers want to list and move are pretty low.
Third Thing To Know: There’s no simple or quick solution to the problems we’re facing. Lower interest rates, property tax reform, more new homes available, and lower inflation will all help, but it’s going to take time to unwind.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
