The Federal Reserve did the widely predicted increase of the Fed Funds Rate from 0-.25% to .25-.5%. The ¼% isn’t a big deal, but the Fed Chairman Powell indicated that the target is 7 rate increases with a target of 1.9% by the end of 2022, and 2.8% in 2023-2024.
The Q&A during the Chairman’s press conference is always full of good information, and how the Fed is going to approach the transition away from major accommodation to a tightening mode. The Fed’s job is to target maximum employment and price stability.
The labor market is actually too tight. There are 1.7 job openings to 1 available worker, 11.3 million job openings.
Powell admitted the Fed was wrong about the transitory aspect of inflation. He also admitted that they were late on implementing the tightening cycle. CPI at 7.9% is way over the Fed’s 2% inflation target. Now with Russia invading Ukraine, it adds pressure on oil, wheat, nickel, and other commodities that adds more inflation to a system already tight.
Of course, the Fed Rate increase hits the news headlines, but as you can see in the chart of the 30 year fixed mortgage rate, the rates have been going up from the low of 2.78% 8/3/21, to now at 4.5%. It’s a high probability that the rate increases will slow down, but the next shoe to drop by the Fed is when they start to sell off some of the $9 Trillion in accumulated Balance Sheet when they were doing Quantitative Easing (artificially dropping long term rates by buying bonds and mortgage-backed securities).
How much of an effect will the Fed’s rate increases affect inflation. Inflation is made up of a combination of 40% Federal Reserve and Gov’t spending 20% Regulations 20% Supply Chain 20% Energy… Bottom line, the Fed has a limited effect on inflation. They can only slow the purchasing of product by making financing more expensive.
The real estate market may slow down some as higher mortgage rates will limit marginal buyers, but the supply of housing is so low, the demand will continue to outstrip available properties.
Even with higher rates and values does it still make sense to buy real estate? Rents are going up faster than property prices. Owning locks in the payment, and protects against rent increases; real estate has always been a great hedge against inflation.
An extra chart shows historically where we are at present with mortgage rates. We may not be able to get the 2.75% lowest rate, but we’re still historically at amazingly low rates.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
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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