The Big Bear Report- April 2018
FEDS RAISE INTEREST RATES: WHAT THIS NEWS MEANS FOR MORTGAGES:
Last week the Federal Reserve voted to raise its short-term interest rates, likely resulting in more mortgage rate increases to come. The Fed rates are not directly tied to mortgage rates but tend to follow 10 year Treasury bonds. However, mortgage rates are often influenced by the Fed rates.
The Feds increased its federal fund rate from 1.5 percent to 1.75 percent, which is the highest level since 2000. The Feds marks the first of what many economists predict will be three rate hikes this year. Some economists are predicting federal funds rate to be at 2.1 percent by the end of the year.
Mortgage rates do not move one-on-one with the Fed tightening, but clearly consumers should anticipate higher mortgage rates as time proceeds. Mortgage rate hikes have already become a near weekly occurrence in 2018. Mortgage rates have risen every week since the start of the year, with last week being the exception.
Couple this with many enacted limitations on deductions for state and local income and property taxes, as well as for mortgage interest deductions is causing some buyers and sellers to rethink their next move (especially in high tax states like California, New York, Illinois, Massachusetts and New Jersey).
The new tax law fundamentally alters the benefits of homeownership by nullifying incentives for individuals and families. Without engaging in “crystal ball talk,” this should concern any middle class family looking to claim a piece of the American dream.
On the Big Bear front, 239 homes sold the first quarter of 2018, predominately in the $200,000—$400,000 price range. We have definitely seen less activity in the market this year compared to the last quarter of 2017. As interest rates continue to climb, the Big Bear market tends to slow down. However, as long as inventory remains low (331 homes currently on the market), prices should stabilize, making 2018 the perfect storm to sell at peak prices.
Until next month, see you at the top!
(Photo courtesy of Summer Sheffield)