It's the first time in 10 consecutive meetings the rate went unchanged
By now, you’ve likely heard that the Federal Reserve on Wednesday opted to leave the interest rate unchanged after having raised it for 10 consecutive meetings. Despite the reprieve, some brokers were decidedly underwhelmed by the move – more concerned with the ‘now’ than on the ultimate effect of the central bank’s inflation-fighting alchemy.
After all, the move is posited as a skip rather than a pause by most analysts, pointing to the Fed’s suggestions of at least two more rate increases this year as it continues to control inflation. The next rate increase could come as soon as the Fed’s next meeting July 25-26, central bank officials telegraphed.
Daniel Solis (pictured left), mortgage loan officer at VA Wholesale Mortgage is over it. He prefers to take a longitudinal perspective rather than one based on fear as is the apparent reflexive move of late. Don’t fix your gaze on the rate – paused or not – he suggested.
Don’t focus too much on the rate, brokers say
“I believe one thing we have learned is even the top analysts have gotten advice wrong,” Solis told Mortgage Professional America. “From my perspective – and I know it sounds cliché – the best time to buy is now. If your payment makes sense and you love the house, who cares what the rate is. I know the media works in the fear space, but the Fed is going to do what it wants and at this point we have to look at the historical evidence.”
And what does the past teach us? “Based on history, rates follow the same cyclical pattern, so they will come down and right now I think it will be in 2024,” he said. “Other than that, I’m working on educating the buyer/agent.”
Paige Hernandez (pictured right), of Heritage MTG, thinks Wednesday’s pause by the Federal Reserve should’ve happened earlier: “Personally I think they could have stopped rate hikes a bit ago,” she told MPA. “One thing I am reminded of is the Fed’s only tool to curb inflation is the prime rate. In my opinion, since some inflation data is trailing by the time they decide to do something, they tend to be behind the 8-ball when it comes to making a move.”
Waiting for impact
What’s the impact, really, from the Fed’s latest move? “Either way, will it trickle down to actual mortgage rates?” she asked. “Who knows? It used to be that we could look at certain markers and make a pretty good educated guess as to the effect of interest rates. Nowadays, the market is very unpredictable and can swing for no apparent reason.”
Like many brokers challenged in an unforgiving mortgage market, she’d prefer more immediate results. “My hope is that rates will settle back down to the high 5s to mid 6s which I feel would be a more healthy interest rate for the real estate economy and then hopefully we can focus on lack of housing,” she said. “It’s tough for buyers out there with house prices continuing to rise in a lot of markets, a stabilization of rates to something more affordable would be a breath of fresh air.”
She echoed Solis’s sentiment as it relates to buying a home in today’s market – warts and all: “My piece of advice for potential buyers would be, buying a home, especially your first, is always going to feel uncomfortable,” she said. “It will feel like a stretch for most. Instead of focusing on the negatives - high prices, high rates, lack of housing, affordability – focus on the benefits: tax advantages, equity and amortization gain. I truly believe real estate is one of the best vehicles to create generational wealth. It’s important to get in the game even if your first home isn’t a perfect match. What that investment builds over the next couple years is unmatched.”
Even the staid National Association of Realtors seemed unfazed by the Fed’s latest action, adopting instead an explanatory stance related to the central bank’s machinations.
“A monetary policy lag time exists between decision and inflation,” NAR’s chief economist, Lawrence Yim, said in a prepared statement. “The rate hikes from earlier months have yet to exert their force at a time when inflation has already decelerated to 4%. There is no need to consider raising interest rates.”
Quite the contrary, he added: “In fact, considering the balance sheet difficulties faced by community banks and weakness in the commercial real estate sector, the Fed should look at cutting interest rates before the end of the year. The Fed should look forward, not backward.”
That’s a glimpse into how the sausage is made, but the end product is seemingly less than tasty.
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