Post Mid-Term Update
November 30, 2018/by arjun
Some nervous jitters were becoming prevalent in the housing market here in the Bay Area leading up to the election in attempts to sort out the possibilities. The 3 scenarios at the Federal level all had different potential outcomes in terms of market reaction – specifically mortgage rates.
The end result of a split Congress appears to had already been priced into the market and mortgage rates. After trending up for weeks leading up the election, they have been flattening as of late. Certainly lots to attribute to the volatility, but to keeps things simple – chalk it up to lower oil prices, subdued wage growth, and a roller coaster in the stock market precipitated on tech and trade anxiety. With inflation remaining tame at the moment, it appears that a Fed Funds rate increase next month is no longer the sure shot bet that it once was a few weeks ago. Chairman Powell’s comments this week were not direct in either direction, but left many feeling that the rate increase next month is no longer a guaranteed lock. The administration has been very vocal in public comments and interviews that the Fed should not raise rates and has criticized the board by saying they are threatening to derail the economy by raising them. Although most of the Bay Area and San Francisco is immune to such hiccups and typically ignores this rhetoric, the reasoning behind all of this is actually simple.
Recessions have historically been caused by one of two events. An economic shock, like we had during the dot.com 90’s and also the housing market crash in the mid 2000s. The other event that causes them has been by the Fed raising rates to a point where the economy tips backwards, essentially “cradling the baby so much and so forcefully that they ultimately cause harm.” With little consensus on what the potential “shock” could be and where it would come form (industry, sector, etc.), there is more chatter that the Fed could ultimately “raise “ us to a point of real slow down. Of course the administration is weary of this because of re-election motivation, so that makes sense when you hear them blasting the Fed for even contemplating more raises.
What does that mean here in San Francsico? At the moment, inventory remains tight and prices are still high. Although leveling in some areas and neighborhoods, there is still loads of capital flying out of banks and accounts towards real estate. Despite rates having trended up to a point where they are nearly 1 full point higher than they were exactly a year ago, homebuyers are taking advantage of market anxiety about the future and getting more offers accepted while not having to overpay. Bottom line, it remains a great time to get into the market, despite your credit or down payment situation here in the Bay Area. Waiting certainly is not a bad thing, but if you are motivated and ready to make the jump, your timing is still great. Email me to discuss options and strategy anytime!