Adobe Stock/imagewell10

While inflation has begun to cool, it still remains up between 6% and 8% compared with last year, and the overall economy has not yet returned to a more healthy level. During Zonda’s most recent Housing Market Update, chief economist Ali Wolf says that Zonda’s expectation is the economy falls into a recession, which includes job losses on a national basis, in 2023.

“While we do have inflation numbers that look a little bit better, the Federal Reserve governors don’t want our financial markets to just fully rebound that quickly because from the Federal Reserve’s point of view, we still have a long way to go until we’re at a point where the economy is back under control and back to something that is more healthy,” Wolf says.

While overall inflation is beginning to cool, several major components of inflation—including basic living expenses such as transportation, food and beverage, and housing—have high year-over-year inflation levels. Housing accounts for a large share of inflation data, and inflation in the sector remains 8% higher on a year-over-year basis. While data suggests rent growth is beginning to soften on a month-over-month basis, Wolf says the shelter component in inflation usually lags changes in the for-sale housing market by about a year.

“If we want the Federal Reserve to say ‘we need to stop,’ they’re not going to until we see this overall level [of the shelter component] come down,” Wolf says. “Going into the first and second quarter of next year, we may still be reevaluating [the shelter inflation component] numbers and rechecking to see if we’re seeing enough of a cooling effect.”

Read More