With the Federal Reserve raising interest rates by 75 basis points today, is shows they are determined to bring inflation under control. Inflation continues to run well above their target of getting it down to 2% to 2.5%.
How that will affect our local market will be to slow both Buyers, Sellers and Builders activity down. We will see more price reductions and increases in inventory. Don't expect anything like a crash but more of a continued moderate correction down in prices.
Many Buyers especially those borrowing most of their funds will wait on the sidelines for rates to start coming back down. Many Sellers will also wait to sell because they have a very low interest rate on their current home and don't want to be burdened by higher interest rates. Builders have cut back on building as material and labor costs increase, market conditions slow and existing home prices fall.
So crash, no. Correction yes. Foreclosures, not many. With the recent local high appreciation in home prices most Homeowners have very good equity in their homes and will sell before being foreclosed on.
So what to expect? Who knows for certain. But I see more modest Federal Reserve increases in the interest rates going forward. Once inflation comes down into their target, the Fed will hold off on more rate increases and wait until they feel inflation is under control. How long will this take? Good question. I am thinking about 6 months from the above date the Federal Reserve will be done with their rate increases. Then after inflation stabilizes around 2 to 2.5% look for rates to start coming back down. I am thinking about 2 years from the above date.
In the meantime, Buyers have more homes to choose from, more negotiating power with the Sellers, few multiple offers and less urgency to get their offer in right away. And the more cash they are putting down and less money their borrowing, the less they are affected by the high rates. Buyers can always refinance when the rates come back down. Comments or thoughts welcomed.
Mike McNamara