Mortgage Bankers Association

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The numbers: Sales of previously-owned homes in the U.S. fell 3.4% in April for the second month in a row, as buyers continue to deal with low levels of home listings and see-sawing mortgage rates.

Sales of existing homes in the U.S. fell to an annual rate of 4.28 million in April, the National Association of Realtors said Thursday.

That’s the number of homes that would be sold over an entire year if sales took place at the same rate in every month as it did in April. The numbers are seasonally adjusted.

“The median price for an existing home fell by 1.7% from last April to $388,800 this year. The drop is the largest since January 2012, when home prices fell 2%. ”

The drop in sales wasn’t as bad as what economists on Wall Street had expected. They forecast existing-home sales to total 4.26 million in April.

But compared with April 2022, home sales were down 23.2%.

Key details: The median price for an existing home fell by 1.7% from last April to $388,800 this year. The drop is the largest since January 2012, when home prices fell 2%. 

Home prices peaked in May 2021, where they grew 25.2% annually.

The number of homes on the market rose by 7.2% in April to 1.04 million units. But the number of fresh listings is still down from a year ago, the NAR said.

Homes listed for sale remained on the market for 22 days on average, down from 29 days in March. 

Sales of existing homes fell in all regions, with the sharpest drop in the West.

All-cash buyers made up 28% of sales. The share of individual investors or second-home buyers was 17%. About 29% of homes were sold to first-time home buyers.

Big picture: Despite home sales dipping in April, most of the housing data is indicating that the U.S. housing market is in broad recovery. 

But a combination of issues are making it a slow one, from a lack of new home listings to see-sawing mortgage rates. 

Many homeowners are reluctant to sell for two reasons: They may be reluctant to give up an ultra-low mortgage rate secured during the pandemic for a much higher one, and they also don’t want to deal with competition 

Homebuilders are responding to the inventory crunch by bumping up construction of new homes. Housing starts, which refer to when a builder starts constructing a home, rose in April. Rates, on the other hand, are volatile: The 30-year mortgage rose to the highest level in two months to 6.57% as of May 12, the Mortgage Bankers Association said on Wednesday. It was 6.48% the previous week. 

Given the underlying issues on supply and rates, sentiment among U.S. consumers regarding the housing market has worsened: The number of people who think it’s a bad time to buy a home has hit a 45-year high.

What the realtors said: “The housing market – at least home sales – is still struggling to recover,” Lawrence Yun, chief economist at the National Association of Realtors, said. 

Aside from higher rates, “there’s just simply not enough inventory,” he noted. 

Yun also said that the NAR was sharing the idea of addressing the capital gains tax with members of Congress as a way to encourage more homeowners to sell their homes to ease the inventory shortage.

What are they saying? “The very strong underwriting standards during the last housing expansion along with solid labor market conditions will reduce the risk of defaults and forced selling going forward,” Thomas Simons, U.S. economist at Jefferies, wrote in a note.

“The housing sector is already in a recession, but we don’t expect consumption to contract significantly until a cycle of mass layoffs begins, likely during Q3,” he added.

Market reaction: Stocks were up in early trading on Thursday. The yield on the 10-year note
TMUBMUSD10Y,
3.683%
rose above 3.6%.

Source: marketwatch.com

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The residential mortgage loan delinquency rate decreased to a seasonally adjusted 9.13 percent during the third quarter, the Mortgage Bankers Association reported today.

It fell from 9.85 percent in the second quarter and 9.64 percent a year ago, per the MBA’s National Delinquency Survey.

Meanwhile, the percentage of loans on which foreclosure was started increased to 1.34 percent, up from 1.11 percent a quarter earlier, but down from 1.42 percent a year ago.

The percentage of loans in the foreclosure process was 4.39 percent at the end of the quarter, down 18 basis points from the second quarter and eight basis points from a year ago.

The seriously delinquent rate, the percentage of loans 90 days or more past due or in the process of foreclosure, fell to 8.70 percent from 9.11 percent last quarter and 8.85 percent a year ago.

