Welcome to my February newsletter featuring industry insights, plus economic news affecting our local housing market.
Interest Rates
Benchmark Rates
There were no surprises from the Fed this week. As expected, they raised interest rates another quarter point, the smallest increase since last March. Following the move, Chairman Powell’s remarks on inflation were cautiously optimistic. He noted that inflation increases continue to fall month over month, but the Fed wants more data to ensure the economy is on a sustained path.
Mortgage Rates
Since October, mortgage rates have been steadily trending downward in anticipation of a slowing economy. I expect to see sideways movement in rates for the rest of the month as bond markets react to mixed economic data. A case in point is yesterday – a strong jobs report and manufacturing index rattled the bond market with fears that the economy may not be receding quickly enough for the short term, so there is a chance of a slight uptick in mortgage rates.
In the coming weeks, we have comments coming from the Fed, along with inflation and housing data which will create market volatility. It’s not a big deal as it’s a process, and rates will go down longer term.
Economic Reports Impacting Our Housing Market
Jobs Report
Yesterday, the U.S. Bureau of Labor Statistics Employment Summaryreported an unexpected addition of 517,000 jobs, pushing the nation’s unemployment rate down to 3.4%, the lowest level since 1969. The report also points to slower wage growth which is good for real estate and the economy because it helps cool inflationary expectations.
Another key employment indicator, Job Openings and Labor Turnover Survey (JOLTS) reported a surprising jump in job openings. There are 11.01 million job openings in the U.S., translating to 1.9 positions available for every person seeking employment.
California’s unemployment rate now stands at 4.1%, marking the 15th consecutive month of non-farm job gains. California’s job growth (3.6%) continues to outpace the U.S.
Local Activity
The market is slower, but transactions are happening at a reasonable clip, and new deals under contract have been up marketably in the past few weeks. I believe closings will show a significant improvement this month. Furthermore, I find our local market to be a tale of two cities. There is a lot of strength in the market under $5M (under $3M is particularly robust). Deals over $5M are down because of buyer concerns about the U.S. economy, and many sellers have not adjusted to current market pricing.
Last month I talked about a goldilocks economy, and my prediction is proving true for Southern California. Inflation is lower, our job market is strong, and home prices are down. Even CNBC, which has relentlessly bashed the housing market for months, is turning more optimistic about real estate. It is a perfect storm for savvy buyers who know this won’t last forever.
Recent Transactions
One of the capabilities I pride myself on is the ability to find creative loan solutions for almost any type of homebuyer. Here are some recent examples:
New Home Purchase | Santa Monica | $3.1M
80% LTV financing
Bank statement loan (12 months of documentation)
No tax returns
10/1 ARM interest-only
Closed in 17 days, from start to finish
New Home Purchase | Santa Monica | $4.3M
75% LTV financing
Full income documentation
10 YR fixed rate loan
Rates in the high 5’s
Low credit score of 629
Second Home Purchase | Santa Barbara | $4.3M
80% LTV financing
10/1 interest-only loan
Full income documentation
Down payment from bridge loan on current home
Rate in the 5’s
New Home Purchase | West LA | $5.1M
75% LTV financing
30 YR Fixed interest-only for first ten years
4.875% interest rate | 4.95% APR
Key Economic Reports to watch for this month:
February 7 – Fed Chair Powell Speaks
February 9 – Initial Jobless Claims
February 14 – Core Consumer Price Index (CPI)
February 16 – Building Permits, Housing Starts
February 21 – Existing Home Sales
The housing market and economy show tangible signs of improvement, and interest rates continue to drift downwards. I hope homeowners feel more confident to sell, knowing there are now more options, and buyers take advantage of this moment to secure a property that likely will not be available later in the year at the prices they see now.
Always feel free to contact me if you want to make a move. I likely have the financing to get the job done
Sincerely,
Mark Cohen