‘Higher for Longer’ means the FED wants to keep home prices and the housing market paced.
In April, FED Chairman Jerome Powell reaffirmed the changing sentiment of “higher rates for longer.” This is not what homebuyers want to hear but it may likely be the better medicine for them versus the alternative. Having your cake and eating it too is a nice sentiment but really not a reality when it comes to the competitive market of Northern Arizona Real Estate. Memories can be short-term but if we can push our minds back to the 2020-2022 markets of historically low interest rates, we must remember that we faced an entirely different set of issues. During that sub-4% rate market we had bidding wars, bid over ask negotiations, appraisal shortfall negotiations and possibly the worst biproduct was the lower down and less able buyers being absolutely pushed out of the market. FHA loans that give housing access to lower down and less-than-perfect credit buyers reduced the market share by a significant approximately 10% in the bidding wars of 2020-2022.
Embracing these higher rates for now, we can see that the current makeup of the Flagstaff market is much more diverse than the fast-paced unicorn years of 2020-2022. Yes, there are still hot properties with multiple offers, and yes, cash is still a significant impact on the market, with around 25-30% of transactions being non-financed; however, there are more price negotiations, seller repairs, seller concessions and maybe most helpful of all time and space in this market than we’ve seen in four years. Ironic as it seems, this market is then much more friendly to first-time homebuyers, low down buyers and any buyer looking to negotiate on more equal footing with their selling counterpart. This then makes “higher for longer” a superpower for many buyers that are already feeling the pressure of the “make or break” Flagstaff housing market pressure.
The FED’s strategy and reasoning is hand in hand with the housing market result. ‘Higher for Longer’ means the FED wants to keep home prices and the housing market paced. We’ve written about this before in this column, but the shelter component of inflation measures, of which housing is a part, makes up approximately 42% of the whole. Translation is that slowing housing is critical to slowing overall economic inflation. The FED’s primary tool of higher rates is the medicine we’re going to have to continue to digest this year but with the hope that they know what’s really good for us and that the paced prices and slower market will benefit many now and lead to a healthier, balanced market in the years to come.
The FED’s sentiment is definitely not “higher forever” though and it’s important to grasp that accepting a higher rate today doesn’t mean that is a forever rate. Inflation is a lagging problem and we will eventually catch up to it and find a normal in our markets. That normal is not 2% mortgage rates but highly likely not 7% mortgage rates, either.
In my assessment, the closest that buyers will be able to get of having their cake and eating it too will be to be to buy at the current prices and pace of market while rates have the mass market subdued and then pace that refinance in the months/years to come while others may struggle to keep pace with a hotter price and speed for the purchase market brought on by lower rates. FBN
By Chris Hallows
For additional information or to schedule an appointment visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.
Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff.
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