San Diego Mortgage Rates in the Wake of the Most Recent Federal Reserve Rate Decision
Wednesday May 4, 2022 Jerome Powell and the Federal Reserve announced their short term interest rate hike of +0.50%. This brings the Fed Funds Rate to a range of 0.75% – 1.00%. Previous commentary about rate hikes through 2022, and possibly into 2023, remain in place as the Federal Reserve desperately attempts to cool and control continuous inflation across the economy. As expected, the markets had a swift and dramatic reaction to this news and the press conference which issued some insights as to how the Federal Reserve feels about the economy. All of which have a direct correlation to mortgage rates and how financing a home will look for aspiring home buyers this spring and summer season. Many believe that the mortgage market had already priced that in, meaning the rates we are seeing today were a upon us prior to the decision being announced. But that leaves us with the next question: What will the Fed do at their next meeting? And will we see increasing rates in the meantime if the market anticipates they will announce another short term rate hike in June 2022? Remember, Jerome Powell did commit to rate increases through 2022 and possibly into 2023.
A quick refresher about the Fed and mortgage rates. The Fed Funds rate effects things like credit cards, car loans, lines of credit and other lending types that are considered “short term”. Mortgage rates are generated by bond market activity which trades in the financial markets (much like the stock indexes). The inflow or outflow of money to the mortgage back security market determines the cost of borrowing money to mortgage borrowers. Additionally, the more risk factors the market has to digest, the higher rates creep. Whereas easier monetary policy opens up the floodgates of money to generate lower rates to borrowers.
So what’s next if you want to buy a home in San Diego, or refinance a home in San Diego?
As you know home prices and home equity have been consistently making all time highs for months. With the relative cost of borrowing money staying low to begin 2022, these home price highs remained in place and even caused a continuation of supply shortage for the mean time. As the borrowing costs for mortgage financing have increased by more than 1% across most mortgage products, affordability comes into focus for most borrowers as they re-assess how much house they would like to buy or can afford to.
First, San Diego remains one of the highest appreciating cities in the entire nation. Since 2020, San Diego ranked in the #2 or #3 spot of fastest appreciating cities across the nation month over month, and therefore year over year. This was aided by the low cost of borrowing money layered with tight inventory and led to buyers outbidding one another to secure a home purchase.
- Looking forward in 2022, if you are looking to buy a home in San Diego, be prepared to strike while the iron is hot. Whether you qualify for conventional, VA, or FHA financing, there will be a time when your dream home hits the market and you will compete to have the sellers accept your offer. Get your financial house in order by having your full loan approval in hand and updated when you write your purchase offer. Be sure you have your earnest money deposit and down payment funds liquid (if necessary). If you are a $0 down VA buyer, you can still sweeten the deal by having assets in the bank, and a strong earnest money deposit, so the sellers gain confidence in your offer.
Second, homeowners in San Diego who became “house rich” because of rapidly rising home values were able to do cash out refinances at the same time that mortgage rates were at all time lows. Even FHA and VA loan holders were able to secure a streamline rate and term refinance through their respective programs. For some this meant they were able to pay off thousands of dollars of personal debt, complete a kitchen remodel, upgrade their home, or build an accessory dwelling unit (ADU). For others, refinancing their mortgage led to hundreds of dollars a month of savings and tens of thousands of savings over the course of the life of their loan.
- Looking forward in 2022, San Diegans are at a critical juncture when it comes to the cost of borrowing money vs. the home value. Although inventory still remains tight with more buyers than sellers, there has been a noticeable change in rate of appreciation over the past 30-60 days. This is estimated to be further impacted because of the rapidly rising costs to borrow mortgage money as we near the summer months. As current rates show no signs of retreat on the horizon, now is likely the best time to sort our your mortgage financing to promote your financial plans if you haven’t already.
This analysis of how mortgage rates impact San Diego homeowners will continue to be written as we glean more data from economic reports and monetary policy decisions by the Federal Reserve. If you are interest in buying a home in San Diego, please contact our office today so we can help you navigate these rapidly changing times. And if you are a homeowner in need of some financing solutions, please let us help assess where you may be able to give yourself a financial advantage in the coming months and years ahead.
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Rates & Fees Disclosure:
‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.
‡ Based on Mortgage Heroes internal data.
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