The Federal Reserve has made 11 rate hikes since March of 2022, raising Fed Funds from around .5% to its current levels of roughly 5.5%. They have done this unanimously during each of their meetings and have had no one until recently hint they were thinking any other way than the way of the rest of their “Pack.” This unprecedented series of moves during the past 2+ years has taken 30-year fixed-rate mortgages from a national average of 2.65% to their current levels, which are trading in the mid-7 % range. Mortgage payments have skyrocketed over that period, with a $400,000 mortgage payment rising by $1200+ per month due to the rise in interest rates as well as property values. This has priced many out of the market. The person in 2022 would have needed an annual income of around $72,000 to possibly qualify for a $400,000 mortgage, but today would need to be making about $120,000 per year.*** That is quite a difference and should be no surprise. It makes it clear why housing sales have fallen sharply in 2023. Adding to this drop in sales this year is that close to 35% of all home buyers are first-time homebuyers, and this rise in income needed to qualify for a loan has affected them the most.
***Income needed to qualify varies based on each individual situation.
But our Federal Reserve continues trying to move the needle in our economy. Their hikes have been intended to bring inflation down sharply, which also entails curbing spending. Their best idea for curbing spending is to slow the economy, which means more folks will need to be unemployed. The theory is if fewer are employed, they will spend less. Truly a fascinating concept and one I would prefer not to subscribe to. I am not sure why the Federal Reserve does not let the economy find its own equilibrium and perhaps take a page from the Father of Economics’ book, The Wealth of Nations, written by Adam Smith. Adam Smith’s “invisible hand” theory states that the market will adjust itself without the intervention of the Government. It is a simple concept. If the price of something gets to the point where it is priced too high, the consumer will simply not buy it, thus forcing the price back down until it gets to the level where folks will buy it again. This is not “rocket science,” folks. We do not need our Federal Reserve to basically price many of Americans out of the home-buying process, and raising a mortgage payment by $1200 per month in a two-year time frame will do just that. Our Federal Reserve “Pack” needs to step away and let the market correct itself. We have seen from this Federal Reserve and their predecessors that they are not smarter than the market and don’t act quickly enough, whether it is raising or lowering rates. They should simply allow the “market” to determine our growth and or contractions. The last I was told, we are a Capitalist Economy…maybe we should act like one and let true supply and demand direct our economy without help from the “Federal Reserve Pack.” A good friend of mine whom I followed for many years regarding his economic forecasting, Larry Baer, always finished his articles with…” You and I are only sometimes right…The Market is Always Right”. This could not be truer today.
We had a nice run downwards in rates this week and the “tea leaves” are now showing a good possibility that we may see below 7% rates before the end of the year!!!
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: Thursday, November 9, 2023