Lets start with Fed Chair Jerome H. Powell has to say, or lack thereof:
It’s bad enough that the Fed chairman doesn’t know how his actions will affect the markets. If you didn’t know, wouldn’t you be cautious?
Apparently not for Powell, and it seems likely that the Fed will bump their Fed Funds rate another 3/4% in the first half of 2023 – and maybe do all of it in the first quarter (there are two Fed meetings in 1Q23).
The mortgage companies have to be scrambling with the drastically-reduced volume of loans, so hopefully some of it is already priced in, for their sake. Financed sales are probably down 50% and there aren’t many homeowners wanting to refinance at these higher rates, so lenders will be forced to squeeze their margins just to stay in business.
If they can keep jumbo rates in the 5s, I think we’ll be ok in 2023.
But we can’t expect to absorb another 3/4% hike by the Fed and not see it affect mortgage rates. It means that today’s rates might be the lowest we see until a few months into the Fed-induced recession….if it happens. If the recession doesn’t happen or is mild, then we’ll be stuck with those higher rates – and if they hike by 3/4% and just let it ride, today’s rates could be the lowest we see in the next 2-4 years.
Yet they will be wasted because there is nothing to buy – sellers will hold off until the coast is clear.
Powell can’t envision this scenario, even though it should be obvious. When you publicly state that you are trying to reset the the real estate market, potential sellers are going to wait until later to sell.
Will Congress think about revisiting the 2 out of 5 year exemption, passed in 1997? They should, because that’s what could flood the market with inventory. If you want a reset, you need to do things to INCREASE the supply, not tighten it.
Rant over, thanks for listening.