Welcome to February,
Also, welcome to all of our new subscribers. We are close to 100 and we appreciate every one of you for being a part of The Anti Advisor. The goal is to bring simplicity in investing to all of you.
With that said, a few interesting things have happened since January. We had Jerome Powell speak on January 29th, and of course some economic data has been released. Some of the highlights of the economic data were that they missed their expectations.
We saw unemployment fall to 4.0% with expectations of unemployment remaining stable at 4.1% on February 7th.
On February 12th inflation began rising again to from 3.0% from 2.9% and core inflation rising from 3.2% to 3.3% with expectations of falling to 3.1%.
Nothing concerning yet but we will be keeping an eye on dramatic changes with expectations of a rise in unemployment and inflation by the second half of 2025.
Powell’s Speech
His messaging on monetary policy was puzzling, claiming that policy remains "meaningfully restrictive" while suggesting it would be "significantly less restrictive" after proposed rate cuts. This kind of mixed messaging, coupled with his admission that they don't precisely know where the neutral rate is, raises questions about the Fed's current policy stance and future direction.
The housing market discussion was equally troubling. While Powell described the housing market as "stabilized," he acknowledged that higher rates would "hold back housing activities" – a contradiction that becomes even more significant when we look at the current market data below. Powell's characterization of improving housing services inflation seems disconnected from the reality of overall housing costs, given the historically wide spread between the 10-year Treasury and 30-year mortgage rates that continues to keep housing costs elevated.
The Issues With Housing
The housing market continues to send mixed signals with several concerning trends emerging that deserve attention. The interaction between
interest rates
housing supply
affordability metrics
paints a picture of a market under increasing strain, despite some superficially positive indicators.
Let's start with the interest rate environment, which has been volatile. The 10-year Treasury yield's rapid climb from 4.18% to 4.80% in just a month following December's rate cut has put pressure on mortgage rates.
This sharp movement highlights how the market isn't fully buying into the Fed's current policy direction. The spread between the 10-year Treasury and 30-year mortgage rates remains wide, keeping housing costs higher for buyers.
The supply-demand dynamics in the housing market are troubling. Active listing counts have rebounded sharply from their 2022 lows, approaching 1 million units by late 2024. While some might view this as a healthy normalization of inventory, it's important to understand the context.
The Context:
This surge in listings coincides with a period of reduced transaction volume, suggesting we're seeing an accumulation of unsold inventory rather than a healthy market expansion.