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What The Latest Inflation Figures Could Mean For Interest Rates And Work-From-Home

September 15, 2023

Last modified on December 14th, 2022

2022 has been quite the year for the U.S. economy, and residential real estate as a result.

Inflation is at record highs, and to combat it, the Federal Reserve has been aggressively raising interest rates, making mortgages more expensive and putting home ownership further out of reach for many. The timing isn’t ideal, as more people are seeking larger spaces like single family homes to partake in the work-from-home revolution. 

With 2023 right around the corner, will the new year bring change to the residential real estate market, or will it be more of the same?

Although no one has a crystal ball, recent data may help shed light on where things may head in 2023.


Average inflation for 2021 came in at 4.7%, and while the December Consumer Price Index numbers won’t be available until January, it’s safe to say that average inflation for 2022 will be significantly higher. After all, average inflation for January to November 2022 is currently 8.15%.

Inflation appears to have peaked in June, with CPI numbers for that month coming in at 9.1%. Since then, it has been slowly descending, with each subsequent month’s figures coming in lower than the previous (July: 8.5%, August: 8.3%, September: 8.2%, October: 7.7%, November 7.1%). While this is a healthy and welcome signal, it will take some time for inflation to return to the 2% that the Federal Reserve considers ideal, at least 2-3 years according to some experts.

Interest rates

With inflation seemingly on a slow but steady decline, does this mean a return to the ultra-low interest rates of the past? 

Not likely.

November had a better than expected jobs report, with the creation of 263,000 new, non-farm jobs. In addition, GDP increased at an annual rate of 2.6% in the third quarter after two consecutive quarters of negative growth. For better or worse, these otherwise positive economic signals serve as ammunition for the Federal Reserve to continue hiking interest rates. John Chang, National Director of Research and Advisory Services at Marcus & Millichap recalls that Chairman of the Federal Reserve Jerome Powell has suggested the central bank will continue to raise interest rates, but at smaller rate increases:

“The good news is the rate movements should become less volatile and a little more predictable as the Fed eases back from its aggressive stance.”

Additionally, recent actions taken by Wells Fargo, the largest depository mortgage lender in the U.S., may give a preview  of interest rates in the short to medium term. In late November, the bank cut hundreds of jobs in its mortgage business, citing a 59% decrease in loan originations in Q3 2022. If they believed rates were on the verge of a significant decline, they would be preparing for more originations, not less. 


Rising interest rates (albeit at a slower pace) may very well have an impact on the work-from-home revolution. Here’s how:

As previously mentioned, the Federal Reserve is raising borrowing costs to tame inflation and slow down an overheated economy — with 1.7 open jobs for every unemployed person (as of October), the labor market is tight, giving employees historically high bargaining power, manifesting in the form of higher wages and the ability to work from home. Indeed, a recent Mckinsey survey shows that 87% of people choose to work flexibly when given the option. 

If the Fed’s strategy is successful and higher interest rates cool down the economy and labor market, workers may lose their bargaining power and have no choice but to return to the office. On the other hand, Dror Poleg, economic historian and author of the bestseller Rethinking Real Estate, doesn’t see that as likely. In a soon-to-be-released episode of The Top Floor, Dror told AppFolio:

“What we started to see with Covid, and even before that, was that the largest employers were starting to split their headquarters into multiple locations. Most famously Amazon with HQ2, but also Facebook, Stripe, Apple, Google, Spotify and many others. Those companies were basically telling us already before Covid, from 2015 or so, ‘Yes, it’s important to me that all my employees will be in the same place, but it’s even more important for me to hire from a larger pool, and the biggest cities in the world, whether it’s San Francisco or New York, are just not big enough for me anymore. I want to hire from a pool of 100 million people, or 500 million people. I’m willing to compromise the in person interaction.’

That’s irreversible. Before we even get to cutting costs and what the employees themselves prefer and whether they want to go to the office or not, just from a purely economic perspective, for the companies themselves, they now need to hire from a larger pool. Now, some of them already understand it, some of them are fighting against it, but this is the reality of an economy that is based on innovation.”

In this same vein, our first annual AppFolio Benchmark Report shows exactly what property management businesses of all sizes expect for the economy in 2023, and the ability to hire new team members is a key figure of the report. It comes out January 23rd, so stay tuned!

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