ARE WE SEEING A PIVOT IN THE ECONOMY?
After 10 consecutive rate hikes, the Federal Reserve did not raise interest rates at the June 14th meeting. Right now, the Federal Reserve rate is currently at 5.25%, and the Prime Rate Index, which is traditionally 3% higher and tied to most consumer credit is at 8.25%. These consistent rate increases have been felt on credit card balances, home equity lines of credit, business financing, etc., and is putting stress on the baking system. We have also seen a steep climb in mortgage rates over the last year, which is indirectly impacted by the Fed’s rate hikes as well.
The housing industry expected to see an immediate improvement in mortgage interest rates when the Federal Reserve showed signs of pivot and decided not to raise rates, but that has not happened. The Federal Reserve stated although they are not raising rates in the month of June, they anticipate they may raise the rates two or more times this year. That uncertainty has left the bond market flat and therefore rates since June 14th have remained relatively flat as well.
Homebuyers and Sellers
Right now, housing inventory is low as many potential sellers plan to hold onto their low mortgage rates. Although buyer demand is down from one year ago, we are seeing that buyer demand is still outpacing the inventory levels and creating a semi-competitive environment for buyers. Market changes are a great example of simple economic study of supply and demand. Buyer demand decreased by so did housing inventory. Buyers may not see much relief if we begin to see mortgage rates come down. Lower rates will allow more buyers to enter the market and housing inventory is expected to remain low as sellers will clinch onto their low mortgage rates. Sellers who need to sell are gaining back some power.
With housing rental rates flattening, the job market remaining stable, stress in the banking system, and inflation coming down, it’s only a matter of time before the Fed’s will truly pivot and we see some interest rate relief.
Talk soon – Martin
To watch the June Residential Market Update Video, click here.