Interest Rates and Real Estate Lake Tahoe

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A robust jobs report of 372,000 new jobs added in June will likely lead the Fed to increase interest rates in the near future. A few weeks ago, Freddie Mac reported that the average interest rate on a 30-year fixed rate loan fell from 5.7% to 5.3%. This news suggested that rates might be stabilizing.

It is difficult to say whether a strong jobs report is good news or bad news. On one hand a strong jobs reports alleviates investor's worries about a recession. On the other hand, if a strong jobs report is indicative of inflation, investors are wondering what the Fed will do.

The FED is attempting to lower consumer demand in the economy, while balancing this against a recession. Their interest rate policy is a blunt instrument, and they are not always successful in striking a balance.

Inflation is currently at 8.6%, and until this number begins to adjust down, rising interest rates are likely. You would think that good economic news like added jobs would be something to celebrate, but in this economy, nothing is normal.

The reduction of the Fed rate to almost 0 during the pandemic, may have had a role in inflation. Now that inflation is clearly rising, they are using interest rates to calm the market. For short-sighted consumers, a rate of 5.75% seems high compared to last years unusually low rates.

A half-point hike from the Fed is likely on Sept. 21. Mortgage companies often raise their rates in advance of knowing of an impending hike. Economists expect four more quarter-point federal fund rate increases, bringing the FED rate to 3.25% by the end of the year, and 3.75% early next year. 

The rise in the 10-year Treasury yield is expected to peak at 3.5% sometime this year. This should push up mortgage rates, from the current average of 5.4% for 30-year fixed-rate loans, to just below 6.0%.

Although the recent 75-basis point hike by the Federal Reserve was the largest increase since 1994, mortgage rates are still lower than the 8% average over the last 40 years.

If you have been confused over the news of interest rates falling and rising, you can blame it on the jobs report. Currently, the average 30-year fixed mortgage interest rate is at 5.75%, which shows an increase of 14 basis points just in the last week.

What all this means for real estate activity in Lake Tahoe is that the buyer pool is dwindling, while inventory is growing.

For homebuyers, this isn’t the time to wait out the market for better interest rates as all indications are that they will continue to rise. For sellers, expect inventory to grow, which can reduce the sale price on your property.

Contact us today for the best strategy for buying or selling your home.