The Fed increased their target rate, the Fed Funds, by .25% at the conclusion of the March Open Market Committee meeting, as anticipated. Mortgage rates in March were up overall by .5% when compared to the same time a year ago. The Fed members are still talking about raising the Fed Funds rate by an additional .5% – .75% in two to three increases in 2017. The bond market’s initial reaction to the rate hike was positive because the Fed rate increases help to hold off inflation. We saw mortgage rates fall slightly in the days following the latest Fed rate hike. The job creation numbers continue to beat expectations and the unemployment rate has fallen below 5%, both good indicators of a healthy economy which will continue to pressure the Fed to keep increasing the Fed Funds rate of interest. As the Fed goes so do most other consumer interest rates which means we should expect mortgage rates to continue to rise in 2017.
30 year fixed mortgage rates are still in the 4s which is historically low. We may never get back to the lowest rates from last year and 2012, when 30 year fixed rates were in the 3s. Because of the rising rates, we are seeing a flood of potential buyers jump into the market while inventory levels remain low. People want to buy while we still have relatively low rates but the lack of inventory is making it difficult for the average home buyer to get into contract without grossly over bidding to beat out the competition. I have seen buyers struggle in the market, for over a year in some cases, without getting into contract due to the competitive nature of the market. I have some strong realtor partners in the Bay Area that have been successful in getting buyers into contract by being more proactive in finding properties and being very aggressive when writing offers. Some realtors have a knack for finding homes before they go on the market and negotiating to get their buyers into contract before the general public has a chance to offer on those properties.
Also, when writing offers, realtors who work with me are able to write shorter close of escrow periods and shorter contingency periods because I can close deals in 15 days as oppose to the standard 30 day close. I can do this because I have over 100 lenders at my disposal. Most of them cannot close in less than 30 days but there are a few who can as long as my buyers have all of their ducks in a row. With my coaching, I can help a buyer structure the paperwork ahead of time so that we can move with lightning speed once the offer has been accepted and make sure that we can close in 15 days. The one benefit of a rising interest rate environment is that lenders are all caught up and ready for new business. When lenders are not dealing with a huge crush of refinance transactions, it allows them to handle new purchase business with short turn times and allows for 15 day closings in some cases.
If you want to learn more about how to put yourself in the most favorable position to purchase a property without buying it all cash, please feel free to setup a free consultation with me.
As always, your loan guy,
Viral (Vic) Joshi
P.S. If you want to get more timely market updates, I have a weekly newsletter that goes out via e-mail. E-mail me, viral@vicjoshi. com, so that I can put you on the mailing list.
Loan Consultant/Branch Manager
C2 Financial Corporation