How the Economy Impacts Mortgage Rates in Los Angeles and Beverly Hills

How the Economy Impacts Mortgage Rates in Los Angeles and Beverly Hills | Christophe Choo at Coldwell Banker Global Luxury is Your Local Real Estate Expert

As someone considering buying or selling a home in Los Angeles or Beverly Hills, you’re probably paying close attention to mortgage rates and wondering what's ahead. The fluctuating nature of mortgage rates can significantly impact your real estate decisions, making it essential to understand the factors influencing these rates.

One crucial element that affects mortgage rates is the Federal Funds Rate, which influences how much it costs banks to borrow money from each other. While the Federal Reserve (the Fed) doesn’t directly control mortgage rates, they do control the Federal Funds Rate. This relationship is why many are keenly watching to see when the Fed might lower the Federal Funds Rate, which would put downward pressure on mortgage rates. The Fed's upcoming meeting will consider three vital metrics to make their decision:

1. The Rate of Inflation: High inflation has been a hot topic over the past couple of years, and you've likely felt its impact. The Fed aims to bring the rate of inflation back down to 2%. Currently, inflation is still higher than this target but is trending in the right direction.
2. Job Growth: The Fed is closely monitoring how many new jobs are created each month. They aim to see job growth slow down consistently, indicating that the economy is cooling off from being overheated. Recent reports show that employers added fewer jobs in recent months, suggesting a slowdown in economic activity, which is what the Fed wants to see.
3. The Unemployment Rate: This rate indicates the percentage of people who want to work but can’t find jobs. A low unemployment rate typically leads to higher inflation because more employed people mean more spending. Currently, the unemployment rate is low but has been slowly rising, a trend the Fed needs to observe before cutting the Federal Funds Rate.

Impact on Los Angeles and Beverly Hills Real Estate

For the luxury real estate market in Los Angeles and Beverly Hills, these economic indicators are crucial. The average sales price in these areas can be heavily influenced by mortgage rates. When rates are lower, buyers can afford more expensive homes, which can drive up prices. Conversely, higher rates can cool demand, leading to a slower market.

Currently, in Pacific Palisades, a prestigious neighborhood within Los Angeles, the average sales price is around $6.75 million, up 36% from previous months. However, the average list price has dropped by 8%, now standing at $8.15 million. There were 13 properties sold in June, a decrease of 13%, while the days on market increased by 21%, averaging 43 days. The price per square foot is $1,402, down by 6%.

Looking Forward

While mortgage rates are expected to remain volatile, these economic signs suggest the economy is moving in the direction the Fed wants to see. Despite this, it’s unlikely the Fed will cut the Federal Funds Rate at their next meeting. Jerome Powell, Chair of the Federal Reserve, emphasized the need for more data and consistent trends before any rate cuts.

What This Means for Buyers and Sellers

For those in the Los Angeles and Beverly Hills real estate market, it's essential to stay informed about these economic indicators. Mortgage rates significantly affect buying power and property values. While timing the market is challenging, understanding these trends can help you make more informed decisions.

Bottom Line

Recent economic data may signal that hope is on the horizon for mortgage rates. Let’s connect so you have an expert to keep you up to date on the latest trends and what they mean for you.

Call Christophe Choo at (310) 777-6342 to tour your future home "HERE" or click "HERE" to estimate your home value