Category: Mortgage (Page 1 of 54)

New 2025 Conforming Loan Limits

December 2, 2024 / Tom Bonetto

The Federal Housing Finance Agency (FHFA) announced that the maximum baseline conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2025 will rise to $806,500 — an increase of $39,950, or 5.2%, from 2024.

The increase in loan limits for 2025 means that more mortgages will be bought by Fannie and Freddie, which will make it easier for home buyers to qualify for and close their loans.

The conforming loan limits are required by the Housing and Economic Recovery Act to reflect the percentage change in the average U.S. home price during the most recent 12-month period ending before the time of determining the annual adjustment.

In 2025, the conforming loan limit will rise 5.21% because FHFA has determined that the average U.S. home value increased by that amount between the third quarters of 2023 and 2024.

Higher loan limits will be in effect in higher-cost areas as well. The new ceiling loan limit in high-cost markets will be $1,209,750, which is 150% of $806,500. The previous ceiling was $1,149,825.

Market Volatility and Today’s Mortgage Rate Environment – November 2024

November 12, 2024 / Tom Bonetto

You’ve probably noticed one thing if you’re thinking about making a move: the housing market feels a bit unpredictable right now.

The truth is, from home prices to mortgage rates, we’re seeing more volatility – and it’s important to understand why.

At a high-level, let’s break down what’s happening and the best way to navigate it.

What’s Driving Today’s Market Volatility?

Factors like economic data, unemployment numbers, decisions coming out of the Federal Reserve (The Fed), and even the just concluded presidential election, are creating uncertainty right now – and uncertainty leads to market volatility.

You can see that when you look at what’s happening with mortgage rates. New economic reports and other geopolitical events have an impact and can cause sudden shifts up or down, even though experts still forecast rates will come down overall. We’ve seen that effect play out recently, like when employment and inflation data get released each month.

And as the markets react, these types of updates will continue to have an impact on rates moving forward. As Greg McBride, CFA, Chief Financial Analyst at Bankrate, says:

“After steadily declining throughout the summer months, I expect more ups and downs to mortgage rates . . . Job market data will be closely watched as well as any clues from the Fed about the extent of upcoming interest rate cuts.”

Trying to Project Mortgage Rates

a red paper bag in the middle of red balloons with percentage symbols

This is exactly why the projected decline in mortgage rates isn’t going to be a straight line down over the next year. As Hannah Jones, Senior Economic Research Analyst at Realtor.com, explains:

“Rates have shown considerable volatility lately, and may continue to do so . . . Overall, we still expect a downward long-term mortgage rate trend.”

Plus, home prices and the number of homes on the market vary dramatically depending on where you’re looking to buy or sell, which makes it even harder to get a clear picture.

In some areas, home prices are rising and inventory is tight, while in others, there are more homes available and it’s leading to more moderate pricing shifts.

Bottom Line

The housing market may be experiencing some shifts, but don’t let it stop you from making your move. With the support of an experienced real estate agent and a trusted lender, you’ll be ready to navigate the changes and make the most of the opportunities that come your way.

Let’s turn any uncertainty into your advantage, helping you move forward with confidence. Please do reach out to me to discuss today’s environment and how you might be able to take advantage!

The blog postings on this site represent the positions, strategies or opinions of the author and do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deductions.

The Disconnect Between Mortgage Rates and the Federal Funds Rate

October 18, 2024 / Tom Bonetto

I’m asked regularly about mortgage rates – and how they behave relative to the Federal Reserve and their Federal Funds rate.

While it might seem intuitive that changes in the federal funds rate should directly affect mortgage rates, the relationship between the two is more complex.

Mortgage rates do not move in lockstep with the federal funds rate due to multiple factors, including the role of longer-term bonds, overall market dynamics, and investor sentiment.

Let’s take a closer look…

The Role of the Federal Funds Rate

The federal funds rate is the interest rate at which banks lend reserves to each other overnight. It is set by the Federal Reserve as a tool to control monetary policy, with the goal of managing inflation and stimulating economic growth.

When the Federal Reserve raises or lowers this rate, it directly affects the short-term borrowing costs for banks, which can influence consumer rates for products like credit cards and auto loans.

However, it is much more indirect when it comes to mortgage rates, which are typically tied to other longer-term financial instruments. The federal funds rate is a short-term rate, while mortgages often span 15 to 30 years, leading to differing influences on these financial products.

