Bob has had a steady grip on the real estate market – his opinions tend to be among the most level-headed of all the prognosticators. He says we are coasting upward, and that the bump in mortgage rates isn’t a turning point:
Category Archive: ‘Interest Rates/Loan Limits’
After today’s NFP report, we can say that 5% mortgage rates (no points) have arrived – sellers can offer to buy down the rate to help ease the pain for buyers. Yesterday’s thoughts from MND:
So is it possible for bonds to see such a reversal? Yes, but it’s equally possible that the pain continues. Either way, it will likely be up to the market’s reaction to the big jobs report in the morning. Traders aren’t necessarily as interested in the payroll count and unemployment rate as they are in the average hourly earnings data–the ingredient that lit the match on September’s rising rate powder keg.
Loan Originator Perspective:
Bonds’ “truly terrible, traumatic week” continued today with further losses ahead of September’s NFP report. If that report shows strong job/wage growth, there’s no telling how much more rates will rise. Conversely, it would take a staggeringly disappointing report to dissuade bond buyers. It truly requires a pronounced penchant for risk to float here, and I, for one, don’t have that. Lock now or relinquish your right to complain about high rates later if you don’t. –Ted Rood, Senior Originator
Today’s Most Prevalent Rates
30YR FIXED – 4.875-5.0%
FHA/VA – 4.5%
15 YEAR FIXED – 4.375-4.5%
5 YEAR ARMS – 4.25%-4.75% depending on the lender
The Fed raised their federal-funds rate by 1/4% as expected today, and mortgage rates showed their usual indifference:
Fannie/Freddie 30-year mortgage rate with no points, yesterday: 4.70%
Fannie/Freddie 30-year mortgage rate with no points, today: 4.73%
In one sentence, today’s Fed rate forecasts pushed bonds into weaker territory at 2pm and Jerome Powell’s press conference helped to recover most of the losses.
The forecasts showed a slightly higher probability of 4 rate hikes in 2018. The average “dot” (so named for the dot plot on which the forecasts appear) also moved a hair higher in 2019 and 2020. This was the key market mover at 2pm, even though the Fed announcement was heavily edited from its previous version. It probably didn’t help that most of the edits were easier to argue as “unfriendly” for bonds. That said, it would be harder to argue they were unexpected or unjustified.
Powell’s press conference saw bonds bounce back and recover most of the losses, starting at 2:30pm. He said he wasn’t at all concerned about inflation getting out of control, and he was so pleased with the strength of the economy that it doesn’t really leave room for anything other than disappointment or the mere meeting of expectations. The tacit implication is that Fed policy is as tight as it’s going to get. Or rather, the trajectory of Fed policy isn’t going to get any more onerous for bonds–a fact that was driven home by Powell saying we’re getting closer to a “neutral Fed funds rate.”
The ECB is up tomorrow morning, with just as much market movement potential as the Fed. Their announcement is out at 7:45am, but the bigger to-do is typically the Draghi press conference which begins at 8:30am.Link to MND article
The full-blown frenzy we enjoyed in 2013 has been cooling off ever since, and I think we can call today’s market a bit soft. Home buyers are gradually gaining more power and control of the outcomes, and as we saw yesterday in the Inventory Watch, the unsold homes are starting to pile up.
There are signs of a slowdown everywhere – even on the MDLNY. They squeezed some market truth in at the 1:25-minute mark here:
Though they were talking about swanky NYC property, we have seen our higher-end inventory growing constantly too (today there are 512 NSDCC houses for sale listed over $2,000,000, when there were just 430 two months ago).
But now the lower-end is starting to feel it too.
You won’t see it on the official days-on-market metric of sold properties because those are the listings that dodged the bullet. It will be the rising count of active (unsold) listings that reveal the struggle.
How do you know if a listing agent is feeling it too?
Signs That A Listing Agent Might Know the Market Is Soft:
- They’ve Sold A Few Listings in 2018 – Listing agents who are actively engaged know that the market has changed, and that fewer inquiries/offers are the norm.
- Their Listings Are Sharp – Listing agent who are aware of a softer market know they must include excellent professional photos and video in their listings, and the listing remarks make you want to go see the home.
- Showings Available Immediately – The initial urgency of a new listing dissipates faster than ever, and a good listing agent wants to take advantage – they won’t make you wait days or weeks to see a house.
- No Extra Hurdles – We see listings loaded up with extra demands like having to include special forms or procedures just to make an offer. In a soft market, listing agents should make it easy to buy the home.
- Decent Commissions – A softer market is no time to be lowering the buyer’s agent commission – there are too many other homes to show and sell.
- Pushing The Product – To keep the urgency higher, a good listing agent is implementing every possible marketing tactic available. If you see a listing where the agent isn’t making any effort, you know they didn’t get the memo that the market is soft.
