Mortgage Market News

Many buyers are hoping that 2023 will see price reductions and lower interest rates. Those expecting a drop in prices similar to 2008 will be disappointed. A lack of inventory in California has held prices relatively steady.

This is happening even while the real estate market faces the headwinds of higher borrowing costs and fewer buyers. Just as lower demand can drive prices down, lower supply can drive prices higher. Unlike 2008, when available listings surged and crashed the market, today, listing inventory is growing much more slowly. In fact, inventory levels are returning to pre-pandemic levels.

According to Redfin, the median prices of homes sold in the US was at $388,100 in December 2022. That is still up 1.2% from December of 2021.

Mortgage applications jumped 28% last week as buyers are taking advantage of the lower interest rates. According to Mortgage News Daily, we are currently at 6.04% for a 30-year fixed mortgage. This is down from the prior week rate of 6.33%.

At the end of October, interest rates reached a high of 7.37%, so this is a significant drop. Most forecasters expect interest rates to settle somewhere between 5.5% and 6.2% in 2023.

The days of the 3 or 4% interest rates are probably in the rear-view mirror. Buyers may not realize that the U.S. Federal Reserve (FED) had reduced its rate to almost 0% during the pandemic to stimulate the economy. This is why inflation and home prices rose so quickly. Borrowing costs were lower.

Over the last year, the FED has used rate hikes to slow inflation, which slowed the real estate market. The FED is all but certain to raise rates 0.25 percentage-points when it announces interest rates on Wednesday, February 1^st. Many expect another quarter percentage rate hike in mid-March prior to perhaps, pulling back completely. This light at the end of the tunnel may be why interest rates have been falling since the end of December 2022.

“As inflation continues to moderate, mortgage rates declined again this week,” said Sam Khater, Freddie Mac’s Chief Economist. “Rates are at their lowest level since September of last year, boosting both homebuyer demand and homebuilder sentiment. Declining rates are providing a much-needed boost to the housing market, but the supply of homes remains a persistent concern.”

To keep today’s interest rates in perspective, over the last 50 years, the 30-year mortgage rates have averaged 7.75 percent. Mortgage rates in the 6 to 7 percent range were common as recently as 2008.  The rise in loan applications may be a sign that people are realizing that interest rates are returning to normal levels.

Home buyers enjoyed historically low rates for more than a decade. The FED reduced rates after the 2008 financial crisis in order to stimulate the economy, and continued through the COVID-19 pandemic. 

Escalating inflation led the FED to put the brakes on this ease of access to money. They want inflation to come down to 2%, which is lower than the 6.5% number for December. However, December’s inflation number was significantly lower than the 9.1% high of June 2022.

Epic snowfall for the 2022/2023 ski season should create more interest in the Lake Tahoe real estate market. We are currently at a 2-3 month supply of inventory, which is very low.

Contact me today for more information about the Lake Tahoe and Truckee real estate market.