One Full Year Into Fed Rate Increases/Banking Turmoil
Lots to talk about this month! It has now been a full year since the Federal Reserve(Fed) started to raise interest rates in order to control inflation. While inflation has come down, it's an open question of whether the Fed will continue to focus on that or the banking turmoil that unfolded last week. We saw mortgage rates drop to 6.57%, from 6.76%, amid what some are calling the "mini" banking crisis from last week, which, is very different than the 2008 mortgage loan crisis, but invokes the same feelings of uncertainty. The Fed still seems headed to another rate increase, although, possibly lower than originally predicted. The problem for the Fed is that inflation is still high, unemployment is relatively low and while mortgage rates have increased, overall there is still plenty of demand from buyers and low inventory.
Home prices increased by 5.8%, year over year, according to Corelogic, but rate increases in the coming months and how mortgage rates trend will decide the overall fate of the housing market if it severely dampens buyer demand. As I mentioned last month, rate "buy downs" are the story, according to Blacknight's Mortgage Monitor, as many buyers are paying money upfront to get a lower rate on their mortgage. This explains why buyer demand is still so strong despite the higher rates. A slow down is definitely underway but it bears repeating that home prices surged by 42% in the last three years, according to the National Association of Realtors, so a pause is actually a good thing, overall, for the housing market. Check out the local market trends in the chart below, as you can see, it's a bit mixed, but overall prices are trending lower than last year. Having said that, lots of home buyer activity in the under $2M price point, with some of the listings in these price points are getting in excess of 10 offers.