The Fed has raised rates 11 times since 2022, the fastest pace in decades. We have seen inflation fall from over 9% to its current levels of roughly 3.7%, yet unemployment has only risen to 3.8% from the mid-3 % level achieved earlier this year. Many could say that the FED may accomplish the “soft landing” that many FEDERAL Reserve folks before them have failed to achieve. While on the surface, this may appear to be true, I still believe we are in for a very rough road to travel as it pertains to our economy and that mortgage rates should move lower in the near term as what has been a low unemployment rate will continue to rise over the next several months and this has 100% of the time (once the unemployment rate rises from its established low point) signaled a recession in the past. This realization of a potential recession will trigger our Federal Reserve to reverse its course of hiking rates and should begin to look at reducing rates starting in Q1 of 2024. This assumes that inflation continues to rise to lower levels over the next several months. I believe their target of 2% will not be achieved anytime soon, but a gradual move to lower levels should keep them satisfied for now, not to mention that notable drop in oil prices over the past 45 days… Actually, I saw a $2.98 per gallon at my favorite gas station in Gwinnett County.
I simply don’t see a “soft landing” in the future, which will be good for mortgage rates. Assuming we know the unemployment rate rise again on this Friday’s report and we continue to see inflation fall, I believe that the FED will most likely sit back and not move rates higher anytime soon, and the possibility of a rate cut in Q1 is becoming much more possible as more data is reviewed. The mortgage market is way over-sold, and this recent push to the 8% level only slows the housing market even further. The housing market is one of the most significant components of our economy, and previous history has shown that housing does not do well at these interest rate levels.
I also believe that the FED will soon realize that the reason spending continues at the pace it has is that the availability of credit is way too easy from a credit card standpoint as well as many current homeowners tapping into their equity positions in their current homes only to pay off their current credit cards to re-spend on them and in many cases with higher credit lines. This combination of increasing consumer debt (average credit card rate is over 20% APR**) is not suitable for overall economic stability. The average consumer appears to have taken a page from our folks on Capitol Hill….don’t worry about spending….just print more money…or …just get a larger personal credit line or credit card. This behavior is not sustainable and will be a problem in the future.
Remember… The BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
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Blog post date: Friday, October 6, 2023