You might have noticed that 30 Year Mortgage Rates have shot up about 1/2% in the last 30 days or so. That means that on a typical mortgage in San Diego County at around $360,000 the payment is now about $96.00 more per month.
That also means that the buyer’s purchasing power, assuming they are qualifying at the maximum amount, has gone down by $20,000! And, that is in the face of increasing property prices / values!
Now for the reason, it’s because Wall Street (where interest rates are set) are interpreting the economic numbers as meaning that the Federal Reserve may start raising interest rate soon… You may ask why does that matter before the Fed makes a move? Because Wall Street always trades on what it believes will happen in the future. As a result of this thinking rates have moved up in anticipation.
The Federal Reserve is meeting today and tomorrow after which they will make some sort of announcement that is suppose to give Wall Street some idea of future Fed moves. But the reality is that the Fed usually never gives a clear indicator as to what they are doing next.
Given this fact, the next couple of days may see rates either rise or fall based on what analysts think the Fed “means” in it’s remarks.
The Fed has already stated that they are prepared to raise rates when the unemployment declines to 6.5%, we are currently around 7.6% nationally, 9.0% in California and a much better 7.0% in San Diego County.
The initial Fed tightening will not come as a rise in rates “per se” but will come as a tapering in their bond buying program. They are currently purchasing around $85 BILLION in notes each month. This has the effect of creating more demand for Notes and Bonds (Mortgages). And, as demand for bond products increase, rates decrease (rates move inverse to the price).
What this means to you is to keep an eye on the Fed announcement to get a feel for which way rates may move. But more importantly, rates will be moving up sooner than later.
With rate increases in mind, it’s time to get your buyers moving. That means sellers too because they will soon be buyers. While the housing market will not likely cool too much in the next year or so, it’s important to point out that an increase in rates means less purchasing power for your buyers. The net effect is likely to be a rush to buy before rates increase too much. That will have another effect, increased demand which will fuel home price increases… Oh, what slippery slop… but one you should be fully versed in.
Christopher Rodriguez, President , CEO
Maximum Mortgage & Real Estate, Inc.