Interest Rate Update

As your trusted real estate advisors, we know education is power, especially in an unpredictable season like the beginning of 2023. Our real estate market quickly gained momentum in January along the Front Range. Buyers had accepted the 6% interest rate and were ready to make a move. But halfway through February, the Federal Reserve surprised us by raising rates more than we expected. As we explained in our previous blog, they will drop and stabilize interest rates once the economy slows down. 

Who is the Federal Reserve? Read our previous blog.

So what caused the rate jump, and when will the Fed “take their foot off the brake?”

#1 Unemployment Remains Low 

One of the most significant signals our economy is slowing down is job loss claims. The Fed said 4.4% is their marker. Despite many large corporations’ layoffs, claims have been hovering around 3.2-3.4% for months. However, both resignations and job openings are reducing. “That suggests that the period of unprecedented job security for American workers is coming to a close,” said Julia Pollak, chief economist at ZipRecruiter.

#2 Consumer Spending Increased

The GDP also needs to be lower as people would be spending less. However, consumer confidence is up. Retail sales increased by 3%. Freddie Mac reports people have increased their credit card usage and withdrawn more from their savings accounts, but it has been increasing. PPI (Producer Price Index) also has yet to drop.

#3 The Rate of Inflation Hovers Around 6.4%

We celebrated when rates landed 6.45% in December, the lowest in 14 months. However, the Fed wants them to drop to 2.2%. While the rate hasn’t increased, the economy continues to be unaffordable. Here’s how overpriced items are compared to this time last year:

• Food 10.1%

• Shelter 7.9%

• Utility/Gas Services 6.6%

• New Vehicles 5.8% 

• Electricity 2.3%

• Airline Fares -1.4%

Housing Remains Too Expensive

Coming in at almost 8% higher than last year (home values, rental prices, and such), the Fed has to increase mortgage rates to rebalance. Otherwise, our market will trend more toward the extreme conditions we saw in 2020-2022. The Fed expects to make several small increases until summer and then reassess.  

Will the economy slow down? Absolutely. The perfect predictor of a recession is Freddie Mac’s 10-Year Constant Maturity Chart (the average yield of securities from the Treasury in relation to their maturity). The last time the average was this low was during the 2008 recession. But don’t worry – it doesn’t indicate how strong/weak a recession will be. 

Our market will remain strong as spring brings more opportunities.

Buyers, if you can afford the monthly mortgage payment, make a move now. When rates drop, the buyer demand will return, increasing home prices. At least right now, you have more negotiating power than in the last three years (and five years in our hottest Front Range markets). Talk with your RE/MAX Alliance Agent about your local market and the negotiating strategies to reduce your purchasing costs.

Sellers, if you use our traditional tactics (home improvements, staging, excellent marketing), you can receive an excellent offer. Spring is the optimal time to list your home. Contact your RE/MAX Alliance agent as soon as possible to start preparations. 

Sources: reuters.com, bea.gov, federalreserve.gov, freddiemac.com, tradingeconomics.com, ismworld.com, sifma.org, freddiemac.com, conference-board.org, zillow.com