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Hi, I’m Jeff Tucker, principal economist at Windermere Real Estate, and these are the numbers to know, right now.
The first number to know this month: $108. That is the current price of a barrel of oil as of May 19, and it is still dramatically elevated from its price range below $60 before the U.S. launched a war on Iran this year. In fact, despite several tantalizing hints of the end of the hostilities tying up the Strait of Hormuz, prices have been over $85 a barrel pretty consistently for over two months now. As long as the flow of oil is constricted, those price pressures will stay elevated.
The second number to know this month: 3.8%. That is the year-over-year change in the consumer price index, representing a sharp acceleration of inflation from the 2.4% pace as recently as February. It reflects the higher costs of energy rippling through supply chains, and now inevitably raising prices for consumer products and services.
Moreover, the producer price index also just jumped sharply, to a 6% year-over-year gain, well above the consensus forecast, which is a good indicator of even more pain coming for consumers.
Higher inflation also tends to feed into the interest rates on bonds, and this spring has been no exception: now the ten-year Treasury bond is yielding around 4.6%, after dipping just under 4% on the eve of the Iran war.
And we know higher Treasury yields usually mean: higher mortgage rates. After some volatility and false starts downward last month, mortgage rates have surged up even further in mid-May, approaching 6 and three quarters percent according to Mortgage News Daily. That will help to dampen homebuyer demand in the spring buying season, which is in full swing.
Speaking of the housing market, we saw just over a million active listings at the end of April—about 60 thousand more than this time in 2020, and 40 thousand more than this time last year.
That year-over-year growth rate of just under 5% helps continue a trend of decelerating inventory growth, as the market looks more and more balanced this year – with neither a glut of home listings building up nor a frenzied shortage condition, at least on average across the country. Pending home sales were also basically flat from this time last year, but if mortgage rates stay above 6.5%, I expect the months of May and June will look weaker than the same time last year. Once again, that means the forecast depends on whether durable peace can take hold, and whether oil begins to flow again, in the Middle East.
