Take a look at this blog from Jay Vorhees at JVM Lending. It’s an interesting discussion about the Fed, interest rates, and how they both affect the housing market. I’ve added my two cents at the end, like usual!
The Fed raised “rates” last year at the fastest pace in history! There were 7 “rate” increases in total:
- 0.25% in March
- 0.50% in May
- 0.75% in June
- 0.75% in July
- 0.75% in September
- 0.75% in November
- 0.50% in December
- 0.25% in February
But, despite increases totaling 1.25% over November and December, 30-year mortgage rates fell almost 1.5% since January. You can see that the same thing happened in July; 30-year mortgage rates fell sharply after the large 0.75% increase in the Fed Funds Rate. Rates fell recently, not only in the face of two large increases in the Fed Funds Rate but also in the face of a lot of Fed bluster about more rate increases to come. So why, since February, have rates now increased again, you ask? They rose largely in response to strong retail sales and employment data, and the Fed’s comments in regard to that data.
As a reminder, the Fed primarily influences the short end of the yield curve, as it only controls the “Fed Funds Rate” or the overnight rate that banks charge each other to meet reserve requirements.
Long-term rates like the 10 Year Treasury and 30-year fixed-rate mortgages often move independently of the Fed, no matter what the Fed says or does. The 10-Year Treasury, for example, dropped as low as 3.37% today after hitting a high of 4.25% in October. And, as I mentioned above, mortgage rates have dropped almost 1.5% since October.
This is despite all of the predictions we saw and heard last year about mortgage rates hitting 8% to 10% this year. All of those people were listening to the Fed and NOT listening to people like Barry Habib and Jeff Snider who follow the data instead of the bluster. Mortgage rates respond to other factors, such as inflation and economic outlooks.
If inflation is coming down and the economy seems to be weakening, long-term rates will usually fall – irrespective of the Fed’s bluster. We all might all be wise to listen to the data guys and not to the Fed watchers. And, once again, the data guys, who have been correct all along, are predicting more rate decreases to come. Barry Habib in particular is now telling us that May 10th will be the “big day” – when we see a major drop in rates because of the way inflation data and year-over-year comparisons are shaking out.
KRISTIN’S TAKE: How I see this affecting buyers and sellers:
Sellers, you have lost equity from 2022, but overall values are higher than 2021. Price your open for today’s values, not last year’s. Houses that are priced accurately and are move-in ready, show well and are getting multiple offers. It may still sell close to list price, but it isn’t sitting for months and ultimately selling for less.
Buyers, consider a 2/1 rate buy-down paid by the seller to get you into the home with a lower rate for the next two years. If you believe rates will fall, then you can refinance; most lenders are offering 2-3 year free refi. If you wait until the rates go down, we will be back to multiple offers with no contingencies. I just spoke with an agent in Fremont who had a 1322 sq, ft home in a nice neighborhood price around $1.2M, it was remodeled, not a flip but had $8k+ of section 1 and some plumbing repairs. She had 60 offers and it was going in the $1.5M range. We still have a housing shortage.