That pushed the combined percentage of loans in foreclosure or at least one payment past due to 13.78 percent, a 19 basis point decline from 13.97 percent last quarter.

Foreclosure Paperwork Issues Will Show Up Later

“The foreclosure paperwork issues announced by several large servicers in late September and early October are unlikely to have had a large impact on the third quarter numbers, but may well increase the foreclosure inventory numbers in the fourth quarter of 2010 and in early 2011,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in the release.

“The foreclosure inventory rate captures loans from the point of the foreclosure referral to exit from the foreclosure process, either through a cure (perhaps through a modification), a short sale or deed in lieu, or through a foreclosure sale.”

He noted that the loan servicers who halted foreclosure sales temporarily may show higher foreclosure inventory numbers in the fourth quarter and early next year.

And said any drop in foreclosure sales over the next few quarters may temporarily reduce the inventory of homes on the market, but they’re likely to come on the market in the medium term anyways, so it’ll only delay matters.

Prime fixed mortgages and FHA loans currently make up nearly 78 percent of loans outstanding, and accounted for more than half of the foreclosures started in the quarter, compared to 39 percent a year ago.

Meanwhile, the pool of subprime and adjustable-rate mortgage borrowers continues to shrink, either through refinance or default.

Source: thetruthaboutmortgage.com

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Homes in Centreville, Maryland, US, on Tuesday, April 4, 2023. The Mortgage Bankers Association is scheduled to release mortgage applications figures on April 5.

Nathan Howard/Bloomberg

Sales of previously owned U.S. homes fell to a three-month low in April, restrained by limited inventory and ongoing affordability concerns.

Contract closings decreased 3.4% last month to an annualized pace of 4.28 million, according to data released Thursday by the National Association of Realtors. The figure was in line with the median estimate in a Bloomberg survey of economists.

“Home sales are bouncing back and forth but remain above recent cyclical lows,” Lawrence Yun, NAR’s chief economist, said in a statement. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”

While inventory picked up amid the spring selling season, elevated borrowing costs paired with limited listings are restraining sales. With mortgage rates about twice as high as they were at the end of 2021, many sellers are still reluctant to list their houses and some buyers are sidelined.

The number of homes for sale rose to 1.04 million, up 1% from a year ago. Still, inventory was nearly double that in April 2019. At the current sales pace, it would take 2.9 months to sell all the properties on the market. Realtors see anything below five months of supply as indicative of a tight market.

There are signs the housing market is beginning to stabilize. Homebuilder sentiment has been on the rise for the past five months as more buyers look to new construction in the low-inventory environment. Separate data this week showed single-family housing starts climbed to a four-month high in April. 

The median selling price of a previously owned home fell 1.7% from a year ago, the biggest drop since 2012, to $388,800. However, prices rose in the Northeast and Midwest.

“Even in markets with lower prices, primarily the expensive West region, multiple-offer situations have returned in the spring buying season,” Yun said.

Mortgage Rates

Elevated borrowing costs also remain a key hurdle for many prospective buyers. Separate data out Wednesday showed mortgage rates rose to a two-month high last week.

And while some Federal Reserve officials have indicated they may pause their tightening campaign as soon as next month, how long rates will remain elevated is unclear.

Nearly three-fourths of homes sold were on the market for less than a month. Properties remained on the market for 22 days on average in April, down from 29 days in March.

Sales of single-family homes slid to an annualized 3.85 million pace. Existing condominium and co-op sales also edged lower.

Digging Deeper

  • Sales fell in all four regions, led by the West and the South
  • First-time buyers made up 29% of purchases in April, up from the prior month but still historically low
  • Cash sales represented 28% of total sales. Investors, who often purchase with cash and are therefore less sensitive to mortgage rates, made up 17% of the market, the same as a year ago

Existing-home sales typically account for the vast majority of U.S. housing and are calculated when a contract closes. Data on new-home sales, which make up the remainder, are based on contract signings, will be released next week. 

