Laurie Johnson

Lake Tahoe Mortgage Outlook


We began January with good news on December’s inflation numbers. Mortgage bankers were betting on a softer series of rate hikes in 2023. Last year, the FED increased their rate 0.50 and even 0.75 percentage points. Many, including stock market investors, were happy to see the increase at only 0.25 in February.

This drove a bump in mortgage applications over the peiord that interest rates settled around 6.35%. In my November blog, I encouraged buyers to consider that rates in the sixes might be the best we will see for awhile.

Many buyers are growing more comfortable with a 6% interest rate. If we look back over the last few decades, the average interest rate is at 7%. Many see an opportunity where others are waiting for something better.

Supply and demand will always drive market activity. The mortgage industry follows a prime rate that is 3 points higher than the FED rate. During January and into February, they seemed to be adjusting their margins because mortgage applications had declined. As expected, an increase in applications led to a slow increase in mortgage rates back up to 6.75% by the end of February.

Last week, the FED Chairman, Jerome Powell testified at Congress about the government’s plan to ease inflation. He indicated a different picture than most expected, with higher increases over a longer period of time. Most were expecting another 0.25 point increase in March, with two more moves that would end around 5.25% for the FED rate, which is currently at 5.1%.

Powell said that inflation data remained stubbornly strong. Yes, the numbers have come down consistently from June’s high, but other indicators were still up. He suggested that rates would go higher than anticipated and at a faster rate than a quarter point at a time.

The recent Jobs Report was a mixed bag with unemployment slightly up, while more than expected jobs were added. The Labor Department will release the consumer price index (CPI) data on Tuesday. This is one week before the FED meets on March 21-22. Whether the hike is 0.25 or 0.50 basis points will depend on that data.

The current downturn in the stock market shows how markets are now predicting a half point hike in March. Most expect the end to be more like 5.75 and not 5.25.

“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy,” said Sam Khater, Freddie Mac’s Chief Economist. A recent article from Freddie Mac show interest rates currently at 6.73% for a 30-year fixed mortgage.

Buyers, however, are finding that lenders are offering rates close to 7%. For a 30-year, fixed-rate mortgage, the average rate, according to CNET, is 7.11%, which is an increase of 8 basis points from one week ago.

This week, the failure of the Silicon Valley Bank led stock traders to assign an 85% probability of a 0.25% hike and the stock market shot up. Some even wonder if their aggressive policy might lead to an actual reduction, which would be rocket fuel for many markets. It would also be fuel to drive up inflation, something they are unwilling to do.

This is why timing the market isn’t such a wise idea. For those waiting on the sidelines for the return of 4 and 5% interest rates, it won’t be happening any time soon. In fact, those unusually low rates were the result of the same FED policy that reduced their rate to almost zero, to spur the economy after the pandemic. Today, they are doing the opposite.

Finding the perfect house, priced in a way that can make up for higher borrowing costs can get you into your dream home, regardless of changes in interest rates. A rate at 6.73% is actually lower than the average 7% rate over the last few decades. And, you can always refinance if and when rates come down.

Contact me today to explore properties that will fit your budget. Living in Lake Tahoe and Truckee offers a change in lifestyle that is certainly worth finding the perfect home at the right price.



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