CPI Data, Interest Rates, & Your Investing Strategy for 2023

[Kristen L Garner]

CPI data for December was reported today and came in slightly below expected at 6.5%. Below I've compiled some data points and quotes which show a divide in whether inflation has peaked or not, and whether a more hawkish or dovish strategy should be implemented by the Fed. -Kristen Loans JAN 12, 2023
(Not investment advice)

What are your thoughts on interest rates for 2023 and how will you strategize your real estate investing portfolio based on where you believe interest rates will be? 

Interest Rates
The Fed president of Minneapolis Neel Kashkari expects the Federal Reserve will raise interest rates another point within the next few months. “It will be appropriate to continue to raise rates at least at the next few meetings until we are confident inflation has peaked,” -Neel Kashkari JAN 4, 2023

Fed Governor Lisa Cook writes: "Inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern." -Lisa Cook JAN 6, 2023

“If they’re doing a forecast, which is what they should be doing, it strongly argues that their rate increases should be coming to an end soon,” -Mark Zandi Moody's Chief Economist JAN 12, 2023

Non-farm payrolls rose 223,000 in December, as the strong jobs market tops expectations. “I don’t think this is going to sway the Fed from a few additional raises going forward, but it no doubt is encouraging to see a moderation in wages.” -Mike Lowengart, Morgan Stanley JAN 6, 2023 Jobs Report Full Article

Average 30 Yr. fixed as of Thursday JAN 12, 2023: 6.07% -MND Rate Index

What This Means: There seems to be a consensus that the Federal Reserve will raise the Fed funds rate at increments up to a full point in the next few months and hold that rate for a while. Fed fund rates indirectly affect all rates including mortgage rates which are closely tied to the 10 year treasury note. However CPI data came in slightly lower than expected and shelter CPI has still increased month over month. The Dow and other major indices have closed green the past few days because of expected cooling of inflation, is the market overly optimistic? -Kristen Loans

[Mike Dymski]

Quote from @Kristen L Garner:

Quote from @Mike Dymski:

Inflation has stabilized, people are still wrestling with higher prices, the housing market has cooled off, and interest rates will be higher for the medium term.  The rest is a guessing game.  I am building a property with a high return on cost (and built in equity) to mitigate higher rates.

Overall (with exceptions like NYC), it seems like the east and south east has stabilized and has not experienced price drawdowns like the west and south west. Commodities like wood have come down drastically from its peak which should be beneficial. What is the expected completion time for your build and what market are you targeting i.e luxury or lower end? Thank you for the anecdotal data in advance!

I am building a hybrid hotel/apartment in Phoenix.  Land is under contract, diligence and entitlement is in process, construction start mid 2023, and construction completion mid 2024.