Did you see it? The US June unemployment rate rose above 4%. Business Insider reported on July 8 a big list of major US companies that are undergoing layoffs. They include Google, Apple, Tesla, Nike, and Discord. These companies are in different areas of the economy, which is concerning for a wider increase in unemployment to come.
Perhaps you will recall my post on interest rates from a year ago. My #1 indicator for the health of the economy is the unemployment rate. I look at this metric because I’m in real estate. If people aren’t working, they will need to get government assistance and likely downsize their living situation. Class A apartments will be hit first. These are the places that have pools and gyms, things that are nice, but not necessary. It’s the blue-collar no-frills class C units that will see the influx of people from As and Bs.
My predictions from that post were that interest rates (the Federal Funds Rate, that is) would stay the same or raise 0.25% as long as unemployment didn’t change. They went from 5.08 to 5.33, and have stayed there . It didn’t change much, until now.
Prediction #1: We might be tempted to think that the Fed would cut rates drastically to decrease unemployment, but this won’t happen.The Consumer Price Index (the thing that is used to track inflation) increased by 3% year over year by June but the June monthly increase was only 0.1%. This might give heart to the Fed that their rates are doing what they want – to push inflation to 2%. The Fed cares about that more than unemployment.
Prediction #2: We will see a modest cut in interest rates this year, probably once at 0.25% and another at 0.25%. The Fed is pretty happy right now. They will throw consumers a bone with these rate cuts, giving the impression they are doing something, but really just keeping the status quo.
What You Should Do
If you are looking for a property, you should get ready to buy now. Make sure you factor in the current rates into your offer price. Sellers will feign surprise in your low offer, but by now they know that rates are impacting sale prices. Look for something without a prepayment penalty, so you can refinance when the rates go down enough. Then you will have made instant money!
I declare myself 2 for 2 on this prediction game. That’s 100% success! Let’s watch closely to see what this year has in store.
