This week’s Afford Anything blog post is a well-balanced diet:
Robert Kiyosaki predicts a massive crash — [philosophical]
Sobering stats about the housing market — [analytical]
Secret strategies to save on seasonal shopping — [practical]
The Robert Who Cried Wolf
Famed investor Robert Kiyosaki, author of Rich Dad, Poor Dad, recently caused an internet stir by predicting “the start of the biggest crash in history.”
Of course he did.
Kiyosaki is constantly crying wolf. It’s good for (his) business.
Bad news travels faster than good news.
People who prioritize attention over truth will use that to their advantage. Kiyosaki is a shrewd businessman. He understands the profit potential in strategic pessimism.
But that’s bad news for his followers. Per the law of large numbers, it’s reasonable that some people have kept their cash on the sidelines, rather than investing in the markets, after heeding his warnings. And that has massive lifelong ramifications on their wealth and retirement.
Lesson: Beware of anyone who peddles *negativity bias* in order to stay relevant.
These economic fear-mongerers don’t hold accountability for their track record of wrong predictions.
Their followers are the ones who suffer.
This is why it’s critical to choose your mentors carefully — and it’s precisely why you should never blindly enroll in an online class that’s taught by some random person whose ideas you haven’t vetted.
If you’re curious how often Kiyosaki has made the wrong call, note that Stanford-trained data scientist Nick Maggiulli, our guest on Episode 375 of the Afford Anything podcast, shared this illustration on X:
Pessimism has a visceral appeal. It’s evolutionarily advantageous to be hyper-aware of threats.
Our ancestors didn’t survive the jungle or savanna by appreciating the beautiful flowers. They survived by staying hyper-vigiliant of danger. This explains why negativity bias is so innate, so intrinsic. It’s a survival mechanism.
But in the modern developed world, pessimism keeps us overly conservative. We choose the “safe” major. We take the “steady” job. We tilt too heavily into conservative investments when we’re young, and we panic when our 401k’s start to decline. We avoid real estate investing and starting side businesses because these seem too risky.
Pessimism stifles innovation, entrepreneurship, and creativity. It locks us into mundane careers and middling investments as we muddle through risk-averse lives. In the end, we haven’t endured huge losses, but neither have we *embraced a shot* of winning.
As Episode 284 podcast guest Morgan Housel eloquently said:
“Pessimists get to be right. Optimists get to be rich.”
No, The Fed Lowering Interest Rates by 25 Basis Points Is Not Going to Flood the Market with New Housing Inventory 🙄
A little history lesson:
Once upon a time, in 2008, there was a Great Recession. It scared many investors and homebuilders, and they stopped making new homes.
In the decade that followed the Great Recession, new construction reached its lowest point since the 1960’s.
By 2019, the housing shortage amounted to 3.8 million units. This means there were 3.8 million more families and individuals who wanted a place to live — either to rent or buy — than there were homes available.
Then the pandemic struck. The prices of copper, lumber and other construction items shot through the roof (no pun intended). Builders had to raise home sale prices due to higher materials costs. Prices soared.
In 2020 and 2021, people across the internet cried, “Why are they charging so much more than the home is worth?!” — not realizing that “worth” is a function of the cost of labor + the cost of materials + the premium of scarcity.
And when supply is curtailed — as it was by 3.8 million units as of 2019 — there’s an ample scarcity premium.
Then inflation climbed. The Federal Reserve raised interest rates 11 times during their 2022-2023 cycle, resulting in a rapid escalation of mortgage rates.
This created a “lock-in effect” among existing homeowners. Nobody wants to trade a mortgage with a 3 percent fixed interest rate for an alternate mortgage with a 7 percent rate.
Existing homeowners with a mortgage have a huge incentive to hold.
Sellers who *need* to get rid of their property — for example, because they’re moving to another country — list their homes on the market. But homeowners who simply *want* to upsize or downsize are, for the most part, staying put.
This has created even more housing supply pressure.
Meanwhile, homebuilders — who must borrow money to finance their operations — are seeing the cost of capital skyrocket. Many have curtailed new construction, putting further pressure on the supply pipeline.
So we have a long-running confluence of factors that, piece by piece, keep exacerbating the housing supply crunch.
And this leads to today’s takeaway:
No, this problem will not magically solve itself the moment that the Fed reduces interest rates.
