Fed Funds Rate Unchanged

The Federal Reserve 's Open Market Committee met early May and decided to leave the fed funds rate unchanged, citing a strong economy and inflation that has failed to make any progress over the most recent couple of months.  On the other hand, the most recent jobs data came in well below expectations at 175k, suggesting that the labor market cooling trend may have already started.  With a weaker than expected jobs report and the Fed hinting that a rate hike is unlikely, mortgage rates ended at the lowest levels since late March and provided hopes that rates may start to creep down as we approach the second half of the year.  The central bank also suggested; however, that it will likely hold rates at their current level longer rather than raise rates again.

Despite being in an environment where rates stay higher for longer, there are signs that suggest that housing consumers are gradually adjusting to the new normal.  San Diego home prices have continued to increase and were up 11.2% year over year, according to the latest S&P Case-Schiller Home Price Index. 

Some experts have said the limited number of homes for sale will continue to push up prices, despite higher borrowing costs.  A panel of economists were recently asked if a 7.52 percent interest rate would be enough to slow down San Diego home price growth?  Caroline Freund (UC San Diego School of Global Policy and Strategy) said this: "Yes but the effect is small.  While interest rates are reducing demand, they are also restraining supply.  Folks who have locked in low interest rates are staying put, lowering inventory.  It is also less profitable to build new housing in the current high interest rate environment.  Moreover, the share of cash buyers in San Diego is sizable, which limits the depressing effect of elevated interest rates on demand." 

Just over 77% of existing mortgages in California are below 4.2%, according to new research from the Federal Housing Finance Agency.  The good news is there has been an uptick in inventory which is expected around this time of year but still well below average pre-covid.  Call me at 858-220-6412 so we can set a meeting to discuss your plans to buy or sell in arguably one of the hottest real estate markets in the country.