Interest Rate Update – The Rollercoaster Continues
With the global economy still recovering from the pandemic, 2023 remains an unpredictable year for real estate. We know interest rates are among the most critical factors buyers, sellers, and investors must consider when deciding. Our market along the Front Range gained steam this spring, spurred by buyers working with the 6-6.5% rates. Despite the 0.25% increase in the Federal Reserve’s Fed rate at the start of May, mortgage rates stayed around 6.5%. However, they rapidly pushed towards 7% these last few days.
Who is the Federal Reserve? Read our previous blog.
What caused the unwelcome boost?
As we explained in a previous blog, the Fed will drop and stabilize interest rates once the economy slows down. In March we received promising news from the Fed’s last forecast update. However certain financial conditions haven’t gone the way economists hoped:
Debt ceiling Debate: Investors are in intense conversations as the bond market runs out of room to maneuver under the current debt ceiling. If it’s resolved smoothly, there will be an increase in buying stocks and selling bonds, which pushes interest rates upward.
Retail Sales Report: The latest data about consumer spending came in. For months retail trends have held up far better than many analysts expected.
Our economy remains resilient in many ways, which puts us at risk for more inflation. So traders are echoing the Fed’s stance: the fight against inflation is far from over. Now that the 10yr Treasury yields tipped over 3.60%, our average 30yr mortgage rates slid to 6.9%, increasing chances the Federal Reserve will keep rates “higher for longer.” The data over the coming months will determine if/when the Fed is done hiking rates.
Remember the silver linings!
There are other economic conditions slowing down (Producer Price Index (PPI), rent increases, and more). While we want lower interest rates yesterday for our buyers, the Fed is making moves to help us avoid a major crash. Which is why replicating the 2008 housing market crash is so unlikely. Sure, current home sales numbers are a bit stale along the Front Range, but that is due to ultra-low inventory suppressing transactions.
Read: Our Market is Correcting – Not Imploding
Experiencing volatility within a 6-7% range is part of their process. And buyers, a 6.9% rate for an average 30yr loan is just that – an average! Don’t forget your lender adjusts your rate based on factors like your FICO score and Loan-to-Value (LTV) ratio.
You can still find success in 2023.
Buyers, if you can afford a monthly mortgage payment, make a move soon. With markets slowing down for the summer, you have more negotiating power now than over the last few years. Your RE/MAX Alliance Agent will empower you with local market data and strategies to reduce your purchasing costs.
Sellers, using traditional tactics (home improvements, staging, excellent marketing), can improve your return. Summer is the optimal time to prepare your home for the busier fall market. Talk with your RE/MAX Alliance agent as soon as possible to start preparations.
Sources: federalreserve.gov, freddiemac.com, mortgagenewsdaily.com, Nicole Rueth with the Rueth Team