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Fed Chair Powell’s speech here on YouTube.
From Fed Chair Powell: Inflation: Progress and the Path Ahead
“It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
For those of you looking at homes and thinking that rates are too high to pull the trigger right now, I humbly ask you to consider this scenario. You’re not purchasing now because 7-7.5% is giving you too high a payment, right? And you’re waiting for 6% mortgage rates because that will make your mortgage payment more palatable?
If you re read the above statement from Fed Chair Powell, its fairly obvious that he is not weakening resolve in the fight against inflation by loosening monetary policy anytime soon. The Fed’s only policy tool is to put a thumb on the scale of short term rates by targeting the Fed Funds rate (currently 5.5%), the rate at which banks loan to other banks (simplistic explanation). This rate affects the treasury curve of which the ten year note is a part. The ten year note is what mortgage rates are based upon. Whew!.
What Powell is saying above is he and the Fed governors are going to keep short rates high, thus keeping long rates (and mortgage rates) high as well. Im sorry to report, mortgage rates are probably not coming down anytime soon.
That, to me means if you are trying to move from renter to owner of property that you should consider lowering your price point if your mortgage at current rates is too onerous for you. To me, it makes more sense to buy a lesser home now, than wait for something that may not happen for a long time. You’ve decided it’s time to build equity. Celebrate that decision and make it happen!
The three scenarios you face if you lower your target price and buy now are:
- You buy now and rates stay the same for awhile and you’ve stopped paying rent. Win
- You buy now and rates go up, you’re then paying a lower rate than the market. Win
- You buy now and rates go down; you refinance your mortgage to the lower rate and drop your payment. Win
The fourth scenario we face is if we wait for rates to come down, and/or home prices to come down, and they don’t. (My humble opinion is both of these are a long way off). And we continue to pay rent.
That is a loss. IMHO.
