There’s been a flurry of news recently, so let’s take a look at what’s been going on – both with interest rates and home valuation.
Is the Fed Done With Rate Hikes?
After eleven rate hikes since March of last year, the Fed left their benchmark Federal Funds Rate unchanged at a range of 5.25% to 5.5% at their meeting last Wednesday, just like they did in September.
The Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates.
When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation.
What’s the bottom line?
The Fed’s decision to pause rate hikes for the second straight meeting was unanimous. However, Fed Chair Jerome Powell did leave the door open for another rate hike at their next meeting on December 13.
The strength of the labor sector remains a key factor in their decision, with the Fed looking for clear signs that the labor market is softening as they consider further rate hikes.
While the latest job reports for October were weaker than forecasted, it remains to be seen if that’s enough for the Fed to pause additional hikes.
The Fed will see November’s job data from ADP and the BLS (releasing December 6 and December 8, respectively), along with upcoming inflation reports, which will certainly play a role in their decision.
Home Prices Hitting New Highs
The Case-Shiller Home Price Index, which is considered the “gold standard” for appreciation, showed home prices nationwide rose 0.9% from July to August after seasonal adjustment, marking the seventh consecutive month of gains.
The Federal Housing Finance Agency’s (FHFA) House Price Index also saw home prices rise 0.6% in August, with their index reporting gains every month so far this year.
Note that FHFA’s report measures home price appreciation on single-family homes with conforming loan amounts, which means it most likely represents lower-priced homes. FHFA also does not include cash buyers or jumbo loans, and these factors account for some of the differences in the two reports.
What’s the bottom line?
Home values have hit new all-time highs according to Case-Shiller, FHFA, CoreLogic, Black Knight and Zillow, more than recovering from the downturn we saw in the second half of 2022. This year, prices are on pace to appreciate between 6-8% depending on the index, based on the reported pace of appreciation through August.
These indexes show that now remains a great opportunity for building wealth through homeownership and appreciation gains.
Refinance Opportunities
Refinances still make up almost one third of all mortgage transactions, even though rates have risen. You may be wondering how this can be?
Many consumers have amassed a large amount of debt, paying much higher rates of interest, thanks to the Fed hiking rates so aggressively. And many of those individuals are only making the minimum payments, with no path to paying off their debt.
At the same time, most homeowners have record levels of equity in their homes.
Many homeowners are benefiting from a type of refinance where we pull that equity out of the home to pay off those debts, saving money on the overall monthly payments.
Additionally, there are ways to gain equity at an accelerated pace and significantly shorten the length of your mortgage, by applying those savings as an additional payment each month.
Call me today to review your current debt situation and see if I can help!