Buyers have enough reasons to be concerned about the homebuying experience (higher mortgage rates, rampant fraud and deceit, and significantly higher prices), and they won’t tolerate an ignorant listing agent who doesn’t recognize a shift in market conditions. It is too easy to wait-and-see now.
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We’ll explore this topic more in the coming days and weeks!
Sellers will be reluctant to lower their prices just because rates went up, so what do higher rates mean for home buyers?
Let’s take a minute and a half and logically review the actual differences in payments when rates go higher:
Mortgage rates settled down the last two days, but the damage was done – we’re above 4.50% (no points) now for 30-year loans. You’d think that some day the higher rates will have an impact on the demand for housing, but for now, sellers are confident that the prime selling season will be fruitful. Heck, maybe there will be some sellers who will consider a lower offer?
Of course, rates are still pretty favorable, historically:
Sellers should pay heed to the mortgage-rate gods……and do a little better on price, just in case. Rates will be pushing 5% before long.
From the MND:
Mortgage rates moved markedly higher today, officially leaving them at new 4-year highs. The only other time they’ve earned that distinction this year was in February–NOT last week as all the major surveys claimed. To be clear, they were certainly close last week, but the surveys didn’t account for some of the worst individual days in February. Does any of this really matter? No, not so much. Here’s what matters:
The average lender is quoting very well-qualified borrowers with huge downpayments something north of 4.5% on conventional 30yr fixed mortgages today. Let’s call it 4.625%. Up until Friday, that number hadn’t been over 4.5% except for on a few of those ill-fated February days.
Also important is the message that such a move sends. Simply put, the bond market (which underlies rates) could be telling us that it’s getting back into the same gear seen last Fall and in early 2018. In general, that’s characterized by pervasive, relentless movement toward higher rates. The saving grace is that the underlying causes for that movement had already hit markets to some extent in late 2016. So it remains to be seen how much more pain will be priced into rates before more investors feel bonds make sense to own (when more investors buy bonds, rates move lower, all other things being equal).
Today’s Most Prevalent Rates (at little-to-no origination or discount points)
- 30YR FIXED – 4.625%
- 30YR JUMBO – 4.65%
- FHA/VA – 4.25%-4.5%
- 15 YEAR FIXED – 4.0%
- 5 YEAR ARMS – 3.625%-3.875% depending on the lender
Could the supply of homes-for-sale get any tighter? Freddie Mac thinks so:
Recently, Freddie Mac published a report titled Nowhere to go but up? How increasing mortgage rates could affect housing. The report focused on the impact the projected rise in mortgage rates might have on the housing market this year.
Many believe that an increase in mortgage rates will cause a slowdown in purchases which would, in turn, lead to a fall in house values. Ultimately, however, prices are determined by supply and demand and while rising mortgage rates may slow demand, they also affect supply. From the report:
“For current homeowners, the decision to buy a new home is typically linked to their decision to sell their current home… Because of this link, the financing costs of the existing mortgage are part of the homeowner’s decision of whether and when to move.
Once financing costs for a new mortgage rise above the rate borrowers are paying for their current mortgage, borrowers would have to give up below-market financing to sell their home. Instead, they may choose to delay both the sale of their existing home and the purchase of a new home to maintain the advantageous financing.”
The Freddie Mac report, in acknowledging this situation, concluded that prices are not adversely impacted by higher mortgage rates. They explained:
“While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions. As both supply and demand move together in this way they have offsetting effects on price—lower demand decreases price and lower supply increases price.
They went on to reveal that the Freddie Mac National House Price Index is…
“…unresponsive to movements in interest rates. In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.”Link to Article
Mortgage rates were jittery but ended up back where they started today.
Mortgage rates rose to new 4-year highs this morning as lenders took a defensive stance ahead of the afternoon’s Fed Announcement. The caution proved to be warranted, at least at first, as bond markets reacted negatively to the first phase of Fed-related information.
Notably, the Fed Announcement itself wasn’t the issue. If anything, it was moderately friendly for rates. Instead, it was the Fed’s rate hike outlook (released concurrently with the policy announcement) that did the damage. But again, we’re talking about underlying bond markets here. Lenders’ rate sheets already reflected that damage preemptively.
When new Fed Chair Jerome Powell began his press conference half an hour later, bond markets (which underlie rates) began to improve.
Just over an hour after the initial drama, bonds moved into moderately positive territory on the day and most lenders offered positively-revised rate sheets (i.e. stronger bond markets allowed mortgage lenders to drop their rates). After those reprices, the average lender returned in line with yesterday’s rates (which are still pretty close to 4-year highs, but a welcome sight after this morning’s offerings).Link to Article