Influence of Longer-Term Bonds on Mortgage Rates Mortgage rates are more directly influenced by the yields on long-term bonds, particularly the 10-year U.S. Treasury bond.

Investors use the yield on these bonds as a benchmark for determining mortgage rates, as they represent a relatively safe long-term investment. When the yield on 10-year Treasury bonds rises, mortgage rates often follow suit, and when it falls, mortgage rates tend to decrease.

This connection is much stronger than the relationship between mortgage rates and the federal funds rate because both mortgages and Treasury bonds are long-term financial commitments that reflect broader economic expectations over time.

Market Forces and Supply-Demand Dynamics

The supply and demand for mortgage-backed securities (MBS) also play a significant role in determining mortgage rates.

Banks and mortgage lenders often bundle mortgages into securities and sell them to investors, and the demand for these securities can influence the rates that lenders offer to consumers. When demand for MBS is high, lenders can offer lower mortgage rates, as they can sell the bundled mortgages more easily at favorable terms.

On the other hand, when demand for these securities fades, lenders must increase mortgage rates to make them more attractive to investors. This dynamic operates independently of changes in the federal funds rate, as it is more tied to market sentiment and investor appetite for longer-term fixed-income investments.

Impact of Inflation Expectations

Inflation expectations are another key factor that drives mortgage rates, often with minimal direct influence from the federal funds rate.

roll of american dollar banknotes tightened with band

Mortgage lenders are keenly aware of inflation risks over the life of a loan, which can erode the real value of the fixed interest payments they receive. If inflation is expected to rise, lenders will demand higher mortgage rates to compensate for the anticipated decrease in purchasing power.

Alternatively, when inflation expectations are low, mortgage rates usually drop – or stay hover at a lower rate. The federal funds rate does influence inflation to some extent, but the relationship is not always immediate or proportional, resulting in instances where mortgage rates may not track movements in the federal funds rate.

Global Economic Factors and Risk Aversion

Mortgage rates are also influenced by global economic conditions and risk aversion among investors.

For example, during periods of global economic uncertainty, investors often flock to safe-haven assets like U.S. Treasury bonds, driving their yields down and potentially lowering mortgage rates in turn. This dynamic was particularly evident during the 2008 financial crisis and the COVID-19 pandemic, where mortgage rates fell despite significant volatility in the federal funds rate.

This illustrates that external economic factors and the global appetite for safe investments can decouple mortgage rates from domestic monetary policy changes, creating a gap between mortgage rates and the federal funds rate.

The Role of Mortgage Lender Pricing Strategies

Individual mortgage lenders also play a role in determining rates through their own pricing strategies, which can introduce further variations. Lenders adjust their rates based on competition, risk assessments, and internal profit targets.

These adjustments mean that even if the broader market conditions suggest a decrease or increase in rates, lenders may not always follow suit immediately.

For example, during times of economic stress or uncertainty, lenders may keep rates higher to offset increased risks of defaults. This autonomy in pricing further weakens the direct relationship between the federal funds rate and mortgage rates.

The Delayed Response of Mortgage Rates to Rate Changes

Even when changes in the federal funds rate indirectly influence mortgage rates, the response is often delayed.

When the Federal Reserve adjusts the federal funds rate, it can take months for the effects to filter through the economy and reach the mortgage market. This lag occurs because it takes time for banks to adjust their lending practices, for market expectations to shift, and for the impacts on inflation and economic growth to become clearer.

During this time, other factors, such as changes in the housing market, shifts in investor sentiment, or unexpected economic data, can alter the trajectory of mortgage rates independently of the federal funds rate.

In Conclusion

While the federal funds rate plays an important part in shaping broader economic conditions, it does not directly dictate mortgage rates due to the factors mentioned previously.

Mortgage rates respond more directly to the yields on longer-term bonds like the 10-year Treasury and are subject to a range of market forces that the federal funds rate cannot control.

If you’d like to find out more, or have a detailed conversation about mortgage rates and where they might be headed, don’t hesitate to reach out to me, as it would be my pleasure to help in any way I can!

The Fed Has Finally Cut Its Federal Funds Rate. Now What?

