Treasury Secretary Says She Regrets Misjudging Inflation

Report Shows Increasing Home Prices Far Outpace Inflation

March 13, 2024 05:00 PM EDT

Housing inflation is rising far faster than goods and services prices in the long run, according to a study.

Real estate information firm Clever found that since 1963, home prices have moved 2.4 times faster than the rate of inflation. If home prices moved at the pace of inflation in that same timeframe, the median American home today would cost only $177,511. The current median price of a home is $431,000. 

Over the past 10 years, home prices increased 63%, compared with the 31% increase in the price of other goods and services. While rising prices can be a boon for those who already own a home, it’s pushing some who are looking to purchase out of the market.

And things could get worse. It now takes 6.3 years of the median household income to buy the median home, well above the 3.5 years it took in 1985. But by 2050, it’s expected to cost 8.4 times the median income, the report found. 

“It’s not necessarily a problem for home prices to outpace inflation. Otherwise, homeowners wouldn’t benefit much from home-value appreciation when selling,” wrote report author Matt Brannon. “But the fact that home prices have risen so much faster than inflation makes homes widely unaffordable.”

-Terry Lane

Treasury Secretary Yellen Regrets Calling Inflation ‘Transitory’ In 2021

March 13, 2024 01:43 PM EDT

In 2021, when inflation started heating up as pandemic restrictions lifted, Federal Reserve officials and Treasury Secretary Janet Yellen infamously predicted that the burst of price increases would be “transitory.”

Yellen and others had to eat those words over the next year as the inflation rate surged to its highest since 1981. Since then, inflation has  fallen far closer to its pre-pandemic norm of around 2%, but it’s still “transiting.” On Wednesday, Yellen admitted she had misjudged the path of the cost of living.

“I regret saying it was transitory,” she said. “It has come down, but I think ‘transitory’ means a few weeks or months to most people,” she said in an interview on Fox Business Wednesday.

Yellen, who was in charge of fighting inflation at the Federal Reserve from 2014 to 2017 before she was named treasury secretary, was among many economists and policymakers who initially thought it unlikely that inflation would flare up as it did. In a May 2021 press conference, she said the data didn’t point to inflation racing out of control.

“I really doubt that we’re going to see an inflationary cycle,” she told a reporter. She said an uptick in the year-over-year inflation rate that month was “a transitory thing, not something that’s associated with a buildup in wage pressures.”

Yellen isn’t the only official whose words in 2021 have come back to haunt them. Last month, Federal Reserve Chair Jerome Powell faced questions on an appearance on 60 Minutes about why the central bank waited until March 2022 to start its campaign of anti-inflation interest rate hikes. 

“In hindsight it would have been better to tighten policy earlier. We thought that the economy was so dynamic that it would fix itself fairly quickly and we thought that inflation would go away fairly quickly without an intervention by us,” Powell said. “And so in the fourth quarter of ’21, it became clear that inflation was not transitory in the sense that I mentioned and we pivoted and started tightening.”

Health Care, Finance Sales Help Maintain Services Revenue Growth

March 13, 2024 12:22 PM EDT

Revenues in the services sector remained strong in the fourth quarter, a survey showed today.

The Census Bureau reported total revenue from the services sector was up 6.6% from the same time in the year prior, and up 1.9% from the third quarter.

Health care revenue led the way, with quarterly revenue up 10.6% over last year, followed by finance and insurance sales that rose 9.8% on the year. Education sales were up 9% and real estate revenue grew 8%.

Transportation and warehousing was one sector of the services industry that declined in the fourth quarter, dropping 3.1% from last year, though improving from the prior quarter.

The services sector has been one area that Federal Reserve officials have been watching for inflation. The services sector is also closely tied to wages, which can press inflation higher if they grow too fast.

-Terry Lane

UK Returns to Growth After Falling Into Recession Territory

March 13, 2024 11:54 AM EDT

The U.K. economy returned to growth in January, after falling into a technical recession at the end of last year.

Gross Domestic Product (GDP) rose by 0.2% in the country, more than the 0.1% economists expected, according to a poll conducted by The Wall Street Journal. It’s also up after December’s 0.1% contraction.

The U.K. economy struggled more than its peers in the latter half of 2023 and was the only country out of the Group of Seven whose GDP fell in the third and fourth quarters. The country has felt larger impacts from economic issues also facing the U.S.

Like America’s Federal Reserve, the Bank of England is attempting to wrangle inflation. But unlike in the U.S., consumer prices peaked at 11.1% in October 2022. That’s well after inflation in America reached its June 2022 height of 9.1%.

-Nisha Gopalan

Mortgage Applications Jump as Rates Dip Below 7%, Refinancing Surges

March 13, 2024 10:09 AM EDT

More prospective homeowners applied for mortgages last week, acting as the interest rates dipped on weaker economic data, the Mortgage Bankers Association (MBA) reported Wednesday.

The MBA’s Market Composite Index rose 7.1% for the week ending March 8 compared to the week earlier. The industry group’s report said refinancing jumped 12% and purchases increased by 6% over the week prior. However, purchases are still down about 11% compared to last year.

Homebuyers jumped on a dip in interest rates, down to 6.84% for a fixed 30-year mortgage this week, the MBA said. 

“Mortgage rates dropped below 7% last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months,” said Mike Fratantoni, MBA senior vice president and chief economist.

With mortgage rates near highs not seen in nearly two decades, few borrowers have sought to refinance their loans, but refinancing activity rebounded this week. However, that number is still historically low.

“While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years,” Fratantoni said.

-Terry Lane