Podcast 2/2/24

🏦 Fed Chief Addresses Inflation and Mortgage Rates 📉

The Federal Reserve's recent decision to maintain interest rates has been a hot topic. While there's no talk of rate cuts just yet, Fed Chair Jerome Powell emphasized that inflation remains "still too high." A March rate cut isn't likely but not entirely ruled out.

What does this mean for mortgage rates? 🤔

Mortgage rates have been on a rollercoaster, influenced by various factors. Here are two key players:

1️⃣ **Inflation and the Federal Reserve**: The Fed indirectly influences mortgage rates through the Federal Funds Rate. High inflation and expectations of rate hikes can push mortgage rates up, but experts predict easing rates in 2024 due to improved inflation.

2️⃣ **The 10-Year Treasury Yield**: Mortgage rates are also tied to the 10-Year Treasury Yield. When it goes up, mortgage rates usually follow. Currently, the spread between them is not consistent, leaving room for potential rate decreases.

What's next for mortgage rates? Stay informed and have a professional team by your side. 🏡💼

Don't forget to check out our fantastic "House of the Week" in Germantown, a spacious 6-bedroom home with a large lot and versatile garage space. 🏠🚗 #MortgageRates #FedPolicy #RealEstateTrends

Andy Webb:

Hey, I'm Andy Webb.

Jay Day:

I'm Jay Day.

Andy Webb:
of the Day Home Team at LPT Realty, and this week's WFRE Jay Day Real Estate Podcast is coming on the heels of the Fed announcement about interest rates. And I was curious, Jay, with the announcement that the Fed made, how if any way, is that going to affect mortgage rates?

Jay Day:

So the key is, and we'll get into some of the details for those that don't know what we're talking about, the Fed had their meeting this past week. They decided to hold the rates not do any increases or decreases. Last year they were hinting around doing some decreases. However, it's a really interesting dynamic because a lot of people don't understand inflation is still there. They're saying that inflation is getting better. However, if they lower their rates, what'll happen is more people will buy. And when more people buy, that causes the inflation numbers to increase. So they're staying steady. The thing that caught my attention was during that meeting, they also mentioned that they probably wouldn't be doing a rate cut in March either, and there's a possibility that they may need to do an increase.

Andy Webb:

Oh, nobody likes to hear that.

Jay Day:

Yeah. Now let's talk though about the question you asked. What really impacts mortgage rates? And I think I've talked about this on the podcast before, but again, every time this comes up and we start getting a bunch of people that ask us questions, I think it makes sense to sort of explain it. So the Federal Reserve technically doesn't directly determine anything with mortgage rates. So if they increase the rates, decrease the rates, that's not a one-to-one correlation as it pertains to mortgage rates. Now it does impact things such as your car payment, interest rates, your credit card rates, all of those types of things. But when it comes to housing, it doesn't have it that way. What happens is the Federal Reserve, they show what's going on and then how the markets react to everything is what sort of impacts things with what's going on on the mortgage rates. And basically it influences it. It doesn't have a direct correlation, a one-to-one. Now, one of the things that does happen is the 10 year treasury yield that does have an impact on things and frequently used government bond benchmark is used as well to sort of peg interest rates. And that's based on a 10 year treasury bond. I mean, the bottom line is when the Fed makes these changes, it's not a one-to-one ratio. And it's interesting, people will hear, okay, well the Fed is holding steady at 5.5 that is not the rate that you're getting that is again, associated with other things. But one of the interesting parts that I looked at was, and a lot of people don't know this, we're at the high point as far as the Federal Reserve, when I went back and looked from December of 2015, the highest we've ever been has been and since July. So in July they held 5.25, the increase from before then September, 2023, they stayed steady November 1st, December and now January. But historically, we're higher than we've ever been. And the reason for that, again, is to try to curb spending. Because if people have low interest rates on their credit cards, it's much easier to spend money. And that's why things, it's supply and demand, Andy, it's basic. If people have tons of money, they're going to continue to pour it into the economy and that causes things to become a little more scarce. So then the prices increase. And that's where we are. I mean we're in as much as, not to get into politics, but we are in a spot where you can't deny inflation. I mean, all of us, you go to the store, you go to the gas, and yes, things have gotten a little bit better. But if you go back to, even if you go a couple years back, gas was in the twos for premium. We're not there. When you go to the grocery store and you walk out with five bags and it's $300, then it used to be 125. You're like, what in the world did I buy? How much is milk? How much are eggs? We're all feeling that pinch. And I think it would be false for us to say that, oh no, everything's great. Prices are coming down and you see it. So I mean, what's the biggest part that you've seen personally with? Is it your utilities, your groceries?