Source: nationalmortgagenews.com

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Borrowers’ demand for home loans slowed down last week as mortgage rates increased to their highest level in two months. This time the source of volatility is not the Federal Reserve’s tightening monetary policy but ongoing discussions to raise the U.S. statutory debt ceiling in Congress.

Secretary of the Treasury Janet Yellen sent a letter to all members of Congressional leadership on Monday saying the federal government will likely no longer be able to satisfy its obligations if Congress has not acted to raise or suspend the debt limit potentially as early as June 1. The impasse, however, is already impacting the economy, Yellen wrote.

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote in the letter. 

“In fact, we have already seen Treasury‘s borrowing costs increase substantially for securities maturing in early June. If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.” 

In the mortgage market, the latest Mortgage Bankers Association  (MBA) data published on Wednesday morning showed that loan applications decreased by 5.7% for the week ending May 12, 2023, compared to one week earlier. The survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications.

Borrowers’ demand followed an increase in mortgage rates. The average 30-year fixed rate for conforming loans ($726,200 or less) rose to 6.57% last week from 6.48% the previous week. For jumbo loan balances (greater than $726,200), the rate grew to 6.46% from 6.33% in the same period, according to the MBA.   

At Mortgage News Daily, rates were even higher on Tuesday afternoon, at 6.69%, up two basis points from the previous day. 

“Mortgage rates increased last week even as Treasury yields were essentially flat, with the spread between the two rates widening to 310 basis points,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping nine basis points to its highest level in two months.” 

Mortgage loan types

According to the MBA, refinancing applications declined 8% from the previous week and were 43% lower than the same week one year ago. Refis comprised 27.4% of the total applications last week, compared to 28% the prior week. 

According to Kan, “Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive.”

On Monday, a new Federal Reserve Bank of New York report showed that, from the second quarter of 2020 to the fourth quarter of 2021, 14 million mortgages were refinanced, accounting for nearly one-third of the outstanding mortgage balances.  

Meanwhile, purchase applications decreased 4.8% from one week earlier and were 26% lower than last year’s levels, as “buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce,” according to Kan. 

Regarding loan types, the adjustable-rate mortgage (ARM) share of mortgage apps decreased to 6.5% of total applications last week from 6.8% in the previous week, the MBA data shows. 

The Federal Housing Administration loans’ share fell to 12% from 12.1% the week prior. The U.S. Department of Veteran Affairs loans’ share decreased to 12.2% from 12.9% in the same period. And the U.S. Department of Agriculture loans’ share remained at 0.4% of the total applications.   

Source: housingwire.com

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In today’s mortgage environment, informed homebuyers are successful homebuyers. Let’s get right into the latest news with this week’s Mortgage Monday update!

Rates Update

Last week, mortgage rates were surprisingly resilient and held steady. Despite some mid-week volatility, rates remained at a similar level to the previous week – even in the face of rising inflation and the Federal Reserve’s subsequent interest rate hike. The Fed has pointed to future interest rate increases with each of its remaining meetings this year; and because mortgage rates are closely tied to the Fed’s actions, buyers should anticipate significant increases by the end of 2022.

Freddie Mac reported delayed, but similar results in their weekly mortgage rate survey. To stay as up-to-date as possible, be sure to keep in touch with a Total Mortgage loan officer. Working with an industry expert will keep you a step ahead of the competition in today’s fast-paced market.

Purchase Applications Increase in Weekly MBA Survey

On the note of a competitive market, the Mortgage Bankers Association (MBA) reported a two percent increase in mortgage applications from the week prior. As we’ve said before, this is a continuous, expected result of rising mortgage rates; as rates increase, purchase activity grows while the opportunity to refinance decreases. In the same report, the MBA found that industry-wide refinance activity reached a new low of 32.9 percent – nearly a two percent decrease from the week before.

We’ll continue to observe these ongoing trends and keep you informed. For now, know that today’s market is most favorable to those looking to purchase a home. Our team of dedicated experts is ready to assist you 24/7, so don’t hesitate to pick up the phone or contact us for more information.

