Derry's Condo Headshot

Derry's Condo Headshot

Thursday, June 23, 2022

The Fed-Current Inflation and Interest Rates

 Let's get to the bad news first. Well, sort of bad news depending on how you look at it. The Fed increased interest rates by .75 basis points. The Fed is walking a thin line right now. They still are working towards their perpetual inflation target of 2%. However, according to Bloomberg we're currently at just over 10%, which has actually been a slight dip. This is great news, but like I said, the Fed is walking a very thin line. 

The Fed is going to be responsible for creating a soft landing in order to not completely throw the country into a recession. Although I'm hyper cautious, I would never consider myself to be a pessimist, but I'm hyper cautious in watching the market's reaction to these changes. Let's face it, as the great Warren Buffet has said, "never bet against America". I think this means that our rough period this time around will be a period without our 20% year over year growth. I think this stagnation will come from our interest rates being set to over 6% for a 30 year fixed rate mortgage. 

We've already seen some of the side effects. More inventory. Price reductions. No more multiple offers. Like I said though, I'm cautious, but not pessimistic. The Fed has a lot of variables to calculate. Just what I see on the front lines looks like we're approaching a more "even" or level market. Even meaning that there is 6 months worth of inventory. We still have significant demand. Sellers just won't have the same opportunity to be so greedy with inventory aka competition as well as interest rate hikes that have shrunk the buyer pool. But I don't see the cliff like we did in 08.

Now the good news. We still have a massive pool of first time home buyers that have been sitting on the sidelines. I like to call them nesting couples. They've been together for a little while. They live together. They have a pet. The next steps to settling down are to get married and buy a house. We have a whole slew of nesting couples as tenants who are just waiting for the right time to start looking for a place to buy.  They make great money. They're not blowing they're great money on frivolous expenses because they're anticipating these significant purchases like purchasing a home. 

We also still have exceptionally strict lending standards that prevent the wild ride that we went on pre-recession. The old saying that "if you could fog a mirror you could get a loan" game is definitely over. I already have clients who have a reduced borrowing power as a result of the increase in interest rates. Doesn't change that they still want to do something, it just means that they need to be choosier. 

Last, but not least, there is a lot of equity in homes and it's not just from this massive ride we've been on. People have invested in their homes. They aren't pulling mountains of cash out of their homes. They still have great jobs. People are sitting pretty. 

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