Housing Market Begins to Rebound
Last week, the Federal Reserve approved a quarter-percentage increase in interest rate, which brings the federal funds rate from 4.5% to 4.75%, the smallest percentage increase compared to the last six consecutive increases in 2022 to slow down the economy.
In a February 1 press conference, Federal Reserve Chairman Jerome Powell said “we continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” Inflation soared to 9% last summer, the highest in 40 years. Food price went up 13.5 percent, the highest 12-month inflation increase since 1979.
At the end of the December board meeting, the officials estimated the increase interest rate would be between 5 and 5.25%. That estimate has not changed and will be updated in March or May meeting.
The increase in interest rates makes mortgage financing more expensive since the spring of last year. However, economists are saying “the worst has passed” and the housing market has started to rebound in the last quarter.
According to the Office of Policy Development and Research report in January 2023, the national housing market showed mixed results. Some indicators such as the purchase of new homes increased in the last quarter of 2022 despite the higher interest rate. New single-family home sales rose 2.3 percent in December though annually were 16.5 percent down from 771,000 in 2021, their slowest housing market since 2018. The National Association of Realtor also reported that existing home sales were down 1.5 percent in December and annually were down 17.8 percent or 5.03 million units from 6.12 million in 2021. Meanwhile, new construction of single-family homes fell 10.6 percent and construction of multifamily homes rose 14.5 percent in 2022.
“We are seeing more customers willing to consider an adjustable-rate mortgage,” said Jerry Frechette, Senior Vice President of Lending at Washington Savings Bank. He said there does appear to be some activity in the purchase market from people that have been waiting for rates to go down and/or home values to go down and have now decided to buy because it maybe some time before either of those two things happen.
Home price were down 1 percent, from an annual gain of 9.8 percent in November. The mortgage rate has come down in the last quarter while “house prices have remained the same or declined in the past several months—all of which should help to improve demand. Inventories of existing homes are still lean,” according to the U.S Department of Housing and Urban Development.
The interest rate was at a record low of 3.2% prior to the Federal Reserve raising the rate last spring. Frechette shared with Khmer Post USA that “so many people had the opportunity to refinance at lower rates over the past few years. They now do not want to refinance their existing mortgage…but are now looking at home equity lines of credit or a fixed rate second mortgage to tap into the equity of their home without disturbing the low rate they have on the first mortgage.” Federal interest rate for 30-year loan is 6.4% at the end of December 2022.
