The big news is the CPI (Consumer Price Index) is now at 7.5%. Most in 40 years. The Federal Reserve is behind the curve on normalizing interest rates from their end. They are still tapering their Quanitative Easing (purchasing Mortgage-Backed Securities and Bonds) artificially keeping long rates low, and have been signaling that they’re finally going to move the Overnight Fed Funds Rate up from 0% at the next meeting on March 16.
As you can see in the chart of 30 year mortgages, the mortgage market doesn’t wait for the Fed. The Conforming rates have gone up approx. 1.25% over the past 6 months. The 10 year note is now over 2.0% the highest in a couple years, when it was all the way down to .4% at one point.
We are at a huge transition, from an accommodative Fed, to one that is now thinking post-Pandemic, dealing with high inflation, wanting to get Fed Funds Rate back to a normal level. Will the Fed move .5% instead of .25% on the first move? Will there be 6 or 7 Fed increases instead of the 3 or 4 previously estimated? The Fed Fends Rate long-range target is around 2.5% for overnight rates. How fast will they get there? Or will the financial markets have a fit, or we move into a recession because of an overly aggressive Fed, slowing their moves?
It’s counterintuitive, but if the financial markets believe the Fed will be aggressive against inflation, it can actually lower the mortgage rates. Then again if the rates drop… from what level? If mortgage rates go to 5%, getting back down to 4.5% will feel good.
I’m watching all the interest rate moving targets. I’m approved with several lenders on the wholesale side, with unique programs. Cash-out refinances, and reverse mortgages can still make sense. There’s still very little housing inventory, so don’t expect a pricing crash. Maybe a slowing of appreciation b the middle of the year. With the higher rates and higher prices, marginal buyers will potentially be squeezed out of the market. Some buyers will be moving to 5, 7 and 10 year adjustable rate mortgages for lower rates, and qualifying. A slowing of this overheated market will be healthy. Real estate has historically been a great hedge against inflation. Rents are going up faster than values in some regions. Ownership makes sense.
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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