A quiet move by Fannie Mae and Freddie this summer might well change the course of the local real estate market near the end of the year.
While Pasadena’s real estate market churns through a heated market now in its second year at least, one local lending expert predicts a correction toward the end of this year, based in part on the Fed move.
The change could see some interest rates rising at least a little from their record lows as the market evolves, says mortgage lender Kenji Tatsuno of Pasadena-based Kennedy Capital Corporation.
“The market is still extremely busy,” Tatsuno told Pasadena Now earlier this week. “And it’s a reflection of, I think, both demand and interest rates.”
Tatsuno acknowledged that rates are still somewhere in the high twos or low threes just depending on loan amounts, and whether the loan is for a purchase or a refinance. As he explained further, Tatsuno believes that overall the mortgage market has been getting a little bit more aggressive.
But both Fannie Mae and Freddie Mac eliminated a fee earlier this summer which could have a ripple effect.
Fannie and Freddie dropped the 0.5% fee on mortgage refinancing beginning Aug. 1. The fee, imposed in December, added about $1,400 to the cost of refinancing an average mortgage backed by the firms, according to an estimate from the Mortgage Bankers Association.
That change “reopened and recalibrated the market” to a degree, Tatsuno said.
“Some people are actually able to refinance again,” said Tatsuno, “and save anywhere from a half a point to a point at no points or no cost.”
Owners in forbearance, however, would likely not be able to take advantage of any changes in interest rates, unfortunately, Tatsuno noted.
Digging deeper, Tatsuno posited that interest rates are suppressed and are extremely low because they’ve been “artificially brought down by the Fed,” which is buying billions of dollars of ten-year Treasury bonds and mortgage-backed securities.
“Not only are they buying it, but they re-invest it when they mature. So every month, these (instruments) mature, and at the end of that time, the government right now is currently reinvesting it,” he said.
Thus according to Tatsuno, “billions of dollars are being purchased to keep the interest rates low, I think, to help stimulate the economy.”
“Everybody wonders,” he continued, “One, will interest rates rise? The answer is ‘Yes, they have to, at some point in time.’ When? Nobody has a crystal ball. I think it will be sometime towards the end of the year, first quarter of next year, but I don’t think it will be a huge slingshot.”
In a superheated market like Pasadena’s, where can buyers look to take advantage of any change in interest rates?
“I would say it’s the entry level, or the second move-up property,” Tatsuno offered, but added that “entry level in the San Gabriel Valley is 6, 7, 800,000 now, that’s entry level. Your mid-range is more like entry level, and could go up to a million in Pasadena. That’s entry level.”
Buyers may not find much relief outside of Pasadena proper, either, he said.
“Even in San Gabriel and Alhambra,” and some of the properties that I see that are really in high demand are in your better school district areas like South Pasadena.”
