From Boom to Balance
Feb 14, 2025 - How interest rates are re-shaping the market
During the pandemic, we saw an unprecedented spending boom fueled by near 0% interest rates, making borrowing incredibly cheap. This easy access to money drove spending across all sectors—including real estate—into overdrive. In affluent areas like Lamorinda, where buyers typically have strong credit and healthy financials, this low-rate environment sent home prices soaring.
But that economic surge couldn’t last forever. When inflation spiraled out of control, the Fed stepped in aggressively, introducing its first 75bps rate hike in nearly 30 years. Fast forward to today, and 30-year mortgage rates sit close to 7%—a big jump from the sub-2% rates seen during the pandemic. While this may seem high by recent standards, historically, 7% is actually closer to the norm—it was the ultra-low pandemic rates that were the real outlier.
What does this mean for buyers and sellers?
In markets like Lamorinda, we don’t expect dramatic shifts in turnover. Many homeowners locked in historically low mortgage rates during the pandemic, creating a kind of "golden handcuffs" situation. Selling now would mean trading a 2% mortgage for a 7% one, which isn’t exactly appealing. This could keep housing inventory tight, as fewer homeowners will be eager to list.
On the flip side, buyers face their own challenges. Higher interest rates mean higher mortgage payments, and since lenders rely on debt-to-income ratios, borrowing power is more limited. This puts pressure on affordability and demand, particularly for higher-priced homes.
For now, we anticipate the market will remain steady, with fewer homes hitting the market. Those who do sell will likely be downsizing, relocating for affordability, or moving out of state. Until we see a major shift in interest rates, this "wait and see" dynamic will likely continue.
Have questions about what this means for you? Let’s chat!
Money Talks with William Tang: Nin Tang Homes’ (Unofficial) Chief Investment Advisor*
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The Market’s Big Question: When Will Rates Drop?
Feb 10, 2025 Factors that contribute to our Fed Funds Rates
I’ve always been fascinated by interest rates—they influence so much more than we realize. Over time, I’ve come to see how they shape everything from the growth of companies we work for to everyday financial decisions like buying a home or taking out a loan. While my background isn’t in macroeconomics, I’ve gained enough insight to understand how these changes impact our lives. Based on research from various sources, including Compass’ Chief Economist, here are some key takeaways:
- Inflation is still running high, with January’s numbers reaching their highest level since June. This supports Fed Chair Jerome Powell’s stance that with inflation still elevated and the job market strong, there’s no rush to cut interest rates.
- The Fed primarily looks at two factors when making rate decisions: inflation and unemployment. As long as both remain steady, rates are likely to stay where they are.
- Some experts worry that new tariff threats could push inflation even higher, though the administration argues otherwise and continues to call for rate cuts.
- Powell’s decisions will continue shaping the economy, as he remains in his role until May 2026.
On the jobs front:
- The U.S. added jobs in January, though the numbers came in slightly below expectations.
- Unemployment dipped to 4%, showing that the labor market remains strong.
- Economists are split on whether a strong job market is good or bad—while it signals economic health, it can also keep inflation higher for longer.
- Meanwhile, the government’s push to cut federal jobs and funding could impact employment and consumer confidence, adding short-term uncertainty to the market.
For now, we’re in a wait-and-see mode. I see rates holding steady until there’s a major shift in inflation or employment trends. Let me know if you’d like to chat more about how this affects real estate or your own family plans!
Money Talks with William Tang: Nin Tang Homes’ (Unofficial) Chief Investment Advisor*
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