The Federal Reserve left the Fed Funds Rate unchanged at 5.375% at their policy meeting today. Even though the Fed left the rate unchanged, they’ve basically admitted that they are now in a neutral position. They’ve been in a tightening stance for almost two years. The rates have hit their highs for this economic cycle.
I’ve said it numerous times, but long-term and 30 Year Fixed mortgage rates don’t correlate with the Fed Funds Rate. If you look at the three charts I’m posting you can see the 10 Year Notes and 30 Year Fixed Rates have fallen substantially over the past 6 weeks, to their lowest levels since May. The “Market” has interpreted where inflation was going before the Fed.
Inflation levels in the CPI, PPI, and PCE indices have all been dropping and the labor force numbers loosening. Meanwhile, there’s still some strength in the overall economy. While the Fed is targeting inflation to get to a long-term target level of 2%, one thing Fed Chair Powell indicated at the press conference is they are not going to wait for 2% because of the lag in the impact of previous hikes, and the full effect of the hikes have not been fully felt yet. They are properly looking at the momentum of where the economic numbers are going, so they aren’t late (again) in making a move (as they have in the past). They were late beginning hiking this cycle, creating the high inflation levels we’ve had, and they can create a Recession if they don’t move at the proper time.
The Feds members are predicting an .80% drop in the Fed Rate in 2024, the Marget is pricing in 1.5%. We’ll see over time which one is correct.
What we do know is presently the mortgage rates have already dropped around 1.25% from their highs just a couple of months ago.
One thing I’m looking at though is the 10-Year Note is right at its 200-day moving average and at a round number of 4.0%. It’s come down a long way in a short time. We may see a bounce higher from that level. I’d lock and not get greedy, if thinking short and need to lock for a purchase. If it goes through that resistance level over the next couple days, then we’re looking good for better rates from here. Longer-term rates will be coming down but there are still factors to deal with…
Powell indicated that even if the Fed starts to drop the Fed Funds Rate, they can keep the Quantitative Tightening in place. As they roll off some of their holdings of note and mortgage securities, it keeps those rates elevated.
The huge Federal deficit must be financed, adding more treasuries to the system, and more competition for the investment dollars. Higher supply, higher rates.
Housing immediately feels a positive effect from lower rates. There’s a large buyer demographic base that wants to buy. As rates drop, more buyers can qualify. Anybody waiting for a drop in property prices will have an issue. As rates drop, creates more buyers, so we must look at supply and demand. As rates come down, many of the existing housing stock may come on the market, as those owners locked into their super low (artificially low) mortgage rates from the Pandemic Era, will start making sense out of moving.
The lower rates help us to make sense out of doing debt consolidation mortgages and Reverse Mortgages. It’s always advantageous to call me and evaluate options.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free to contact me
Ron Henderson GRI, SRES, SFR, RECS, CIAS, GREEN
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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