The Federal Reserve announced an interest rate uptick of 0.75 percent Wednesday, its third increase this year in a campaign to tame inflation.
Los Angeles market real estate agents and economists said the interest rate hike, like this year’s previous rate increases, has thrown them curveballs and will impact the housing market.
Expect the L.A. market to continue its trend of “softening,” said Jordan Levine, chief economist for the California Association of Realtors. “The Fed’s rates will lead to an increase in mortgage rates. It will cost buyers more to borrow money and that reduces affordability. It will be more challenging for folks at the margins to make the numbers work,” Levine said.
Levine forecast that there will be fewer mortgage applications made for the rest of this year, as well as an increase in housing inventory. He also predicted that home prices statewide will decline by low, single-digit percentages next year.
Eric Finnigan, vice president of research and demographics for Irvine-headquartered John Burns Real Estate Consulting, said that the latest rate hike should be considered as more of a tremor than an earthquake.
“The effect of one rate hike on the L.A. housing market is relatively small. The more important Fed action to watch is what they telegraph about the future. Have they seen enough relief on inflation to change their course of raising interest rates? My guess is no, not yet,” he said.
However, rate hikes have been a big topic of conversation over the past month, said Steve Clark, co-founder of Pasadena-based real estate company Backbeat Homes.
“I talk to clients about interest rates all day – everyone has the same concern,” Clark said. He has advised clients to buy homes now when there isn’t as much competition.
“If interest rates go up again, you’re going to look like a hero, because you locked into a lower rate. If they go down, you refi,” he said.
However, this year’s interest rate hikes have changed the dynamic for control of the market, Clark said.
“Buyers and sellers are fighting, and we’re all waiting to see who wins the fight,” he said. “The seller wants yesterday’s price. The buyer wants tomorrow’s price. The seller has controlled the market for the past five years. The buyer is pushing back. I think we’ll find a middle ground where everyone does OK.”
The third interest rate hike this year has forced SoCal agents to further develop their expertise, said Derek Reilly of Westside Expert at Keller Williams Advisors in Santa Monica.
“My favorite line now is: ‘Do you have five minutes to talk to my favorite lender?’” Reilly said. “To close a deal now, you not only have to find the best property, you also have to find the best lender, with the best lending option for your particular client’s financial situation.”
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