Well a few years ago I changed my monthly real estate newsletter that went out in email form to a weekly Real Estate Blog. Look at that! Issue 200 on this blog has already arrived. Yikes! I do thank all of you for reading this blog.
I do hope you have all found useful information regarding the state of our industry both locally and nationally. I do strive to bridge the gap between facts and conjecture. There is always going to be a great deal of speculation in an industry as influential and popular as real estate.
Speaking of speculation, interest rates are on the minds of many these days. There is a lot of chatter coming out of the financial world about where mortgage rates are heading on the news of a hike in the fed rate over the next few cycles. The Fed Rate doesn't have nearly as much direct influence on mortgages as many people think. It does have a significant indirect effect in that it signals to the markets at large the government's relative attitude regarding the state of the economy.
The Fed Rate (Federal Funds Rate) is a short term interest rate. In fact it is the rate at which banks charge each other for overnight loans. The reason banks make these overnight loans is due to Federal government regulations requiring them to have a certain amount of cash on hand at the end of every business day. Since banks are constantly moving money around, making loans and receiving deposits, they often find themselves short of the government regulated minimums and other banks are in excess of those minimums as billions of dollars move from bank to bank.
The reality is, it doesn't directly effect any long term lending. It does effect short term lending. The reason so many people in the industry point to it as if it were a direct influence is due to the reason the Fed Rate rises. The Fed's action is often due to a rise in inflation and is often raised in an attempt to slow the release of ready cash into the economy.
Generally when the stock market is hot, investors are less interested in collateralized long term debt as an investment. Making 3%-5% annually on mortgage debt is great in a bear market or in a less robust stock market. But when the wall street bull is running the big money starts to gravitate towards stocks and that means lenders need to "entice" the investors with more generous rates of return.
As far as long term mortgage rates are concerned, I have been warning that the 3% party was going to end. In all honesty, it lasted WAY longer than I ever expected. Frankly, it is a testament to the fact the the recovery from the 2008-09 crash was much slower than our slick politicians in Washington DC were willing to admit.
The bottom line on mortgage rates is this. Over the last 70 years rates on 30 year real estate notes has averaged around 6.5%. We had historic highs in the 1980s when mortgages were deep into the teens and historic lows just recently when 30 year money was available in the low threes.
Buyers need to recognize that over the long haul paying a higher mortgage rate will hurt them more than paying a higher price for a home. This market offers no favors to those sitting on the fence. Sellers likewise need to recognize that the robust seller's market will slow a bit as interest rates rise. This means they need to drop the attitude that leads them to believe they don't need to accommodate buyers, and follow best practices for selling a home.
Our real estate market locally in Clark County has a much different dynamic than the market in bordering, Portland, OR. Portland is built -out. They only have infill and re-development options. There is no "new dirt" in Portland. They will likely continue to see pressure on the resale market. Here in Clark County, we do have available, buildable land. The builders are here and the nails are being hammered in. This puts real limits on the resale growth potential as new homes will always carry more value than resales, all else being equal. Right now the median home price county-wide is just above $300k. New homes are widely available in the $325-400k range and that means it will be hard to push a similar 20 year old resale much above the current median mark.
Additionally wages have not kept up with home prices locally and that will begin to slow the rate of new buyers coming into the market. Sellers need to decide whether to sell now or hold tight, but the future is uncertain where the now is known. Right now, we have a modest number of buyers seeking homes from a severely restricted inventory. This is good for sellers now, but when other homeowners decide to sell before rates get too high, inventory will swell and the sellers market will become more neutral. Now is a great time to sell that house and get your new home while rates are still low.
Thanks for helping me reach 200 posts and here's to the march to a thousand!