Your April Market Update

The United States economy is revving its massive engine. Jobs are beating expectations, the unemployment rate has fallen, wages are rising, and inflation is on the rise. As a result, the Federal Reserve is expected to once again raise the Federal Funds rate this week, which has already had an impact on mortgage rates, rising to a 2017 height.

What impact will the positive economic situation have on future interest rates? The historically low 3.5% mortgage rates are officially in the rear-view mirror, a chapter in the history books of the housing recovery. Buyers should not wait around for those rates to return. Instead, cashing in on today’s mortgage rate, still historically low, is a wise strategy.

Unfortunately, everybody has become accustom to a low interest rate environment. For proper perspective, in 1990 the interest rate was at 10%. In 2000, it was at 8%. Moreover, just prior to the Great Recession, the interest rate was at 6.4%. No, today’s rates are not as low as last October, but they are still a bargain compared to where they have been over the past 50 years.

It is imperative that buyers understand that the longer they wait to purchase, the greater the risk that rates will rise. For example, if a buyer can afford a $2,500 monthly mortgage payment with 20% down, they could have purchased a $667,000 home last October with a 3.5% rate. Today, with conventional rates at 4.375%, the purchase price drops to $600,000. While some buyers might be hesitant to lock-in their rate now, the current market still provides buyers with low rates.

The current Orange County housing market is sizzling hot with very low inventory and demand through the roof. A lot of what is driving demand is the desire to jump on today’s historically low interest rates before they rise, grinding down a buyer’s purchasing power. Securing a low rate now allows buyers to get more house for their money. As the economy continues to improve, mortgage rates will rise. For buyers interested in cashing in on today’s low rate environment, the window of opportunity is closing.


Since January 1st, the active inventory has only grown by 500 homes. In the past couple of weeks, it grew by an additional 111 homes, or 2%, and now sits at 4,571. The inventory is not climbing as fast as prior years because current demand is extremely hot. Within the last month, the trend deepened with 15% fewer homes coming on the market compared to last year. Most likely, more and more homeowners will start coming on the market as Orange County transitions into spring with longer, sunny days.

Demand, the number of homes placed into escrow within the prior month, decreased by 75 pending sales in the past couple of weeks, or 3%, and now totals 2,575. The drop is attributed to the short month of February. Also, demand would be even stronger if more homes were added to the active inventory. There just are not enough choices to satiate today’s scorching hot demand. With a slight drop in demand and an inventory that grew a bit, the expected market time increased from 50 to 53 days. Last year at this time, there were 2,671 total pending sales, 95 more than today, or 4%, but February 2016 was a leap year with an extra day of activity.


The Steven Thomas Report


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