Indianapolis Real Estate, Last Week’s Fed Action—and a Surprise

Jim Benson Real Estate Leave a Comment

For anyone who owns (or plans to own) Indianapolis real estate, last week’s Federal Reserve interest rate hike came as no surprise. Even the unusual size of the raise was expected. At 75 basis points (civilians think of that as ¾%), it fell in line with universal expectations. It was what happened next that perplexed many.

Considering the past two Fed actions together, Wednesday’s move lifted the June-July cumulative raise to 150 points, raising the target interest rate range for banks’ overnight transactions to 2.25% – 2.5%. Expected or not, it was the steepest rise in 40 years. On Tuesday, yahoo!finance.com’s headline, Housing: ‘Mortgage rates are going to continue to rise,’ economist explains, had painstakingly laid out the commonsense conclusions:  Tomorrow, the Fed will raise rates. Also, the sun will rise in the east, gravity will make things fall, and the rate hike will make mortgages more expensive. Duh!

The upshot for Indianapolis real estate would therefore be equally predictable: a blow to buyers and sellers who benefit from low mortgage rates—right? Right?

Not necessarily, it turns out.

Here is where the National Association of Realtors’®’ Chief Economist, Dr. Lawrence Yun’s conclusion veered off-course, commonsense-wise. And his reaction was shared by Forbes.

The Fed move might not affect real estate markets at all.

That conclusion was rooted in the nuts and bolts of the bond market. Mortgage rates are based on predicted future bond market pricing, and this hike “and all future actions by the Fed” may have already peaked in mid-June. So, if bond prices have peaked, it is entirely possible that mortgage rates “may settle down at 5.5% to 6% for the remainder of the year.” In that case, rates already stand where they will remain for a while, and “home sales could soon stabilize within a few months and then turn steadily upwards from early next year.”

We do expect an optimistic viewpoint from the NAR, but Forbes doesn’t generally supply much cheerleading content. Where Indianapolis real estate is concerned, it was at least nice to hear that there’s even a possibility that home loan rates may remain in the current range…

And what do you know? On Friday, foxbusiness.com was headlining, “30-year rates tumble even lower.” The subhead read, “With all mortgage rates sitting well below 5% today, buyers can save by locking in a rate today.” Amusingly, by Saturday, those yahoo!finance.com pundits seemed to have reversed course 180 degrees, acknowledging Freddie Mac’s Thursday finding: “Mortgage rates finally sink back below 5%…”

If you are looking at buying or selling in August’s Indianapolis real estate market, “below 5%” home loan rates may be a bit much to expect—but you may be surprised at the opportunities that are out there. One sure way to find out: call us!

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Jim Benson