In Closing

So, will mortgage rates increase during the rest of this month? We believe that last week’s steady period was only temporary. This week, we’ll likely see a return to the usual upward trend in rates that we’ve grown used to – so if you’re a prospective homebuyer, now is the time to get started and pursue financing. 2022 has set records for mortgage rate movement and volatility; low rates this week could look significantly different from the next, and so on.

For now, stay tuned for next week’s Mortgage Monday update and be sure to contact your Total Mortgage loan officer for more detailed information about your financing process. We’re here for you and are ready to help you navigate today’s ever-changing market. See you next week!

Source: totalmortgage.com

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Mortgage activity slowed last week, as higher interest rates left buyers sidelined, according to the Mortgage Bankers Association. 

The MBA’s seasonally adjusted Market Composite Index, a weekly measure of loan application volumes based on surveys of association members fell 5.7% from the prior seven-day survey period. The decline continues a spring trend of regular fluctuations in the number of incoming applications. One week earlier, the index had climbed up by 6.3%. On a year-over-basis last week’s activity fell 32.8%.

“Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping 9 basis points to its highest level in two months at 6.57%,” said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

One week prior, the average 30-year conforming rate came in at 6.48%. Meanwhile, points used for the 30-year conforming mortgage with balances below $726,200 remained at 0.61 for 80% loan-to-value transactions. 

The average contract rate of the 30-year jumbo mortgage with balances exceeding the conforming amount also headed up 13 basis points, rising to 6.46% from 6.33% seven days earlier. Points decreased to 0.38 from 0.51 for 80% LTV loans.

“Mortgage rates increased last week even as Treasury yields were essentially flat, with the spread between the two rates widening to 310 basis points,” he said. A wider spread may point to broad concerns among investors regarding future volatility, possibly related to a potential government debt default. 

Kan recently pointed out the highly rate-sensitive nature of mortgage borrowers today, particularly among consumers looking to purchase. Rate increases helped drive the Purchase Index down 4.8% on a seasonally adjusted basis from the last survey to its lowest level in a month, Kan said. Compared to the same week in 2022, purchases came in 26.5% lower. 

“Buyers remain wary of this rate volatility,” he said, but also added that “for-sale inventory in many parts of the country remains scarce,” leaving them with fewer purchase opportunities. Researchers across the housing industry are similarly noting the impact of short supply on business volume, as well as the availability of mortgage credit.

The Refinance Index, meanwhile, fell even more sharply, coming in 7.7% lower week over week. Volumes declined 43.4% from the same seven-day period a year ago, when interest rates were still well under 6%. 

“Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive,” Kan said.

Refinances accounted for 27.4% of total volume, slipping from 28% a week earlier. Adjustable-rate mortgages, which typically see greater uptake as rates head higher, bucked the trend, with a 6.5% share compared to 6.8% in the prior weekly survey.

As refinance activity shrunk, so did the average amount reported on new applications. The mean size of refinances fell almost 6% to $261,300 from $277,900. But the average purchase-loan amount was virtually unchanged, coming in at $440,400 compared to $440,700 the previous week. 

Across all applications, the average amount applied for was $391,300, a 0.9% decrease from one week earlier. 

Federally backed loans took a larger step back than the composite market, with the seasonally adjusted Government Index falling by 8.9% from the previous survey period. The share of government-sponsored activity, likewise, dipped relative to overall activity. 

While Federal Housing Administration-guaranteed applications slipped back to a 12% slice of activity from 12.1% a week earlier, loans backed by the Department of Veterans Affairs took a bigger tumble, landing at a 12.2% share from 12.9%. Mortgage applications coming from U.S. Department of Agriculture programs took the same 0.4% piece week over week.

FHA-backed mortgages saw the only decrease in home loan rates tracked by the MBA. The average contract rate inched down 2 basis points to 6.39% from 6.41% a week earlier among MBA lenders. Points used by borrowers also decreased to an average of 0.97 from 1.01 for 80% loan-to-value ratio loans.

