As predicted, the Federal Reserve has just raised interest rates for the first time since 2006, upping the target federal funds rate by 0.25 percent and signaling expectations for another four quarter-point increases in 2016.
The Fed’s move raises the target federal funds rate from the near-zero mark it has held since 2009, having dropped five (5) full points between August of 2007 and the end of 2008, a move which helped drive mortgage rates down to historic lows.
The 30-year mortgage rate, which was averaging 3.95 percent last week, dropped to an all-time low of 3.31 percent in 2012.
Well, the good news is that there is no national housing bubble that risks bursting this time around. But the stock market has gone a bit ahead of itself lately. This is currently correcting…
In SF, rent levels indirectly support high property valuation (when you pay $5K in rent, you could buy the same place for $1.1M and have a PITI around $5K). The question is whether these rents are sustainable, and it all depends on jobs.
We could see an impact from a potential correction in the stock market on tech jobs, but that’s a bit of a stretch for now. The artificial constraint applied by local policy ensures the market is done on the margins: the best and brightest are still paying a premium to absorb whatever limited supply we have.
True, there is no national bubble but there is not really a national RE market. There are local markets. SF is one of the few that are near their bubble level from 2006.
Not that things will burst but this si another piece of the puzzle that I think points to a small pullback in prices here and a stall for a year or two in price increases.
Speaking of rents, VC funding is falling off, Last time it did that in early 2000s the rents dropped in SF. Just one more thing to keep an eye on.
And as always affordability and the Bay Area (SF, Silicon valley) are below their historic affordability level.
“VC funding is falling off”
Can you please cite your source for this comment? It’s really not worth much of anything without a credible reference.
Here is a link from Mercury News: Bay Area venture capital spending surges in third quarter.
Right, so Dave made that up. Thought so.
Top 20 VCs smart money are tapering, as Dave points out. But looks like the Bay Area is full speed ahead….
They most certainly did not “signal expectations for another four quarter-point increases in 2016.”
According to the Fed’s latest dot plot and a median target rate of 1.4 percent by the end of 2016, yes, they most certainly did.
As if the Fed’s forecasting skills have been remotely accurate. LOL.
For anyone who does believe their projections, a long range median GDP growth estimate 2.0% is frankly pretty terrible.
That comes from Smart Money – their early stage activity VC chart.
And the VC rent correlation study comes from John Burns RE consulting. I post this separately from the Smart Money reference as I’m not totally clear re: the SS rules regarding specifically referencing individual names.