There is so much volatility in the financial markets, I can have multiple rate changes through my wholesale mortgage sources a day. Generally to the upside.
We know the Federal Reserve was a year late on reversing their very loose financial accommodation of .25% Feds Funds Rates and Quantitative Easing (buying bonds to artificially lower long-term rates). Now with high inflation rates, the Fed is expediting its tightening stance.
In September the Fed Funds Rate went from 2.5% to 3.25%. The Fed’s target is now 4.4% by the end of 2022, it was only 3.4% in June. The secondary market for Mortgage Backed Securities is concerned that the Fed has lost control of the inflationary economic variables, and is requiring higher rates from mortgages.
Recent history on the roller coaster of mortgage rates over the past few months… we started the year at 3.25%, doubled to 6.28% in mid-June, dropped to 5.05% on August 1, and have now jumped 2% in the last 2 months to over 7%.
We know fixed mortgage rates don’t correlate directly with Fed Funds Rates. Prime Rates, Adjustable Rate Mortgages, Home Equity Lines, and consumer debt (like credit cards) do. Debt Servicing using those vehicles will continue to be hit, and will eventually slow spending and lower the high 8%+ inflation level, and increase the 3.5% Unemployment Rate.
There is a lagging effect from the Fed tightening. The Fed’s rate pendulum went from too far from the easing side to the eventual too far to the tightening side. There will probably be a recession coming in the middle of 2023. Mortgage rates will drop once the recession hits. I don’t want to into the weeds on this, but meanwhile, geopolitical elements, oil and energy costs, and international currency fluctuations will be affecting financial markets. Eventually, when we get to a normal economic environment, the Fed Funds Rate will go from the mid-4 % range, back to 2% or so, but that can take a couple of years, and an economic cycle.
There’s a lot going on. When the news reports the Freddie Mac Rates on Thursdays, that rate is from the week prior. That was a light year ago in my real rate world.
An adjustable Rate Mortgage isn’t a great option these days. There is presently an inverted yield curve. Ex: 1 year treasury note rate is 4.24%, the 10 year rate is 3.89%. Normally the longer the duration the higher the rate. A 2-1 Rate Buydown may be a good option, keep payments down for a couple of years, with the expectation to refinance when the rates come back down.
If you’re ever you’re interested in what the rates or the housing market are doing in real-time, or just want to discuss strategies, call me.
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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