Tag: federal reserve (Page 2 of 4)

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 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.

Federal Reserve “Getting Closer” to Rate Cuts

July 29, 2024 / Tom Bonetto

After years of higher rates by the Federal Reserve, it looks like thing might be changing.

Thanks to friendly inflation readings throughout the second quarter, more Fed members are signaling they are “getting closer” to cutting interest rates.

Remember, the Federal Reserve does not control mortgage rates (you can find out more about that here), but their actions and comments do impact the mortgage market.

It looks like the first cut might happen at their meeting on September 18. Inflation and labor market data between now and then will play a pivotal role in this decision.

Nick Timaros, the Wall Street Journal’s go-to writer for all things Federal Reserve, recently penned an article title “A Fed Rate Cut Is Finally Within View” (subscription required).

Three Reasons

Timaros thinks that a September cut is likely given these three factors:

Inflation over the last quarter has shown progress and has given the Fed the confidence they need that inflation is going to get to their 2% target
The labor market is starting to cool, with the unemployment rate rising each of the last three months and now at a level of 4.1%
Fed Chairman Jerome Powell is concerned about waiting too long to cut rates and cause unnecessary economic weakness and a potential recession

What This Might Mean

A rate reduction this fall would be the first since the pandemic and could be a potential boost to the economy. Fed rate cuts, over time, typically lower borrowing costs for such things as mortgages, auto loans and credit cards.

It really depends on how the economy performs in the next few months. That factor will likely determine how quickly the Federal Reserve will act.

If economic growth remains solid and employers keep hiring, the Fed would most likely take its time and cut rates slowly as inflation continues to decline.

Mortgage Rates

For mortgage rate shoppers, one of the key messages for which to listen is the one the Fed talks about on inflation. Inflation is the enemy of mortgage bonds and, in general, when inflation pressures are growing, mortgage rates are rising.

Fortunately, this trend seems to be abating, but at a slow rate. We’ve also seen the 10-year Treasury Bond yield move lower, and that is actually a better measure of mortgage rates.

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.

In Conclusion

We will be hearing more comments from the Federal Reserve and Chairman Powell over the next few weeks. Nothing is set in stone, but it does appear that rates might be coming down this fall.

Don’t Wait For Lower Rates to Buy

July 16, 2024 / Tom Bonetto

Don’t wait for mortgage rates to drop before making that home purchase.

So, should you wait for rates to decline before making your home purchase? The answer might surprise you.

There’s a good chance rates may be dropping in the not-too-distant future based on a slowing economy, moderating inflation and a weakening job picture.

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.

It’s also likely the Fed will be forced to start cutting rates in the near future.

The advantage of buying ahead of a drop in rates is that you can capture the substantial benefit of appreciation, then refinance to a lower rate once they come down. However, this does come with a cost.

The added temporary interest expense along with the cost to refinance must be considered. When you weigh it against the much greater benefit of appreciation, the choice may become clear to marry the home today, while dating the rate in the interim. More on that here…

I have the tools to allow you to evaluate what the forecasted appreciation is on the home you’re looking to purchase and weigh it against the temporary interest expense to see if it makes sense for you.

Don’t hesitate to reach out…as it would be my pleasure to help!

The Lending Coach 2024 Mortgage and Real Estate Forecast

January 11, 2024 / Tom Bonetto

My 2024 real estate and mortgage rate forecast centers specifically around supply and demand…of both real estate and mortgage backed securities. As we know, all prices are determined by supply and demand.

Right now, housing supply is relatively low, and demand is growing – and that means home price appreciation.

On the mortgage side, will interest rates finally come back?

Well, inflation is the biggest driver of interest rates…and that seems to be finally coming down to manageable levels – and this should lead to lower rates moving forward!

Let’s take a look at the factors that will impact mortgage rates and real estate in 2024…

Inflation

The single biggest driver of bond yields AND mortgage rates is inflation.

roll of american dollar banknotes tightened with band

Mortgage rates are essentially driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives. When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of that buying power.

When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline.

History proves this during rate hike cycles for the past 50 years, per the slide below. Unfortunately, this isn’t an overnight fix.

Essentially, the Federal Reserve bungled their management of inflation in 2020 and 2021 and were forced to make severe changes to offset the damage. This brings market instability and increased mortgage rates.