The average 15-year contract rate managed to stay under the 6% mark, but still rose 5 basis points from the prior survey to 5.96% from 5.91%. Points increased to 0.68 from 0.58. 

Meanwhile, the 5/1 ARM saw its average rate leap 36 basis points to 5.71% from 5.35% seven days earlier. Borrowers drove points used up to 1.1 from 0.79. This particular type of adjustable-rate mortgage stays fixed for half a decade before becoming variable based on market conditions.

Source: nationalmortgagenews.com

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‘Locked in’: Many homeowners feel stuck in place as mortgage rates on the rise — but here’s why a quarter of would-be sellers plan to sell now anyway

Mortgage rates have moved up for the first time in over a month, propelled by persistent inflation and strong employment data.

With federal reports pointing to a “still-resilient, though cooling economy,” many believe the Fed will raise the federal funds rate at next month’s meeting, pushing mortgage rates higher, says Hannah Jones, economic research analyst at Realtor.com.

Don’t miss

But with higher rates comes lower demand — and both buyers and sellers already seem hesitant to step off the sidelines.

“While spring is typically a season marked by a lively housing market, this year is proving to be less energetic than previous ones,” Jones says.

30-year fixed-rate mortgages

The average 30-year fixed rate climbed to 6.39% last week, compared to the week before’s average of 6.27%.

A year ago at the same time, the rate averaged 5.11%.

“Home prices have stabilized somewhat, but with supply tight and rates stuck above 6%, affordable housing continues to be a serious issue,” says Sam Khater, chief economist at housing giant Freddie Mac.

“Unless rates drop into the mid-5% range, demand will only modestly recover.”

15-year fixed-rate mortgages

The average rate on a 15-year home loan increased to 5.76% from 5.54% last week. At the same time a year ago, the 15-year fixed-rate averaged 4.38%.

However, Nadia Evangelou, senior economist at the National Association of Realtors, says the housing market is still making some progress.

“Although the seasonally adjusted annual figure of home sales reported in the news dropped by 2% in March, about 34% more homes were sold in March compared to February based on the raw count of home sales,” she writes.

“This increase is actually larger than the pre-pandemic historical average growth of 33% that typically occurs between March and February.”

Read more: ‘Hold onto your money’: Jeff Bezos says you might want to rethink buying a ‘new automobile, refrigerator, or whatever’ — here are 3 better recession-proof buys

Sellers feel ‘locked in’ by their mortgage rate

Over 4-in-5 potential sellers feel “locked in” to their current homes, due to their lower mortgage rates, according to a recent survey from Realtor.com.

While more than half plan to wait until rates decline before selling, a quarter say they’ll sell now anyway, for reasons ranging from changing family needs to the desire to earn a profit.

Owners currently have a near-record high level of equity in their homes, and some sellers are expecting a bidding war and to receive more than the asking price or receive an offer within a week.

That may be a realistic expectation in some more affordable markets — like Rochester, New York, which was named the hottest housing market in the month of March. But overall national demand remains fairly static.

Jones warns, “Sellers who do enter the market are met with lower buyer demand, which puts downward pressure on prices, as sellers vie for buyer attention.”

She adds that sellers need to “calibrate” their expectations to the current market.

“Buyers are seeing less new inventory, which means that a freshly listed, well-priced home may be met with enthusiasm, resulting in a favorable deal for both parties.”

Mortgage applications plunge as rates rise

Last week, demand for mortgages sank 8.8% from the previous week, according to the Mortgage Bankers Association (MBA).

Refinance activity also dropped by 6% — and is 56% lower than the same week a year ago.

“Last week’s increase in mortgage rates prompted a pullback in application activity. With more first-time homebuyers in the market, we continue to see increased sensitivity to rate changes,” says Joel Kan, vice president and deputy chief economist at the MBA.

“Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act.”

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Source: finance.yahoo.com

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Washington, DC
CNN
 — 

Home buyers have proved to be mortgage rate sensitive, with home sales over the past year tanking as rates have surged, and improving during periods when rates have ticked down. The past year has shown that as monthly mortgage payments decline, demand goes up.

