Well, for the first time a very long time, the national average rate with a 700 score is hitting 7% (screen shots attached). Now, thankfully, our rate ranges are coming in lower and clients have the option to buy down points, but rates steadily creeping up is a real thing. Today’s rate range with Prosperity for an 800 score borrower is between 6.375% to 6.75% depending on if they choose to pay discount points to buy down the rate on conventional financing.
I actually remember back in the late 90’s when the rate dropped below 7 for the first time – I swear baloons fell from the sky. Well history & the markets are cyclical and we are back in the economic cycle of higher rates in order to curb inflation and demand. Yesterday the Fed did their dance and announced the 0.75% rate hike for the short term rates. But what does that mean?
Here are my take aways from his announcement and a couple of good notes from Elizabeth Warren as she commented on the Fed Announcement.
- The Fed is determined to get inflation to 2%. They will not stop making adjustments until that goal is achieved. (Chair Powell stated it was their “Over-Arching Goal”)
- They see and understand that unemployment will rise. The Fed Chair commented that the high demand for employees (that is not beign filled) and the high demand for goods (that is is not being filled) has to eventually come to head and the result will be less jobs, less goods, and increased umemployment. Chair Powell’s words : “A softening in labor market conditions to foster a better balance between supply and demand on the labor markets”
- The Fed will not stop increasing the rate until clear evidence that inflation is moving back down to 2% , growth continues to run below trend, and movement in th elabor market showing better balance between supply and demand.
Elizabeth Warren made some great comments about the announcement that are interesting to share. I tried to find her interview on MSNBC from last night, but could not. Lance had recorded her on his phone! (Thanks again Lance)
- The Fed is a one trick pony. All they can do is adjust the interest rate in order to shift markets in a bid to curb demand and fight inflation. So, Chair Powell is doing what he can to help, but he alone won’t be able to solve the issue of fighting inflation and a recession. In fact, it will drive up unemployment.
- We still have other economic issues that are putting pressure on the markets and inflation:
- Supply Chain: there are still a backlog of orders that have not been filled, still issues with all shipping methods and a lack of employees to fill demand. Without a solution and correction in the supply chains, the pressure will continue to mount
- Covid: Covid is still an issue around the world with sporadic outbreaks that cause disruption and instability in the markets.
- The War in Ukraine: It hasn’t just impacted the world’s energy supply, but Ukraine has always provided a lot of food that was sold into the economy, so their lack of food production is negatively impacting interenational supply.
- Companies are engaging in enormous price gouging as they take advantage of the markets.
The big question is how does the economy rally to end this with a ‘Soft Landing” instead the opposite that we all fear. Only time will tell.
When it comes to real estate — As rates increase it does impact some client’s ability to purchase. The good news – people will continue to buy homes. Back in the 90’s when we were at this rate level on a normal basis, people STILL bought homes. Throughout history, people have continued to buy homes. People still move and people will always need housing.
We may be in for a bumpy ride, but we are ALL on the bus TOGETHER.
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