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Rate cut expectations dampen on strong economy

Rate cut expectations dampen on strong economy
by Brad Cartier, posted in Newsletter

Robert Dietz of the National Association of Home Builders (NAHB) reports that although the Federal Reserve held the federal funds rate steady at 5.5%, markets expect a rate cut. That said, Dietz notes that NAHB’s forecast does not include rate cuts until June due to strong economic conditions.

Rates flattening

Source: NAHB (February 2024)

“Looking forward, the Fed’s prior December economic projections suggest three rate cuts in 2024. While the federal funds rate will move lower later this year, the Fed will continue reducing its balance sheet, thereby maintaining an elevated spread between the 10-year Treasury rate and rates for 30-year fixed rate mortgages…Mortgage rates will continue to register in the high 6% range, but below the 8% level housing markets experienced last October. Mortgage rates should move lower as 2024 progresses.”

Scott Pelley, Aliza Chasan, Henry Schuster, and Sarah Turcotte of CBS News report on an interview with Fed Chairman Jerome Powell, where he notes that they won’t necessarily wait to hit the 2% inflation target before cutting rates. The next Fed meeting is in March, but Powell said it was unlikely they would cut rates at that meeting. The following meeting is May 1st.

Craig Torres, Chris Anstey, and Catarina Saraiva of Bloomberg report on the possibility of rate cuts, highlighting that four Fed officials stated last week that they do not see an urgent need to lower interest rates. A cut is unlikely until at least May. Fed Chair Jerome Powell emphasized that rate cuts won’t begin until inflation is headed towards the Fed’s 2% target, and making a cut at the March 19-20 meeting is unlikely.

Aly J. Yale of the Wall Street Journal reports on the rate cut expectations, noting that following an aggressive rate hike cycle, this year is poised “to be another turning point in the mortgage world. With inflation seemingly under control, the Fed has signaled it could begin cutting interest rates soon, likely around midyear.”

Home prices

CoreLogic released its home price insights for February 2024, highlighting that overall housing costs are still rising. Home prices nationwide increased by 5.5% YoY in Dec 2023 but declined by -0.1% MoM compared to Nov 2023. According to CoreLogic HPI Forecast, home prices are expected to decline by -0.2% MoM from Dec 2023 to Jan 2023 and increase by 2.8% YoY from Dec 2023 to Dec 2024. The markets with the highest risk of price declines are:

Markets in decline

Source: CoreLogic (February 2024)

Similarly, Dana Anderson of Redfin notes that “the median U.S. sale price rose 5.4% year over year during the four weeks ending February 4, the biggest increase in over a year. High housing costs are pricing out many would-be homebuyers; pending sales are down 8%, the biggest decline in four months. There are also a few other contributors to sales falling: Harsh winter weather in the first half of January delayed a lot of homebuying deals, and pending sales were improving at this time last year as mortgage rates temporarily dropped.”

Zillow’s home value forecast for 2024 was revised upward this month, predicting a 3.7% rise in home values. External factors, such as the decline in mortgage rates and an improved inflation outlook drove the revision. Zillow predicts 4.09 million existing homes to sell in 2024, about the same as in 2023.

Home prices stabilize

Source: Zillow (February 2024)

Jiayi Xu of reports on pricing, noting that the median listing price increased by 0.9% compared to the same week last year. Home price growth has eased from 2.2% to 0.2% in January but ticked up again during the first week of February. Home prices have been in a holding pattern since May 2023, deviating from prior year levels only by a range of -0.9% to +2.2%.

Rose Quint of NAHB reports on stubbornly high housing prices, highlighting that between October and December 2023, only 37.7% of homes sold were affordable to families earning the median income of $96,300.


Last week, it was widely reported that the former CEO and founder of WeWork, Adam Neumann, sought to buy back the company. According to TechCrunch: “In a letter published by The New York Times today, lawyers for Neumann, his latest startup Flow Global Holdings LLC, and “their affiliates” wrote that they were dismayed with “WeWork’s lack of engagement even to provide information” in response to efforts to be able to make an offer to buy the company.”

Alex Kirshner of Slate reports on this development, highlighting that Neumann has the backing of hedge fund owner Dan Loeb and that the bid has been in preparation since December but that the current WeWork leadership was “stonewalling” the proposed deal. As of last summer, WeWork reported it had $13 billion in long-term lease obligations and almost $3 billion in debt. As of the end of June, WeWork said it had $13 billion in long-term lease obligations, a figure it has been trying to whittle down. It also listed $2.9 billion in long-term debt.

Rohan Goswami of CNBC reports on the news, noting that WeWork advisors initially opposed Neumann’s proposals but later recommended that he provide DIP financing instead of a term sheet. It’s uncertain from the letter whether WeWork and Neumann’s team had a non-disclosure agreement (NDA) in place, although the letter notes that the two parties had been exchanging markups on one.

Pete Syme of Business Insider reports that WeWork filed for bankruptcy in November and that the bid to buy back WeWork is in partnership with Neumann’s new venture, co-living startup Flow, in which Andreessen Horowitz has already invested. In response to the news, WeWork released a statement reported by Syme:

“WeWork is an extraordinary company. As such, we receive expressions of interest from external parties on a regular basis. We and our advisors always review those approaches with a view to acting in the best interests of the company. We continue to believe that the work we are currently doing — addressing our unsustainable rent expenses and restructuring our business — will ensure WeWork is best positioned as an independent, valuable, financially strong and sustainable company long into the future.”

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