Welcome to my June newsletter featuring personal insights and advice on mortgage rates, plus economic news that affects our local housing market.
Interest Rates
The Fed isn’t hiding its plans to raise the benchmark rate to drive down inflation, and it is reasonable to expect at least two more 50 basis point increases before the end of the summer. Future rate hikes will depend on the next two job and inflation reports.
Mortgage markets are already pricing in the increases, but there are mixed opinions on how high rates will go in 2022. At the UCLA Anderson Real Estate Forecast conference this week, economists disagreed on the trajectory. One called for a high of 6.5%, and another said rates will peak at 5.5%. I think we are at a peak and rates won’t change much the rest of the year.
Even if rates hit 6.5%, two factors in play will continue to drive home sales and prices.
1. Inventory levels – LA needs to double its inventory levels to get back to 2019 supply which was already at an all-time low.
2. Money – Individuals at or coming into prime home-buying age walked into 2022 with a lot more savings, and there are enough buyers out there who have the means to purchase even at LA’s historically high prices. Personal wealth coupled with lender capitalization will continue to drive home sales. Plus, individual and institutional investors are in the market with arsenals of cash to buy single and multi-family properties because the cap rate on residential rentals is so strong.
Local Trends
Here are the latest trends in our loan activity.
· Rising rates make it harder for first-time buyers to qualify for loans, causing some to head to the sidelines to see if rates and prices stabilize later this year. (If you are a real estate professional with buyers who have decided to wait, they may find this newsletter helpful).
· We see an uptick in foreign borrowers, especially from Canada.
· More and more lenders are willing to work with borrowers who want to collateralize a loan with cryptocurrency. The exception is the big New York money-center banks, but I think they will develop a solution to get into the game within the next six months.
·Don’t believe the mortgage interest rates you read in the news headlines. There are still rates under 4% depending on the loan, and banks are lending aggressively. I have been able to help clients secure excellent loan terms with lenders that will close quickly.
Here are a few examples.
New Home Purchase | Westlake Village | $5.8M
75% Financing
Full Income Documentation
4% Interest Rate | 4.11% APR
7 /1 YR Interest-Only ARM
Closed in 25 Days
New Home Purchase | Laguna Beach | $4M
75% Financing
Full Income Documentation
30YR Fixed Rate
Closed in 27 Days
New Home Purchase | Encino | $2.2M
80% financing
No Tax Returns
10/1 Interest-Only ARM
Closed in 17 Days
Economic Reports Impacting Our Housing Market
Jobs Report
Yesterday, The U.S. Bureau of Labor Statistics Employment Summary reported an addition of 390,000 jobs in May, which beat expectations, maintaining the national unemployment rate remains at 3.6%. California’s unemployment rate stands at 4.6%. The good news is that wage growth, an acute component of inflation was lower than expected which helps the bond market.
Inflation
Inflation remains stubbornly high because of oil prices and renewed supply constraints in Asia. Economic indicators point to a peak in prices, and the question remains if the Fed tightening on rates to curb inflation will push the US into a recession or a soft landing. Most experts don’t expect a recession this year because, historically, recessions have trailed a rate hike by three quarters.* The May Core Consumer Price Index (CPI) report, the most-watched measure of consumer price inflation, will be released on Monday.
*Data courtesy of John Burns Consulting
Key Economic Reports to watch for this month:
June 10 – Core Consumer Price Index (CPI)
June 15 – Fed Interest Rate Decision, FOMC Economic Predictions
June 16 – U.S. Building Permits, Housing Starts, New Home Sales, Philadelphia Fed Manufacturing Index
Real estate has appreciated dramatically in Los Angeles over the last two years, and economists do not see much of a price downturn on the horizon. No one can refute the long-term benefit of owning real estate in a market like Los Angeles. I have been originating loans in the Los Angeles area for over 30 years and can help guide you to a loan product that aligns with your financial goals. Contact me today to discuss the options.