The Fed is meeting today and tomorrow. They’re widely expected to hold rates steady. (They’ll make an official announcement at 2 pm on Wednesday.)
There’s rampant speculation that the Fed will lower interest rates in Q1 or Q2 of next year.
— And —
There seems to be a pervasive myth that once interest rates decline, those “locked-in” homeowners will rush to list their homes for sale, flooding the market with new inventory.
The supply-demand imbalance will tilt in the buyer’s favor, home prices will plummet, and housing will become affordable once again.
Yet that is pure fantasy, disconnected from the data.
Imagine 10 people. Nine of them have mortgage rates that are less than 6 percent. The stat is 91.8 percent of mortgaged homeowners, to be precise.
Wait.
Imagine those same 9 people, the 9 out of 10 who have a sub-6 percent interest rate. Here’s how they break down:
One has an interest rate between 5 to 6 percent.
Two have an interest rate between 4 to 5 percent.
Six have an interest rate below 4 percent. The exact stat is 62 percent.
Let me say that again:
Six out of 10 mortgaged homeowners have an interest rate that’s below 4 percent.
Meanwhile:
One-half of mortgaged homeowners (49 percent) say they’d consider listing their home only if interest rates fell below 4 percent, according to a Redfin survey conducted by Qualtrics.
So this myth that if the Fed lowers interest rates, the market will get flooded with new inventory? — That scenario isn’t likely to happen for a long, long, looooong time.
As of Dec 12, 2023, the current average 30-year fixed rate for a buyer with a 740-760 credit score is 7.4 percent. Multiple reductions in interest rates won’t begin to approach the sub-4 percent rates of yesteryear.
The “lock-in effect” will last for longer than you might expect.
Lesson:Don’t wait to buy a home based on speculation about the market. If you have both the money and desire to buy a home, DO IT NOW. Homes are likely going to get more expensive in the future, not less.
How to Not Flush AS MUCH Money Down the Toilet This Holiday Season
Yeah, I know.
The holiday season is custom-built for parting with your money. Every store is promoting sales, discounts, offers. Limited time only.
It’s scarcity on steroids.
Holiday deals tap into the part of our brain that says — “this deal is only available now; I should snag it while I still can.”
Our FOMO creates jobs and drives the economy.
Since holiday spending is human nature, let’s forgo the guilting, shaming and finger-wagging that’s so endemic to the personal finance and FIRE community.
It’s counterproductive. Guilt and shame over holiday spending doesn’t change human behavior, it merely robs the joy from it.
It’s like chowing down a piece of chocolate cake while simultaneously fretting about the sugar.
You’re eating the cake regardless. You may as well enjoy it.
Instead, let’s accept that some degree of holiday spending is normal, and let’s focus on how to find the best deal possible.
Here are four pointers. (If you have more to add, please share these with the Afford Anything community) —
#1: If you’re buying an item at a mid-size company’s website (i.e., a merchant that’s bigger than a mom-and-pop shop, but not a big box retailer like Target or Amazon) — move your cursor near the “back” arrow on the browser.
This is called “exit intent,” and it often triggers pop-ups with discount codes.
#2: For online purchases: Create an account, put an item in your cart, and then leave the website.
This is called “abandoned cart,” and often triggers an automation in which the company emails you a limited-time-offer discount code.
#3: If you’re buying something expensive (over $500 – $1,000 or more), track the price for a few weeks, especially around the holidays. On sites like Wayfair, I’ve seen prices fluctuate daily.
#4: The least useful savings tip: Googling discount / promo codes or pulling these codes from mass aggregator websites.
You may get lucky, but typically 9/10 are expired or don’t work; they just yield a bunch of extra open tabs on your browser.
There’s an enormous selection of third-party websites and browser extensions that claim to help with this, with varying degrees of efficacy.
I’m not going to recommend any specific tools; recommendations are both dynamic and better crowdsourced. Please share your experience with the community.
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Currently, the current average mortgage rate on a 30-year fixed mortgage is 7.30%, compared to 7.29% a week ago.
For borrowers who want to pay off their home faster, the average rate on a 15-year fixed mortgage is 6.44%, up 0.09 percentage points from the previous week.
Homeowners who want to lock in a lower rate by refinancing should compare their existing mortgage rate with current market rates to make sure it’s worth the cost to refinance.
