Jerome Powell and his cronies at the Federal Reserve have changed their tune dramatically in the last several months. But unfortunately, they also seem determined to crush our economy in the name of inflation-fighting while simultaneously printing money for the current administration's pet projects. Not surprisingly, our economy and the housing market are feeling the effects. For example, this morning, Mortgage News Daily shows the average 30-year fixed-rate mortgage at 7.08%, a rate not seen since July 20, 2001. In contrast, the Freddie Mac website shows a rate of 6.29% for the week ending September 22, 2022, an increase of .8% in just a couple of days.
To put the rate change in perspective, a home at the median pending sale price in Deschutes County last week was $629,900, with $3,566 in annual tax and $50/month in HOA dues. A down payment of 20% would be 126k. At 4% interest, the monthly payment would be $2,836, and at today's rate of 7.08%, the amount jumps to $3,810! That is $974 more per month and $11,688 more per year. Remember when the Fed and others in our government said inflation was transitory?
If rates come down significantly, a refinance of the loan would make ownership more affordable, but determining when and how much rates might decrease is anyone's guess. The Fed promised another 75 basis point increase in October and another 50 basis point increase in December. A few months ago, there was complete consensus amongst Fed board members that the overnight rate at year-end 2022 would be 1%. Compared to today's 3.08% and a projected year-end rate of 4.33%, to say the Fed is talking out of both sides of its mouth is an understatement. The Fed also seems unconcerned with crushing the economy, so lowering rates quickly to relieve the impact of recession seems far in the future when the current stated mandate is crushing inflation while they continue printing currency. As interest rates climb, the Federal Government's payments on our $31T (Trillion!!) national debt increase, but the debased dollar means they pay down debt with cheaper money. That calculus is beyond my frame of reference and irrelevant to most home buyers, but it does illustrate the difficulty in predicting what interest rates might do in the future. As always, I firmly believe that home ownership is a long game, and while rates may be up, home prices are declining, making the balance a bit more palatable. If you can afford a home today that suits your needs, it may still make sense to buy, especially considering rising rents. Also, the mix of more inventory and the seller's willingness to deal make this juncture appealing if you are a cash buyer. Although, there is little doubt that the market will continue to evolve as rates climb. As I have mentioned several times, the big unknown will be how many sellers choose not to list as they grapple with the "golden handcuffs" of a sub-3% mortgage.
"It is important to remember that market cycles are always occurring. Markets go up and down. The reality is there's never really a perfect market - just the market you're dealing with when you're buying your home.
You'll rarely be able to time the market, but if you can afford what you buy and hold onto it long enough, the best timing will find you."
-Gary Keller, founder of the Keller Williams real estate brokerage