But a new study shows that 5.5% may be the magic mortgage rate that gets things moving in the market, according to analysis from John Burns Research and Consulting, which specializes in the housing industry.

Mortgage rates more than doubled over the past year, reaching as high as 7.08% in November, according to Freddie Mac’s average weekly mortgage rate for a 30-year fixed rate loan. Since then the rate has declined by almost a full point, and currently sits at 6.27%.

Many homeowners who bought or refinanced into ultra-low mortgage rates during the past few years are reluctant to sell and become a home buyer at a much higher rate. This is keeping inventory historically low.

Over half of people in a survey of 1,300 homeowners and renters with household incomes of $50,000 said that now is not a good time to buy a home. Only 22% reported it being a good time to buy.

The survey found that 5.5% mortgage rates seem to be the tipping point.

A majority of respondents — 71% — said they are not willing to accept a mortgage rate above 5.5%. Meanwhile, 62% of consumers believe a historically normal mortgage rate is below 5.5%.

“Our consulting team has witnessed this across the country, noting that home builders who choose to subsidize buyers’ mortgage rates, bringing the overall rate down below 5.5%, have been achieving the most success,” CEO John Burns and Maegan Sherlock, a senior research analyst, wrote in an note about the findings. “Many of the largest builders in the country have been buying mortgage rates down below 5%.”

They report that low inventory in the existing home market is helping new builders tremendously.

“Paying as much as 6% of the mortgage amount to buy down mortgage rates has been relatively painless since builders had previously raised prices so much,” the researchers write.

Mortgages rates are still far from an average of 5.5% for a fixed-rate 30-year loan. And it may be hard to shake homeowners out of their fixation on 5.5%, because about 85% of homeowners have mortgage rates at 5% or below, according to a Redfin analysis of Federal Housing Finance Agency data.

Looking at forecasts of mortgage rates for the rest of the second quarter of 2023, no major forecast is even predicting rates under 6%.

The Mortgage Bankers Association predicts the average 30-year fixed rate to settle at 6.1% and Wells Fargo at 6.2%, in the second quarter. Fannie Mae and the National Association of Home Builders had the highest forecasts of 6.6% and 6.56%, respectively.

Furthermore, 5.5% is lower than the historical average for mortgage rates. Historically, the average rate between 1971 and 2023 has been 7.75%, according to Freddie Mac. Average rates reached as high as 18.83% in October 1981 and as low as 2.65% in January 2021.

Source: cnn.com

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The Federal Reserve (Fed) on Wednesday raised the federal funds rate by another 75 basis points, to 3%-3.25%, bringing it back to a level last seen in March 2008.

The decision was expected by most Fed observers, and comes as mortgage lenders and real estate brokerages struggle to adjust to a Fed-driven slowdown of the housing market. 

According to the Federal Open Market Committee (FOMC) statement, although recent indicators point to modest growth in spending and production, job gains have been robust in recent months and the unemployment rate has remained low.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the FOMC said in the Wednesday statement. “Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”

The committee anticipates that ongoing increases in the target range will be appropriate, meaning another 125 basis points in hikes still to come in 2022, with a federal funds rate topping out well above 4%. The FOMC’s Summary of Economic Projections now shows a funds rate midpoint of 4.375% at end-2022 and 4.625% at end-2023.

“No changes were made with respect to their ongoing plans to reduce the size of their balance sheet,” said Mike Fratantoni, the chief economist of the Mortgage Bankers Association. “Rate volatility is high due to both uncertainty regarding the Fed’s next moves and the lack of a steady, consistent buyer for Treasuries, and particularly mortgage-backed securities.”

How will non-QM perform for the rest of 2022?

With inflation and rising rates, non-QM lending has spent the last few months in choppy waters, with some lenders closing their doors. However, the outlook for non-QM for the rest of 2022 is relatively optimistic, according to Acra Lending CEO Keith Lind.

