The 30 year fixed mortgage rates have been steadily dropping and are a full percent lower than a month ago. 6.3% may not be 3% like we saw a year ago, but much better than the 7.5% seen in early November.
We know the Federal Reserve will increase the Fed Funds Rate again next week. Their battle with inflation appears to be winning. Inflation hurts everybody.
Recent observations:
There’s a contraction of economic activity
Oil prices dropping, demand weakening. US Gov’t wants to replenish its reserves at $70 barrel, around where it is now. Way lower than where it was a couple of months ago.
Supply chain issues getting better. The backlog of orders was 70%, now 40%. Delivery times better
Inventories building, expect discounts in coming months
The savings rate was at an all-time high during the Covid shutdown and gov’t stimulus checks were distributed. Now historically low.
Increase in consumer debt growing substantially. Huge increase in debt, and drawdown of savings
Money supply (M2) coming down. Quantitative tightening is working.
Labor employment numbers still “too good” but layoffs are becoming substantial.
The wage spiral is an issue. Labor groups striking for more income and benefits. It’s easy while labor is tight, timing is everything. Once the economy goes into recession, labor’s leverage will diminish.
Housing has been nailed by the higher mortgage rates. Sales are down, but inventory is still tight. Builders have backed off from finishing the development of tracts, as they don’t want to be stuck with unsold units. Millions of millennials are in hitting prime buying age. We need the inventory.
The spread between 10 year notes and mortgages is at highs. The spread is around 3%. Historically it’s 1.75-2.0%. It’s higher because the servicers know the loans originated today will we refinanced within a year or so. They won’t receive the servicing income, so they advance the return to the origination side. (Rates and the spread will drop when the rates are in a range where the lenders will have a solid long term return).
Bottom line: We may have seen the highs of fixed mortgage rates. The Fed will continue to raise the short-term rates, slowing the economy, and raising the HELOC and credit card rates (tied to short-term rates). Long-term rates aren’t tied to the overnight money rates. We won’t have 3% rates again, but in the 5’s around the 2nd or 3rd quarter of 2023 will bode well for real estate.
My prediction, savings will be lower, and consumer debt higher around March 2023. Cash-out refinances with lower rates will be attractive. Owners with low-interest rates not willing to sell presently with a 3% mortgage, may be motivated with a 5% rate next spring. Higher conforming and FHA rates will add affordability capabilities. Being a renter sucks. The fluff in property values because of overbidding in 1st half of 2022 has been eliminated. 2nd half of 2023 should be solid for residential real estate.
We’ll see if my if my predictions are realized. We know this is all a moving target. But I’ve ridden this rodeo for many decades.
Disclosure: Rates are constantly changing… Credit Scores, Loan to Value, loan program, and qualifying capabilities has a substantial impact of getting a loan and what the rate would be.
If you are in the Los Angeles area and 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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