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Don’t Wait For Lower Rates to Buy

Wristwatch parts

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

Hourglass with house

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.

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.

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

Jerome Powell

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

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 Lending Coach 2024 Mortgage and Real Estate Forecast

2024 Forecast graphic

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?

Hourglass and house

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.

Rates and Recession graphic
Jerome Powell

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:

Inflation-Fed Cut graphic

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.

Fed Cut Graphic

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

Dollar signs graphic

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.

Balance Sheet graphic

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.                

Balance sheet breakdown

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.

Coins forming house

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.

2024 Forecast graphic

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:

Real Estate forecast graphic
Real Estate forecast graphic 2

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.

Appreciation forecast graphic

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!

Lending Coach Title Bar

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.

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

SVB Logo on Class Door

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.

Federal Deposit Insurance Corporation Logo

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.

Coins with Small Wooden House

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.

person with keys for real estate

“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.

Picture of Jerome Powell

“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

SVB Building

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.

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Mortgage Rates 2022 – Current vs Historical Trends

black and silver laptop with stock market display on screen

Mortgage rates have essentially doubled since the beginning of this year. Historically, however, interest rates have often been higher — sometimes much higher — than they are today.

magnifying glass on top of document

The average 30-year mortgage rate over the last fifty years is just under 8%. So even though today’s mortgage rates have jumped to the 5% range, they’re still a good deal by comparison.

I’m linking to an article from Peter Miller of The Mortgage Reports that’s a must read in order to gain some good perspective on what’s happening in today’s marketplace.

2022 Mortgage Rate Chart

Mortgage interest rates fell to record lows in 2020 and 2021 during the Covid pandemic.

However, inflation has now surged to four-decade highs, causing those rates to rise quickly this year.

Graph of 30 year Mortgage rates in 2022 from January to August

Historical Chart

Despite this increase, today’s 30-year mortgage rate is still quite a bit below average from a historical perspective.

Freddie Mac — the main industry source for mortgage rates — has been keeping records since 1971. Between April 1971 and August 2022, 30-year fixed-rate mortgages averaged 7.76 percent.

Graph of Historical 30 Year Mortgage Rates from 1971-2022

Here’s the average mortgage rate by year since 1974…

Chart of Average 30 Year Rate per Year from 1974-2021

Mortgage Rate Outlook

As Freddie Mac explained on August 4:

roll of american dollar banknotes tightened with band

“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

With that said, it’s not easy to predict what will happen to mortgage rates in late 2022. The Fed is likely to keep hiking interest rates in an attempt to bring inflation under control.  Couple that with a recession, however, and mortgage rates could very well move lower.

In Conclusion

Finally, it’s important for you and our clients to understand that the average mortgage is held for less than 7 years…and they are not at all married to that rate, especially if they get better!

If you or your clients are considering a purchase, your real estate search shouldn’t go on hold because of rising inflation or higher mortgage rates.  Contact me for more…as it would be my pleasure to help you.

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Mortgage Rate Update – March 2022

white android tablet turned on displaying a graph

Mortgage interest rates just keep moving higher.  They have risen nearly 1.5% points since January 3rd… and it seems like almost every day rates move up again.

Money Laid Out of Desk

The outlook for lower rates isn’t great right now, thanks mostly to the Federal Reserve’s handling of the money supply and out-of-control inflation.

How will the Fed’s recently announced quarter point hike to the Fed Funds Rate affect mortgage interest rates?  The answer may surprise you.

The Federal Reserve

The Fed Funds Rate is not the same as a mortgage rate because it can change from one day to another, while mortgage rates can be in effect for 30 years. More on that here….

Warning Sign Showing an Arrow Labeled Inflation

Mortgage rates are primarily 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 their buying power.

You probably know that inflation has been rising significantly of late, and as a result, so have mortgage rates.  Inflation is pushing 9%, the highest level we’ve seen in over 40 years.  This has moved mortgage rates into the mid 4% range this week.

Essentially, The Federal Reserve has bungled their management of inflation and now have to make severe changes to offset the damage.  This brings market instability and increased mortgage rates.

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.  Unfortunately, this isn’t an overnight fix.

Federal Reserve Chairman Jerome Powell
Federal Reserve Chairman Jerome Powell

However, the Fed may also reduce its holdings of Mortgage Bonds, which can cause some interest rate volatility.  And if inflation continue to surge, the Fed might not be able to do much to help.  The situation isn’t great at this moment.

30-year fixed mortgage rates

The average 30-year fixed-refinance rate is 4.53 percent, up 20 basis points over the last week. A month ago, the average rate on a 30-year fixed refinance was lower, at 4.17 percent.

At the current average rate, you’ll pay $503.13 per month in principal and interest for every $100,000 you borrow. That’s $7.08 higher compared with last week.

Mortgage Rates and Treasury Yields – a great barometer

Fixed mortgage rates and Treasury yields tend to move together because fixed-income investors compare the returns they can get on government and mortgage-backed securities. 

Investors compare yields on long-term Treasuries to mortgage-backed securities and corporate bonds. All bond yields (including mortgage backed securities) are affected by Treasury yields, because they compete for the same type of investor.

Mortgages, in turn, offer a higher return for more risk. Investors purchase securities backed by the value of the home loans—so-called mortgage-backed securities. When Treasury yields rise, investors in mortgage-backed securities demand higher rates. They want compensation for the greater risk. 

You can dig deeper by reading Kimberly Amadeo’s article here…

You can see the rise in the 10-year treasury yield here…and mortgage rates have been following a nearly identical course over the last 3 months.

Graph of Treasury Yield from Dec 27 to Mar 21

What Really Causes Rates to Rise and Fall?

Mortgage rates are determined by a complex interaction of economic factors, such as the level and direction of the bond market, including 10-year Treasury yields; the Federal Reserve’s current monetary policy, especially as it relates to funding government-backed mortgages; and competition between lenders and across loan types.

Because fluctuations can be caused by any number of these at once, it’s generally difficult to attribute the change to any one factor.  Although in our current situation, inflation (and the Fed’s mismanagement of it) is the number one cause.  When this is coupled with the large increase in government spending, you see a double dose of fear in the markets.

roll of american dollar banknotes tightened with band

In today’s case, the Federal Reserve has been buying billions of dollars of bonds in response to the pandemic’s economic pressures, and continues to do so. This bond-buying policy (and not the more publicized federal funds rate) is a major influencer on mortgage rates.

On March 16, the Fed announced that it expects to begin reducing its balance sheet in May, meaning it will start reducing the overall amount of bonds it owns. This will be on top of its existing move to reduce new bond purchases by an increment every month, the so-called taper, which began in November.

You can find out more here from Investopedia….

Most experts agree that this “taper” will also move treasury yields and mortgage rates higher.

Moving Forward

There may come a point when mortgage rates drop back down and borrowers can enjoy some of the remarkably low rates they were available from mid-2020 through late 2021.

And throughout 2022, we could have periods when rates dip to some degree.

But for the most part, borrowers may need to come to terms with the fact that the days of record-low borrowing are behind us.

With that said, it’s important to put today’s rates into perspective. Compared to the rates we saw from mid-2020 through the end of 2021, the rates above look high. But historically speaking, locking in a 30-year mortgage anywhere in the 4% range is not a bad deal at all.

Graph of Mortgage Rates from 1972-2020

Would you like to find out more?  Contact me to discuss your current situation and how you might be able to take advantage of today’s market.  It would be my pleasure to help you!

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