Andy Webb:

Your Oh, rent has gone up. I will say that first and foremost, the rent has raised also the groceries is the other factor. Just because like you say, and there are other reasons that those things go up. There is the inflationary part as far as national debt and interest rates and all that. But also there's the corporate side of it. Different things have happened and we've heard about different corporate things. There's lots of factors is my point. And we're not in a point where we can really feel comfortable. Like you say, we're still uneasy.

Jay Day:

And we talk about fuel and you look at all the turmoil that's over in the Middle East, it's definitely not a calm time, is what I would say.

Andy Webb:

No and when people are shaky, they may not want to make any moves. Right.

Jay Day:

And I mean, we're looking too, we're in an election year and election years are always sort of wonky with what happens too, right?

Andy Webb:

You're waiting to see how it turns out.

Jay Day:

People on all sides. And I always say whether you're red or blue or in between election years are always very interesting times to see what happens. Typically, whoever's in the power makes changes to make things try to look a little better, to stay in power. That's just how it is.

Andy Webb:

And if the other side wins, then there could be a huge swing, a huge shift. So you're waiting to see how far that pendulum swings.

Jay Day:

Yeah, and like I said, it makes for interesting times. But so the bottom line is things have been holding, steady rates have gotten a little better as far as mortgages, we hit at over 8%. Now we're hovering for government loans, upper fives, low sixes. So that is in some cases, almost two percentage points lower than where we were, which is really good. And I think that the public is starting to realize where we were during covid with the two and a half, three, three and a half. That just was not realistic. A lot of people refer to that as the unicorn years because you don't see a unicorn.

Andy Webb:

Exactly. Exactly.

Jay Day:

And it makes sense. I mean, we were spoiled. We had a great opportunity, we had great rates, but being in the sixes is not a bad number. Eight is a little bit rough.

Andy Webb:

To say the least.

Jay Day:

And the challenge is still, and you mentioned it, where people sort of get paralyzed of, there's a little bit of uneasiness. So we still have a low inventory of homes to purchase and also rentals. So we're not seeing, it's really interesting. The rental prices are going up there, just like sales prices are, right.

Andy Webb:

Blows my mind.

Jay Day:

Yeah, it's not, and being close to DC in this metro area, it has gotten extremely expensive. It, we've got friends that live out or down south or in the middle of the country and it's, they think their stuff is really expensive and we're like, oh no. To be in Linganore, if you want a newer townhouse, you're going to pay $500,000 or more for a townhouse. It blows my mind. I look at it and I'm like, wow, it was only six, seven years ago and we got a detached home for that price. It's sort of crazy.

Andy Webb:

Sure.

Jay Day:

So, well, are you ready for the house of the wee?

Andy Webb:

I would love to hear about it.

Jay Day:

Alright. 17601 Roger Drive in Germantown, just hit the market. It's on there for 650. The neat thing is on this one, I'll give you some details of the house, but I wanted to point out, if you are looking, we are having open houses this weekend, Saturday the 3rd. On Saturday, the open house is 12 to 2 on Sunday, February 4th, the open house is 1 to 3. This home has 6 bedrooms, 3 and a half baths. It's 0.806 acres, so over three quarters of an acre. That's not easy to find In Montgomery County. It is a four level split level home, so not a split foyer. There's actually four levels. Three of those levels are fully finished. One, which is the lowest level is all for storage and utility. It has been freshly painted. There's some new carpet. Some of the rooms have new LVP flooring. It's close to local parks, nature trails, the community pool, the soccer plex, close to restaurants, shopping. There's tons of garage space. There's an attached two car garage and a detached six car garage. So for the car enthusiast, it's a great spot. Also could be a great spot for someone who maybe owns a landscaping business and needs a place to store some of their equipment. The home also has a second kitchen in the basement, so it could be a total In-Law Suite. Great opportunity. If you go to wfre.com, look up Tom and Jay's real Estate podcast. You'll see photos. If you like what you see, you can click on the button and schedule a showing right there from the website. And thanks for tuning in.

Andy Webb:

Absolutely. I'm Andy Webb.

Jay Day:

I'm Jay Day.

Andy Webb:

of the Day Home Team at LPT Realty with this week's WFRE Jay Day Real Estate Podcast.

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