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THE NOVEMBER RATE HIKE: There is no rate hike for the month of November. Just few days ago, Jerome Powell stated that “Financial conditions have tightened significantly in recent months…we remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy." The Federal Reserve has also admitted that “We know that we’re on an unsustainable path fiscally.”
Jerome Powell continued to reiterate that they’re taking a “wait-and-see” approach to upcoming rate hikes and they’ll prepared to adjust as needed in the future. It’s also worth noting that there’s a “lag effect” to raising interest rates, where the full effect won’t be truly felt for 6-18 months after the final rate hike; the AVERAGE delay is 11 months.
THE STOCK MARKET: Here in the United States, we typically have this belief that - over the long term - stocks go higher. It’s shown that a 20-year holding period has never ONCE lost money. Statistically, this has proven to be true going back all the way to 1872 - but, there is a hidden risk: Throughout most of the world, there have been a variety of instances where the stock market has LOST money over a 20-year period.
According to MarketSentiment, since 1890 - once you add inflation to the mix - there’s a 1.2% chance of losing buying power over a 30-year horizon. However, this doesn’t account for the fact that we only have 130 years' worth of data to pick from, and the United States could be suffering from survivorship bias, where we only see the data because it’s worked. Once we zoom out into other global markets, according to this report, there is a 9% chance that a Japan-like event could happen here, in the United States, at some point in the future.
THE HOUSING MARKET: As of last week, mortgage rates hit the 8% mark, which is a level that we haven’t seen since 2000. This means that monthly payments are now 70% HIGHER than they were just two years ago, when mortgage rates were 3%. This combination has NOW led to 99% of the United States being “unaffordable” for the Average American who makes $71,000 per year - and this price-to-income ratio is now the worst its been since 1984.
In terms of where this could go in the next year, Zillow believes that home prices will see another 2.1% increase through September of 2024. In addition to that, Morgan Stanley revised their forecast and now believes that home prices could rise another 5% year-over-year given how many sellers are reluctant to let go of their existing mortgage.
A managing director at Goldman Sachs also went on record to say that, “Absent any negative shocks to the broader economy that would either boost the excess supply of homes on the market or fuel an uptick in unemployment, we continue to expect home prices to rise at a slow pace,” with his estimate that we’ll see a 3.5% increase by the end of 2024.
Because of that, I think it’s more important than ever to keep your expenses low, save as much as you can, ensure that you have the means to keep a steady income throughout the next 1-2 years - and no matter what...subscribe if you haven’t done that already ;)
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