Presented by: Acra Lending

Since the Fed has started a tightening monetary policy to slow inflation, it has resulted in a cumulative 300 bps hike: 25 bps in March, 50 bps in May and three 75 bps increases in June, July and September.

Inflationary pressures resulted from the decision to maintain rates at 0%-0.25% between March 2020 and March 2022 to stimulate economic activity during the COVID-19 pandemic, marking a period of easy money that gave rise to the hottest mortgage market in U.S. history. 

Consequently, inflation in the U.S. hit 8.3% in August, down from 8.5% in July but still higher than the 8.1% expected by observers, the Bureau of Labor Statistics reported on Sept. 13. One of the primary drivers has been housing costs, with shelter costs accounting for about 25% of inflation in August. Shelter costs rose 6.2% in August from a year before, and were up from 5.7% in July.

That inflation came in hot raised the specter that the Fed would increase the benchmark rate by 75 or even 100 bps today.

In the housing market, the tightening monetary policy has brought mortgage rates to the mid-6% level and helped bring rents to record prices, according to firms that track the rental market.

Existing-home sales declined in August for the seventh consecutive month and home prices dropped sequentially from July, evidence that the Fed’s policies have cooled the housing market in recent months.

“…famously, houses were selling to the first buyers by 10% above the asked, before they even see the house.”

– Fed Chairman Jerome Powell

According to the Fed’s latest Beige Book report, home sales fell across all 12 Fed districts and the prospects for future improvement anytime soon are dim as well. “The outlook for future economic growth remained generally weak, with … expectations for further softening of demand over the next six to 12 months,” the report states.

“We’ve had a time of a red-hot housing market all over the country – famously, houses were selling to the first buyers by 10% above the asked, before they even see the house. So, it was a big imbalance between supply and demand and house prices were going up at an unsustainable fast level,” Fed Chairman Jerome Powell said during a press conference. “Builders are having a hard time to find lots, workers and materials.”

But Powell said the deceleration in prices should bring the market closer to its fundamentals, which is a good thing, according to him. “For the longer term, what we need is supply and demand to get better aligned, so house prices go up at a more reasonable pace and people can afford houses. Probably, the housing market needs to go to a correction to get to that place.”

Rate hikes also impact real estate investors. “Debt is becoming very expensive very quickly,” said Veena Jetti, founder of the Dallas-based real estate investment firm Vive Funds. “We will likely see operators that bought in the last few years without interest rate insurance finding it tough to service the debt.”

Whether the latest rate hike has already been ‘baked in’ to mortgage rates remains to be seen. “It’s possible that expectations of a rate hike are already priced into the market, as we just saw mortgage rates hit 6% last week,” said Steve Reich, chief operations officer at Finance of America Mortgage. “Interest rates hitting their highest levels since 2008 coupled with persistent inflation means some homebuyers may take a step back from the market and wait until rates come down. However, there are still opportunities in today’s market for potential homebuyers.”

Source: housingwire.com

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Mortgage rates moved down sharply in March, a welcome trend for homebuyers who hope to make a deal during the spring selling season. Will rates continue the downward trend in April?

Housing analysts expect mortgage rates to continue to bounce around this month. While the consensus calls for rates to ease below 6 percent later this year, that forecast assumes the Federal Reserve will continue to successfully tame inflation, and that the remarkably resilient U.S. economy, finally, will slow.

“Forecasting mortgage rates in the best of times is tricky,” says Lisa Sturtevant, chief economist at Bright MLS, a multiple listing service that operates in the Mid-Atlantic. “Now, with economic factors tugging rates in different directions, it has become even more difficult to predict where rates will head this spring.”

Why mortgage rates fell in March

At the start of the month, mortgage rates were on the upswing. They went from 6.73 percent the week of March 1 to 6.84 percent the week of March 8, according to Bankrate’s national survey of lenders. They then reversed course, falling all the way to 6.48 percent in Bankrate’s March 29 survey.

