Mortgage rates are up around 2% since the beginning of 2022. The word of the year is inflation. The Federal Reserve now admits that the “Transitory Inflation” they were expecting while keeping the rates artificially low to offset the Covid close down economic hit, is much stickier than expected. The Fed blew it by keeping rates down and maintaining Quantitative Easing for too long. Now they’re swinging the pendulum in the other direction.
Up to now the Fed only increased the Fed Funds Rate from 0% to .25%. Fed Members are conveying they want to potentially have the Funds Rate at 3.5% by year end. This means the future hikes will be very aggressive at .5% to .75%. Make note the next Fed meetings are scheduled for May 4, June 15, July 27 & September 21.
Lets put the inflation level and rates in perspective to what we saw the last time we saw inflation at the levels we see today. Presently the CPI (Consumer Price Index) is at 8.5%. The mortgage rates are now around 5.25% for a 30 year fixed rate mortgage. In 1981 the CPI was 10.3% with a Feds Funds Rate at 20% and the mortgage rate at 18.45%. A much different environment.
The economy is too strong presently with tons of liquidity added to the monetary system by the Fed keeping rates low, and the Federal Government throwing money at individuals and municipalities. Employment levels are historically high with millions of job openings not being filled. 1.8 jobs available for every potential employee.
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 products by making financing more expensive.
Rates will go up, but if the Fed is as aggressive as they say they will be, the economy will slow, potentially a recession, and inflation and rates will come back down. Don’t expect the old 2.75% mortgage rate again, but lower.
Lenders will get creative on how they will construct mortgage programs. 30 year fixed may not be the best program for your application.
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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