Fortunately, inflation does seem to be coming down (and that’s primarily why rates are better today than they were in October of 2023. And the news on the horizon looks promising.

It looks like core inflation might be in the 2% range by the middle of this year, which bodes very well for lower mortgage rates:

The trend in inflation is working in the borrower’s favor, and it means the Fed’s going to have to look at cutting the Federal Funds rate in 2024.

You can find out more on inflation, The Federal Reserve, and mortgage rates here…

The Fed and Rate Cuts

The Fed said they’re going to start cutting before we get to 2% core inflation. I think there’s a good probability March 20th, we’ll get the first Fed rate cut, and certainly by May 1st.

Now, what does the market say on this?

Well, there’s odds-makers. Just like if you were to go take a look on DraftKings and see what the odds are on a football game, well, there’s odds-makers on what the Fed will do as well.

As you can see above, the chances are pretty much assured that by May we’ll get that first rate cut.

In fact, there’s pretty good odds that we’ll have multiple rate cuts by May and June.

Per the chart above, there’s a 56% chance of at least 50 basis points cumulatively and by June there’s a 53% chance, better than 50-50, that you will have three 25 basis point cuts by June 12th.

Now something that’s also very important to watch is the Fed’s balance sheet. The supply of mortgage-backed securities has been hurting rates through most of 2023 because the Fed reducing its balance sheet.

They had their balance sheet go up during the great financial crisis and it got up much higher during the COVID crisis to a point of $8.5 trillion. That was just too much buying on behalf of the Fed.

The chart above shows their outright holdings of treasuries and mortgage-backed securities and they’ve offloaded $1.4 trillion over the last 18 months or so. That’s been a big driver in mortgage rates…and rates started to rise because the market had to absorb all of these securities.

But recently interest rates have improved and that is because the expectation for lower rates is causing banks to be aggressively buying treasuries and locking the higher rates in anticipation that rates go lower.

So, let’s take a look at what the Fed might be comfortable with on their balance sheet. That will be critical, because the Fed is going to slow down or eventually stop that runoff and stop that added supply of treasuries and mortgage-backed securities on the market.

As we go through each month, you can see that as we get into March, right before the March 20th meeting from the Fed, it will most likely be below 25%. I believe that’s too high of a number for the Fed to be comfortable and they’d like it to be lower.

When you start to see what happens the second half of the year, you get to a level that the Fed is much more comfortable with and I believe that the Fed will stop their quantitative tightening and reverse course.

The Fed’s balance sheet will be a critical component because less supply on the market means that interest rates should improve because the buyers will be bidding on fewer amount of paper or supply that’s available.

Mortgage Rate Forecast

So what’s the mortgage rate forecast for 2024?

Well, for 2024, I see 30-year fixed rate mortgages in the mid-fives (later in the year) to high-six range (early in the year). Under 6% rate on mortgages should unlock move of buyers and create more activity.

The 10-year Treasury will fluctuate between 3% and 4.4%, as we are starting the year a little above 4%. I believe that the overall trend, while it might move up and down a little bit, will be to gravitate towards 3%, which is good news for mortgage rates.

And maybe we get a more normal return to the spreads between Treasuries and mortgage rates, which is around 2%, not 3%. So that should help mortgage rates reduce as well.

Real Estate Forecast

Let’s turn our attention to real estate.

The forecast for real estate centers again on supply and demand, and the supply is tight. Look at inventory over the last 10 years, how it continues to decline while our population goes up:

Demand is continuing to be very, very strong. The blue lines represent households being formed.

As you can see, there are far more households being formed than builders putting up homes. This is why the real estate market’s been so strong of late and why you we seeing prices increase due to a lack of inventory. It’s going to be a similar story for 2024.

We won’t see much more inventory, although we will see more activity. But, we don’t see the amount of supply coming to market in order to meet that demand. So that’s why prices should stay firm.

I’m forecasting between 4.5% and 5% home appreciation nationwide.

But, perhaps even a greater importance while we have a very solid real estate valuation market, is that overall real estate transactions should rise by 15% to 20% in 2024. Good news for the economy in general, for sure.