The reason? A sudden banking crisis. Silicon Valley Bank failed March 10, followed by the collapse of Signature Bank on March 12.

They were the second- and third-largest bank failures in U.S. history, and the two meltdowns set investors on edge. The crisis also spurred the Fed to raise interest rates by 0.25 percentage point at its March 22 meeting, rather than the 0.5 percentage point increase it had been telegraphing.

The Fed’s softer rate hike can help mortgage rates to remain near 6.5 percent. With inflation easing slowly but steadily, rates will gradually move down in the following months.
— Nadia Evangelou, senior economist and director of Real Estate Research at the National Association of Realtors

While the Fed doesn’t dictate mortgage rates, the central bank’s policies reverberate through the mortgage market. “Markets and how market participants interpret economic data will determine where long-term rates settle, not the Fed,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.

Markets continue to digest the fallout from the failures of Silicon Valley Bank and Signature Bank. Now that the problems in the banking sector seem to be under control, inflation will likely return as the main driver of rates.

“Mortgage rates will continue to fluctuate this month depending on the new developments in the banking sector,” says Nadia Evangelou, senior economist and director of Real Estate Research at the National Association of Realtors. “But the Fed’s softer rate hike can help mortgage rates to remain near 6.5 percent. With inflation easing slowly but steadily, rates will gradually move down in the following months.”

What’s driving rates in April

Instability in the banking sector adds a wild card to the mortgage outlook. Since early 2022, mortgage rates have been driven by inflation – and by how aggressively the Fed has responded to rein in inflation.

“Inflation, the Federal Reserve’s next steps and banking sector developments are the three main factors that will affect mortgage rates and, consequently, the housing market,” says Evangelou.

With the banking crisis seemingly fading, Greg McBride, Bankrate’s chief financial analyst, says mortgage rates will continue to move with inflation.

“If financial instability concerns reemerge, mortgage rates are likely to fall,” says McBride. “If all is quiet on the financial stability front, the focus will go back to inflation. Until inflation moves meaningfully below 6 percent, mortgage rates will be range bound. In April and the months that follow, the odds will begin to favor a decline in mortgage rates – but the inflation level means we’re not there yet.”

The Mortgage Bankers Association predicts that mortgage rates will fall to 5.3 percent by the end of 2023 as the economy weakens – but the U.S. economy has continued to grow despite numerous predictions that it soon would run out of steam.

Inflation has been a hallmark of the economy’s strong rebound from the pandemic recession of 2020. Nearly everyone expected the U.S. economy to fall into a recession in late 2022 or early 2023, but that hasn’t happened, at least not yet.

“A number of leading indicators suggest the U.S. economy is still on solid footing,” Divounguy says. “That means inflation may still be slow to come down, leaving the door open for more Fed policy tightening and causing rates to remain elevated.”

Divounguy acknowledges that the optimistic outlook is by no means guaranteed. A darkening of the economic outlook could lead to lower mortgage rates.

“Sinking consumer confidence and growing recession fears could cause investors to reverse course and head back into the bond market, which could also head to a decline in mortgage rates,” says Sturtevant.

Another factor to consider is the “the spread,” the gap between 10-year Treasury yields and 30-year mortgage rates. That margin has been unusually high for the past year or so.

“The spread between the 30-year fixed rate mortgage rate and the 10-year Treasury yield is still very wide by historic standards,” says Sturtevant. “If that gap were to narrow, mortgage rates could decline.”

Homebuyers are jittery

The spring homebuying season is officially underway, and these are nervous times for buyers. Home prices remain elevated, and mortgage rates have been bouncing around. Sturtevant expects home shoppers to respond by keeping a keen eye on rates.

“Prospective homebuyers are watching rates closely, with good reason,” says Sturtevant. “A half percentage point increase in mortgage rates increases the typical monthly payment by more than $100. Mortgage rate volatility could disrupt the typical steady spring market surge. Instead, we may see more buyers acting opportunistically, making an offer quickly when they see a dip in rates or if they expect an imminent rate increase.”

Source: bankrate.com