CPI and PPI came to save the day late last week. The numbers show inflation is continuing its downtrend. The 10yr yield that we discussed last week very quickly retreated from it's recent highs over 4%, and the 30yr mortgage rate followed along with it. Mortgage rates dropped from 7.35% last Monday to 6.87% by close of markets last Thursday. The question becomes why would The Fed un-pause their rate hikes and do another quarter point increase at this point? Yes, employment remains strong, but job openings are declining and so are wages. Inflation is very clearly coming down with even more room to come down as Used Cars had a record drop in prices recently, and housing inflation (rents) have a long lag effect but hasn't shown up yet despite real time rents coming down from this time last year. Do they actually want more things to break? Besides the three regional banks that have already failed? We'll find out on July 26th. I hope I'm not losing too many of you with this stuff, but these are the economic factors that are greatly affecting the local and national housing markets. Clearly, there is a portion of the population with cash reserves and/or large salary jobs that can afford larger payments and are buying right now in this market. However, mortgage rates are the number one reason a vast majority of eager, potential home buyers are not buying right now. The mortgage payment for the buyer buying a $700,000 home in 2021 that everyone called nuts is $3,100 give or take a few hundred dollars depending on their down payment (30 yr mortgage rate at 3.5%). The mortgage payment for a buyer now, buying a $450,000 home is $2,994 (rate at 7%). Despite all time high housing prices locally in 2021, the mortgage rate was the key. I'll leave this week with one last thing to remember, despite the 7% current rates looking ugly, it's important to remember that we are actually still below the historical average. If the payment makes sense for you, buying the house makes sense depending on your motivation and goals. My son's all star team Laguna 8u Purple is currently in Rohnert Park playing in the Cal Ripken Pacific Southwest Regionals. Wish us luck! What are you seeing or hearing? I'd love to know paul@guiderealestate.com |
