As expected, the Federal Reserve raised short term interest rates by three quarters of a percent on Wednesday- the same increase that Jerry Powell and Company raised rates last month. Unexpectedly, mortgage rates actually fell to 5.13%. This is almost a full percentage below where 30-year mortgage rates peaked last month. What gives? Well, I’m not an economist but I was interested in what was going on so I did a bit of research so that you wouldn’t have to. If you’re not interested in a couple of wonky paragraphs dedicated to economic policy, skip to the opportunity, below…
It turns out that the Gross Domestic Product fell .9% in the second quarter of the year- the second quarter in which the economy contracted- and a widely accepted signal of a recession. (Unless, of course you look at the sizzling hot unemployment numbers which tell a different story but, I digress.) After the GDP figures were released, investors rushed to the relative safety of the bond market, causing yields to fall. Because mortgage rates loosely follow the yield on the 10-year U.S. Treasury bond, they also fell. Yes, mortgages are still considerably higher than they were six months ago, however, they’re not rising as quickly as many had expected. (Are you still with me?)
By sticking with another 75-basis-point increase (as opposed to the full 100-basis-point increase that some had feared) the Fed has staked out a middle ground that’s designed to communicate that policymakers are still concerned about inflation, but don’t want to slam the brakes too hard on economic growth. Powell and his posse, the FOMC, also stated that the pace of rate hikes will eventually slow, depending on the data that the Fed watches. This is good news for the real estate market which saw pending home sales drop 30% in June from the same period in 2021.
This confluence of data is a real opportunity for buyers.The dramatic drop in mortgage rates coupled with a real estate market populated by fewer participants is positive news for those would-be-homebuyers who have chosen to stand on the sidelines until some of the dust settles. My forecast? August will be a slower month for sales followed by a decent rebound in early fall as those who have to purchase will dive back in.
I always like to conclude my newsletters and blog posts with gratitude, so…
Thank you. Somehow, despite a slowing market, my team and I have seen our sales increase 18% year to date. The referrals continue to come in and we remain both grateful and committed to giving back to the community. This past month we’ve donated to Rochester Regional Health, the Strong Neurology Department, Wilmot Cancer Center, and Rochester City Ballet. We wouldn’t have been able to contribute to these amazing organizations without your support!