In Conclusion

It’s looking like 2024 should be a much better year for real estate! Do reach out to me to discuss how you might be able to move forward in 2024 to take advantage of this changing market!

Market Uncertainty in the Banking Sector – Does This Impact Real Estate and Mortgage Rates?

March 14, 2023 / Tom Bonetto

I’ve been asked by many real estate agents and clients about how this week’s banking uncertainty might impact the real estate and mortgage markets.

Two banks have collapsed since last Friday and the federal government jumped in to guarantee depositors at those institutions. However, there’s still a lot of uncertainty about what this means to the markets.

Fortunately, depositors at Silicon Valley Bank — which failed Friday after a bank run — and New York-based Signature Bank — which collapsed Sunday — will see their money guaranteed by the federal government.

The U.S. Treasury, Federal Reserve, and Federal Deposit Insurance Corp. (FDIC) announced measures to guarantee that depositors would be able to receive all of their money back from those failed institutions.

For a great read on the details, I’d invite you to read this piece from Statechery…

Housing/Mortgage Impact

This situation looks nothing like 2008 when subprime lending and easy credit spurred a foreclosure crisis.

As a matter of fact, many experts see mortgage interest rates coming down because of this incident.

“I don’t think the bank failures will have a material impact on the housing market in the western U.S. The failures are idiosyncratic, and given the government’s decision to pay all depositors, I don’t expect there to be a problem in the broader financial system,” Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch.

He added, and “if anything mortgage rates may decline given the flight to quality into the bond market and prospects that the [U.S. Federal Reserve] may delay its rate increases.”

Mortgage lenders — which includes many banks — may not necessarily see problems with liquidity, said Sam Hall, property economist at Capital Economics.

“The direct impact on the housing market is likely to be small. Moreover, SVB’s holdings of residential mortgage-backed securities (MBS) account for a very small share of the overall market, so the forced selling of those assets is unlikely to put any downward pressure on MBS prices,” he added.

Al Otero, portfolio manager at Armada ETF Advisors, also said that the two banking failures may have forced the Federal Reserve to not raise rates, which could help the housing market.

There’s a rally in rates across the yield curve, Otero said, “and an expectation that the Fed will now ‘pause’ raising the funds rate at its March 21-22 policy session.”

“We could see a material reduction in mortgage rates going into the spring sales season,” he added, “which would be a substantial positive for the housing market.”

You can find more here…

The Federal Reserve

The bank failures may actually soften the Fed’s stance on interest rates.

“The hawkish tenor of Fed Chair Jerome Powell, in his Senate testimony last week and with the February rate hike, indicated a 50-basis-point increase was likely for the March rate decision” say’s NerdWallet’s Anna Helhoski.

You can read Anna’s full article here…

But the Silicon Valley Bank and Signature failures have clouded that outlook.

In a widely reported analysis of the failures, Goldman Sachs said it no longer expects the Fed to deliver any rate hike at the March 22 meeting, adding they had “considerable uncertainty about the path beyond March.”

Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., was widely reported saying he expects a 25-basis-point hike at next week’s meeting.

In Conclusion

The heightened economic risk brought on by the failed banks and the government’s response is likely to bring a short-term boost to the housing market by way of lower mortgage rates.

Secondly, the Federal Reserve might now re-think forceful rate increases that appeared imminent just weeks ago. That should trigger lower mortgage rates, as well.

For buyers shopping now, a drop in interest rates would be a welcome boost to affordability – so reach out to me for more details, as it would be my pleasure to help would be borrowers navigate this environment.

Tag: federal reserve (Page 2 of 4)

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

Why So Long?

What Does That Mean for Mortgage Rates?

Today’s Actions

Housing Pricing Pressure Ahead?

The Bottom Line

Federal Reserve “Getting Closer” to Rate Cuts

Three Reasons

What This Might Mean

Mortgage Rates

In Conclusion

Don’t Wait For Lower Rates to Buy

The Lending Coach 2024 Mortgage and Real Estate Forecast

Inflation

The Fed and Rate Cuts

Mortgage Rate Forecast

Real Estate Forecast

In Conclusion

Market Uncertainty in the Banking Sector – Does This Impact Real Estate and Mortgage Rates?

Housing/Mortgage Impact

The Federal Reserve

In Conclusion

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