September 18, 2024 / Tom Bonetto

fed building facade against stairs in city

Federal Reserve officials and most investors have long expected that borrowing costs would be reduced in 2024, at some point.

As of today, the Fed finally cut its federal funds rate (the inter-bank lending rate) by 50 basis points.

Why So Long?

At the end of last year, many were hopeful that the Fed would begin cutting rates early in 2024, easing pressure not just for consumers, but also for businesses. A spring rate cut seemed to be in the cards around the turn of the year and most prognosticators estimated the first cut would arrive sometime before the summer.

But for the first 8 ½ months, those rate cuts never materialized. Inflation was much, MUCH more stubborn than they anticipated and stayed above their target. The Fed was very cautious and wanted to see the numbers come down over the course of this year.

Interestingly, inflation has still remained over their 2% target…but unemployment has grown and is now over 4%.

However, all of that changed today, as the Federal Reserve cut their inter-bank lending rate by 50 basis points.

What Does That Mean for Mortgage Rates?

scrabble letters spelling fed on a green mat

Interestingly, the Federal Funds rate does not directly control mortgage rates. And mortgage rates remained unchanged after the announcement.

Mortgage rates are far more influenced by the bond market…the 10-year Treasury to be exact. You can find the specifics here…

Over the last two decades, the Fed Funds Rate and the average 30-year fixed rate mortgage rate have differed by as much as 5.25%, and by as little as 0.50%.

A far better way to track mortgage interest rates is by looking at the yield on the 10-year Treasury bond. The 30-year fixed mortgage rate and 10-year treasury yield move together because investors who want a steady and safe return compare interest rates of all fixed-income products.

U.S. Treasury bills, bonds, and notes directly affect the interest rates on fixed-rate mortgages.

How? When Treasury yields rise, so do mortgage interest rates.

That’s because investors who want a steady and safe return compare interest rates of all fixed-income products…and investors move to these type of products to fulfill their needs.

Today’s Actions

We have seen a very nice move in the reduction of mortgage rates over the last 100 days, as the bond market has seen inflation slow a bit and unemployment rise. The bond and mortgage backed securities markets have been ahead of the curve on rates.

Rates have moved nearly .75% to the good for would-be buyers or refinancers.

I do believe we will continue to see rates move lower, but at an inconsistent pace. There will be bumps in the road…so locking in now might be a good idea.

Housing Pricing Pressure Ahead?

As rates move lower, more buyers will become eligible to purchase. In fact, the National Association of Realtors states that for every 1% decline in mortgage rates, 5 million more people can be eligible to buy.

Even if a small fraction of these eligible buyers decides to move forward, it will likely pressure prices higher and shrink the number of available home choices even further. More on that here…

The Bottom Line

Home price appreciation remains strong and inventory is slightly increasing. The fact that mortgage rates are coming down will only add to an increase in housing prices, as that’s basic supply and demand.

Home values continue to set new all-time highs, and housing still proves to be one of the best investments out there.

If you’ve been thinking about purchasing, now is a good time to do it! Reach out to me so we can strategize about your next purchase or refinance.

The Power of Home Ownership

September 5, 2024 / Tom Bonetto

Imagine turning your monthly expenses into a growing investment, something that could multiply your net worth exponentially.

Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate.

Not a lot of people know this, but the average homeowner’s net worth is 40 times that of a renter.

Right now, if you’re renting, you’re paying someone else’s mortgage, essentially filling their pockets, but getting zero in return for your own financial future.

Enter home ownership. It’s not just a roof over your head; it’s equity in your pocket. In fact, on average, two-thirds of a person’s net worth comes from home equity!

Plus, home values continue to appreciate. Case-Shiller recently reported that national home prices saw an annual gain of 5.4% for June, hitting another all-time high!

Switching from renter to homeowner is simpler than you might think. It’s a strategic move towards securing your financial future.

Just ask Peter Hernandez of Teles Properties:

“Most millionaires I know made more money from owning real estate than any other investment. Real estate consistently increases in value over time and outperforms other investments.

Plus, it isn’t as vulnerable to short-term fluctuations as the stock market. You get a tangible, usable asset, whether you’re renting out an apartment or commercial building for income or buying a home. And there can also be tax benefits for investment properties.”

Do reach out to me for help, as it would be my pleasure to work with you to explore a personalized buy vs rent scenario tailored just for you.