“Silver Tsunami” Will Trigger Housing Supply 👴👵

Last week's PCE inflation report, which is the Federal Reserve's preferred measure of inflation, finally met expectations, which is great! This is positive news as the market had already anticipated and factored in this data. Had the report shown higher inflation than anticipated, it could have been bad news for us in the mortgage world as rates would have spiked. However, the interest rate market improved following the release of the data, and rates dropped ever-so-slightly. We were hoping the data would have pushed rates even lower. However, the absence of any unexpected surprises kept the market fairly calm, which we will take all day and night!

Nick and I are keeping our eye on two major events this week that will certainly have an impact on mortgage rates. The first event takes place on Wednesday as Fed Reserve Chair Jerome Powell is scheduled to present his semi-annual monetary policy report to both the House and Senate.

He will be providing insights into the current state of the US economy, the ongoing battle against inflation, and the potential timeline for interest rate rates.

The market is currently expecting the Fed to implement three interest rate cuts throughout the year, with the first one possibly occurring in June. It will be interesting to hear if Powell’s remarks will align with these latest projections. Any deviation from current expectations will sway mortgage rates one way or another.

The main event this week will be the February jobs reports set to be released on Friday morning at 8:30 AM. Shall we recap the chaotic events that occurred when the last jobs report was released in the beginning of February? The U.S. labor market annihilated expectations by creating double the number of jobs anticipated by economists. This caused mortgage rates to surge by nearly 0.5% within days (chart 1). A strong and resilient labor force is bad for mortgage rates.

The market anticipates an increase of 190,000 non-farm payroll jobs in the U.S. economy last month, while the unemployment rate is forecasted to remain stable at 3.7%. Another blockbuster report beating expectations could lead to a spike in rates. Conversely, if the job numbers fall short of expectations, the mortgage market may react positively, resulting in rates dropping.

An interesting report was recently released from Freddie Mac highlighting a promising trend called the “Silver Tsunami”. Baby boomers, aged 60 and above, are increasingly selling their homes as they retire or pass away, potentially freeing up 9.2 million homes by 2035.

Over the next five years, the decline is more gradual as we only see a reduction of about 2.7 million households by 2028. Freddie Mac predicts the “silver tsunami” will gain momentum towards the end of the decade. This trend will significantly impact the housing market, especially considering the current shortage of single-family homes. Promising sign for many that have struggled to afford or even find a home.