President’s Message – January 2023

Aloha and Happy New Year! 

Entering 2023, many of us have made New Year’s resolutions. Here at Smart Money Hawaii, one of our New Year’s resolutions is to be 1% better every day. Through education, we hope to engage and make you a little more informed about one of your most significant investments, your home. Whether looking for your first home or buying your 5th investment property, it is critical to be up-to-date with the market.

One thing that hasn’t changed from 2022 is that inflation is still a concern. If you’ve read my newsletters before, you will already know that I’m not a big fan of the Feds. In 2021, the Feds kept referring to inflation as “transitory” as if it was a short-term visitor on vacation. They sorely underestimated inflation and let things get out of control by keeping rates too low for too long.    

So, what’s the plan now? 

The Feds are notorious for Boom-and-Bust cycles. We had our Boom when mortgage rates started to fall in the 2nd quarter of 2020. 

This was due to COVID, which spurred the Feds to purchase trillions of dollars of bonds, floor the Fed Funds Rate to zero, and hand out stimulus money to the public and private sectors.  

Right now, we are going through the Bust cycle, whether we realize it or not. This started right around March 2022, when the Feds sharply increased the Fed Funds Rate to curb inflation. The Feds current sentiment is to remain Hawkish (continue to increase rates) throughout 2023, regardless of whether inflation is under control. 

This is another example of the Feds overdoing it with no real plan in place.

How do I see it? 

Well, the Consumer Price Index (CPI) measures the average change in prices over time and gives us a good indication of where inflation is heading. In June 2022, headline CPI was 9% year-over-year, and today it measured in at 6.5%. At this pace, we could see headline CPI reach 1.6% in the next 12 months, which would be a great signal that inflation would be under control.

Why do I bring this up? Although it is nearly impossible to time any market, we can plan ahead and prepare for it. I feel that the inflection point is the May 10, 2023, CPI report. This gives us 3 more good CPI readings, and I think we’ll start to see the shift and have a big bond rally near or around that time.  

Should you wait until May to start looking to buy a home? My opinion is no. If you wait for rates to go lower, you’re also waiting for pricing pressure and prices to push higher. The saying goes, “By the time everyone hears about it, it is too late!” Right now is an excellent opportunity to find deals. 

Sellers are reducing listing prices, and, in many cases, seller’s concessions are being given in the thousands. 

The bottom line is that you want to marry the home and date the rate. You can always refinance when rates drop, but you may not be able to buy when prices go up.  

If you’d like to chat about your options. Shoot me an email.  [email protected]  Mahalo!