Breaking News: Interest Rates Could Be Shifting Gears
When the news is this important, we’ll do back-to-back blogs about interest rates. Keeping you informed and educated so you can make confident decisions is our passion, especially when it is timely advice.
Bank Failures & Bailouts
As we’ve been sharing for months, the Great Rebalancing would be challenging and unpredictable. To decrease inflation and slow down overspending, the Federal Reserve makes moves such as tightening banking and increasing rates, impacting every financial industry. But to avoid a major crash, like 2008, it has been necessary. A recession is imminent, but the Fed is trying to make its impact as light and short as possible.
Economists have been warning at some point, one of the industry sectors could “break” from the changes. Which one, no one knew for sure. We were pretty confident it would not be real estate as there is simply too much equity built into homes, and unlike in 2008, mortgage loans have much higher qualifications and safeguards. It is why even now, foreclosures and short sales remain incredibly low. And just two weeks ago, we shared with you that conditions like the rate of unemployment claims and consumer spending was causing the Fed to increase rates for the months to come.
But with banks shuttering and bailout plans topping the White House’s agenda, the Fed switch gears on their strategy. “The Fed’s next move will be closely watched as recent bank failures are stirring memories of the 2008 financial crisis.” – Bloomberg.
So how does this impact mortgage home loans?
As we explained in our previous blog, the Fed will drop and stabilize interest rates once the economy slows down. Bank failures is a strong indicator the Fed will “take their foot off the brake” with interest rates:
Instead of multiple interest rate increases over the next several months, we may see one, maybe two more increases before the Fed eventually drops and stabilizes them.
The increases will also be light, probably 0.25% (rather than 0.5-1.0%). This won’t seem like positive news for the average homebuyer on the sidelines reading just the headlines. But our savvy buyers, who are talking with their RE/MAX Alliance agent, understand the light at the end of the tunnel could be approaching (as soon as 6-12 months).
So now is the time to make a move:
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Even with high-interest rates, competition is already growing among buyers along the Front Range.
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Many communities remain so low on inventory we are a soft seller’s market (far from balanced).
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Builders are extremely behind on new construction, which inflames demand.
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So when interest rates drop and stabilize, the pool of buyers will increase quickly.
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Home prices will go up even higher, as well as bidding wars.
Purchasing a property before rates drop is an intelligent move. Sellers are far more negotiable now than they will be after rates drop. The loan products, like 3/2/1 Buydowns, will not be available then. So even now…you don’t have to pay a high-interest rate, AND you can refinance once rates drop. Many lenders are offering free one-time refinances. Talk with your RE/MAX Alliance Agent about your local market and the strategies to reduce your purchasing costs.
Of course, the 6-12 month timeline could shift. It could take longer (or go faster). But if you start your home search now with your RE/MAX Alliance agent and an excellent lender, you’ve got a team who can help you make the right moves when there’s an opening. And we know it is coming!
Sources: bloomberg.com, federalreserve.gov, freddiemac.com, cnn.com, Nicole Reuth Mortgage