As we all know, the real estate market is tight right now. One reason is that many homeowners have a low interest rate mortgage and so, will not move until rates come down. So, when will interest rates come down? To find out, I asked AI powered BING from Microsoft. The following is what it said:
"Interest rates are influenced by many factors, such as the supply and demand of money, inflation, economic growth, and the actions of the Federal Reserve Bank (Fed). The Fed sets the federal funds rate, which is the interest rate that banks charge each other for overnight loans. This rate affects other interest rates, such as mortgages, car loans, credit cards, and savings accounts1. The Fed has been raising interest rates since 2022 to combat inflation, which is the general increase in the prices of goods and services. Inflation reduces the purchasing power of money and erodes the value of savings. The Fed aims to keep inflation around 2 percent per year, but in 2022, inflation reached 6.4 percent in the U.S. and 5.2 percent in Hawaii23. By raising interest rates, the Fed makes borrowing more expensive and saving more attractive. This reduces the demand for money and slows down economic activity. This can help lower inflation by reducing the pressure on prices. However, higher interest rates can also have negative effects, such as lower consumer spending, business investment, and economic growth. Higher interest rates can also make it harder for people to afford mortgages and other loans. The Fed has indicated that it will continue to raise interest rates in 2023 to bring inflation under control. According to the Blue-Chip Economic Indicators report from May 10, 2023, which is the consensus of 50 economic forecasting organizations, the federal funds rate is expected to reach 5.75 percent by the end of 20234. This means that interest rates for mortgages and other loans will likely increase as well. However, interest rates are not expected to stay high forever. The same report projects that the federal funds rate will decline to 4.25 percent by the end of 2024 and to 3.25 percent by the end of 20254. This implies that interest rates will start to go down in 2024 as inflation stabilizes and economic growth slows down. Therefore, based on the current projections, interest rates will likely go down in 2024 or later. However, these projections are subject to change depending on how the economy performs and how the Fed responds. Interest rates are influenced by many factors that are hard to predict with certainty."
If this expert researcher is right, then things should be looking better by the end of 2024 and even better by 2025. Lower interest rates will definitely put more buyers back in the market. But as we all remember, with lower rates brought bidding wars. In 2021, the average house price went up 30%. Now prices have settled down a bit but since the housing inventory is low, it is keeping prices up on the high side or at least going sideways.
The latest June 2023 Oahu housing report showed the median price for a single-family home of being around $1,050,000 which is 4.5% lower than the June 2022 medium price of $1,100,000. The highest medium sales price was in May 2022, and it was $1,153,500. The lowest recent medium sales price was in Jan. 2023 for $970,000. Winter being the slow season and spring/summer being the high season. So, right now, we are in the middle of the most recent high and low.
What to do? If you have to buy, and need a mortgage, then get a lower rate by using a Fixed Rate Term Loan. Say a 3-to-5-year fixed rate mortgage. After the term is over, then the rate will go to market. Or if rates do actually go down, then you can easily do a refi.
If you have to sell, then expect the home to stay on the market longer than it did in 2021 where the average days on market got down to 8 days. Right now, in June 2023, average days on market is actually down to 17 days. But it did get up to 47 days in Feb. 2023. So, again, you see, winter the slow season and spring/summer the high season.
If you have to sell or buy right now, it is still possible to do that right now. It all depends on your own situation.
To help you navigate through these trying times, please contact Seiko anytime and I will be happy to help you with your real estate needs in any way I can.
