October PCE: What It Means for Inflation and the Real Estate Market

Inflation is a word that’s been on everyone’s mind lately (especially mine) and for a good reason—it affects everything from the price of groceries to the cost of buying or renting a home. One key way economists measure inflation is through the Personal Consumption Expenditures (PCE) price index. Let’s break down the latest October PCE numbers and how they might influence the real estate market.

What Is the PCE and Why Does It Matter?

The PCE price index tracks how much consumers are spending and how prices are changing for goods and services over time. It’s a favorite tool of the Federal Reserve (the Fed) because it reflects real-life spending habits.

• Headline PCE inflation includes everything—food, gas, housing, and more. It tells us the overall increase in prices.
• Core PCE inflation excludes the more volatile items like food and energy prices. This gives a clearer picture of the long-term trend in inflation.

For October 2024:

• Headline inflation rose by 3.5% compared to last year, a slight decrease from September’s 3.7%.
• Core inflation rose by 3.2% year-over-year, sticking close to September’s 3.4%.

These numbers suggest inflation is cooling down, but not as quickly as the Fed might like.

How Does This Affect Real Estate?

Inflation plays a big role in the housing market because it directly impacts interest rates, borrowing costs, and home prices. Here’s how the October PCE numbers could influence real estate:

1. Mortgage Rates May Stay High (But Stable)
   The Fed uses interest rates to fight inflation. When inflation is high, they raise rates, which increases mortgage rates. While inflation is easing, the pace isn’t fast enough for the Fed to confidently lower rates. This means mortgage rates are likely to stay high in the short term, hovering around 7%-8%.

High mortgage rates can make it more expensive for buyers to borrow money, keeping some people on the sidelines.

2. Demand for Housing Could Shift
   High borrowing costs make buying a home less attractive for many, which could reduce demand. However, a slower pace of inflation might give buyers some hope that mortgage rates won’t climb further. This could stabilize demand in some markets.

3. Home Prices Might Level Off
   When mortgage rates rise, fewer people can afford to buy, which often slows down home price growth. In some areas, we might even see price reductions. However, if inventory (homes for sale) remains low, prices might hold steady instead of falling dramatically.

4. Renters May Feel the Pinch
   High inflation often pushes up rent prices. Even though overall inflation is cooling, rents tend to lag behind other price changes. Renters may continue to see higher costs in the coming months, especially if fewer people are able to buy homes.

What Should Buyers, Sellers, and Investors Do?

• Buyers: If you’re planning to buy, focus on affordability. Locking in a rate now might still be a good move, as there’s no guarantee rates will drop soon.
• Sellers: Be realistic about pricing. Homes that are priced competitively and in great condition will likely still sell quickly.
• Investors: Keep an eye on rental markets. With fewer buyers in the market, demand for rentals may remain strong, creating opportunities for investment properties.