Is it Time to Buy or Should You Wait?

By Jason Winter, CSB President

Citizens State Bank President Jason Winter.

The question we’re hearing most from our customers is, “should I buy now, or wait until 2024”?

In an attempt to answer that question, it’s important to understand how we got to where we are today, and that is a long and winding road. Reduced household spending during pandemic lockdowns combined with trillions of dollars in pandemic stimulus, followed by shortages in labor and inventory, and finally all the pent-up demand unleashed on the economy, it was a perfect storm. Prices for pretty much everything: groceries, gas, vehicles, homes, etc., have all skyrocketed since the pandemic.

In an effort to combat inflation, the Federal Reserve raised their benchmark borrowing cost, the fed funds rate, from 0.25% to 5.50% over the last 18 months. The rate is now at its highest level since early 2001. Increasing the cost to borrow money is the primary method the Federal Reserve uses to reduce spending and in turn to tame inflation. As Fed Chairman Jerome Powell stated in his August 2022 speech, “without price stability, the economy does not work for anyone.”

When interest rates increase, an uptick in unemployment is expected. At the pace the rate increases were happening in 2022, I felt certain that at some point in the near future I was going to see at least 1 out of every 10 of my friends unemployed, and the economy would be falling into another deep recession. Thankfully the Federal Reserve slowed the pace of rate increases last December and my fear has not come to fruition.

Unfortunately, we’re not out of the woods yet, as there are a number of outside factors that could come into play and drag down the economy. The student loan payment hiatus that lasted over three years just ended and borrowers begin making payments again on October 1st, credit card debt is at an all-time high, and household “excess savings” from the pandemic stimulus packages has run dry. However, if the economy manages to keep chugging along and inflation (which is now in the 3’s) continues to creep down slowly, there is a chance of a soft landing. Should that occur, it’s unlikely the Federal Reserve will start dropping rates in the near term, as they would not want to risk inflation jumping right back up. There’s a good chance we see higher interest rates through much 2024. Any interest rate decreases we would see in 2024 and likely into 2025 would be moderate.

If the Federal Reserve does manage a soft landing, I don’t see home prices in our area falling any time soon. The number of homes for sale would need to increase dramatically, and for that to happen, interest rates would need to cool substantially.

The auto market is a different story. It was widely predicted a few months ago we would be seeing large new car inventories that needed to be moved by year-end and we would finally see some significant decreases in prices of both new and used vehicles. However, as of this writing the United Auto Workers are on strike, and if an agreement doesn’t happen soon, we’ll see shortages in new vehicles, and therefore even higher prices.

While there’s no clear answer to the buy now or wait question, hopefully the background provided helps you with your individual situation.