Thank you all for reading my real estate column each month. My goal is to provide up-to-date insight into the real estate market. As always, feel free to reach out to me with any questions.

I recently met with a couple of first-time buyers and a question came up of the government raising interest rates of late and how that might affect mortgage rates going forward.

One of the most important directives of our central bank (The Fed) is to contain inflation.

As we are all aware of, the price of seemingly everything has been rising. One primary tool, among others, for The Fed to fight inflation is to raise the fed funds rate, the rate banks themselves borrow money from each other. But the mortgage rate is not directly tied to this rate. The mortgage rate is determined by many factors including perhaps the most significant determinant of simply the supply and demand for loans by borrowers.

So as The Fed increases their rate for banks, the economy typically slows and the demand for mort-gage funds is reduced. As a note, the prime rate is typically tied to the fed funds rate, so some adjust-able-rate credit cards and HELOC rates can rise. But primary mort-gage rates are not tied to the fed funds rate. The mortgage rate can actually drop when the fed funds rate rises!

Just recently The Fed raised the fed funds rate by 3/4 of a percent (75 basis points) and the rate on a 30-year conforming mortgage then dropped by over a half of a percent, down to 5.13% as of Aug. 18, 2022. So mortgage rates are now dropping.

Another issue currently on the table is the November election.

Two years ago, the pending election did cause a bit of a slowdown in the real estate market as buyers were in a wait and see mode but only a few months later demand picked up again. I feel that once again the upcoming election is causing a small headwind in the real estate market as some buyers do stand on the sidelines now. However, I do expect a strong market to continue in 2023 here in San Diego.

Once the election is settled, and with mortgage rates still fairly low in the 5’s, I expect buyers to once again start looking for property. There are a ton of well qualified first-time buyers out there in their 20’s and 30’s working at our local tech and biotech companies that are tired of renting and want to lock in a fixed housing payment and own real estate here in San Diego.

I told my buyers recently that with the mild slow down currently, we should continue the property search as with less offers coming in on listings, it’s a little easier to find a dream house versus 2023 when I expect another acceleration of buyers into the market. Plus, real estate is an excellent hedge and protection from the ongoing inflation problem.

Feel free to contact me with any questions regarding local residential real estate whether you are a buyer or seller. I am very knowledgeable on the local real estate market and would be happy to speak with you on the phone.

Call me at (858) 431-6043.

Photo credit: Pixabay.com

— Sarah Ward is a Realtor with Fine & Coastal Real Estate.