Current Mortgage Rates for January 9, 2024
30-Year Mortgage Rates
Borrowers will pay more in interest this week as the average rate on a 30-year mortgage is 7.30% compared to a rate of 7.29% a week ago.
The annual percentage rate (APR), which includes the interest and all of the lender fees, on a 30-year, fixed-rate mortgage is 7.19%. The APR was 7.22% last week.
If your mortgage is $100,000 and you have a 30-year, fixed-rate mortgage with the current rate of 7.30%, you will pay about $686 per month in principal and interest (taxes and fees not included), the Forbes Advisor mortgage calculator shows. That’s around $146,806 in total interest over the life of the loan.
15-Year Mortgage Rates
The average interest rate on a 15-year mortgage (fixed-rate) sits at 6.44%. This same time last week, the 15-year fixed-rate mortgage was at 6.35%.
The APR on a 15-year fixed is 6.37%. It was 6.30% this time last week.
At today’s interest rate of 6.44%, a 15-year fixed-rate mortgage would cost approximately $868 per month in principal and interest per $100,000. You would pay around $56,177 in total interest over the life of the loan.
Jumbo Mortgage Rates
On a 30-year jumbo, the average interest rate is 7.20%, higher than it was at this time last week. The average rate was 7.18% at this time last week.
Borrowers with a 30-year fixed-rate jumbo mortgage with today’s interest rate of 7.20% will pay $679 per month in principal and interest per $100,000. That means that on a $750,000 loan, the monthly principal and interest payment would be around $5,090 and you’d pay approximately $1.08 million in total interest over the life of the loan.
How Much House Can I Afford?
Buying a house is a huge purchase and can put a big dent in your savings. Before you start looking, it’s important to calculate how much house you can afford and you’re willing to spend.
Not only do you want to consider your income and debt, but you also want to factor in emergency savings and any long-term financial goals such as retirement or college.
These are some basic financial factors that go into home affordability:
Income
Debt
Debt-to-income ratio (DTI)
Down payment
Credit score
How Are Mortgage Rates Determined?
Home loan borrowers can qualify for better mortgage rates by having good or excellent credit, maintaining a low debt-to-income (DTI) ratio and pursuing loan programs that don’t charge mortgage insurance premiums or similar ongoing charges that increase the loan’s annual percentage rate (APR).
Comparing rates from different mortgage lenders is an excellent starting point. You may also compare conventional, first-time homebuyer and government-backed programs like FHA and VA loans, which have different rates and fees.
For the most part, several economic factors influence the trajectory of rates for new home loans. The recent Federal Reserve rate hikes don’t directly cause mortgage rates to rise but have indirectly caused the interest rates for many long-term loans to increase. Rates are more likely to decrease when the Fed pauses or decreases its benchmark Federal Funds Rate.
Further, the inflation rate and the general state of the economy directly impact interest rates. High inflation and a strong economy typically signal higher rates. Cooling consumer demand or inflation may help rates decrease.
What Is the Best Type of Mortgage Loan?
As you compare lenders, consider getting rate quotes for several loan programs. In addition to comparing rates and fees, these programs can have flexible down payment and credit requirements that make qualifying easier.
Conventional mortgages are likely to offer competitive rates when you have a credit score between 670 and 850, although it’s possible to qualify with a minimum score of 620. This home loan type also doesn’t require annual fees when you have at least 20% equity and waive PMI.
Several government-backed programs are better when you want to make little or no down payment:
FHA loans. Borrowers with a credit score above 580 only need to put 3.5% down and applicants with credit scores ranging from 500 to 579 are only required to make a 10% down payment with FHA loans.
VA loans. Servicemembers, veterans and qualifying spouses don’t need to make a down payment when the sales price is less than the home’s appraisal value. VA loan credit requirements vary by lender.
USDA loans. Applicants in eligible rural areas can buy or build a home with no money down using a USDA loan. Moderate-income borrowers can qualify for a 30-year fixed-rate term through the Guaranteed Loan Program. Further, buyers with a very low or low income can receive a 33-year term and payment assistance is available through the agency’s Direct Loans program. Credit requirements differ by lender.
Frequently Asked Questions (FAQs)
What is a good mortgage rate?
A competitive mortgage rate currently ranges from 6% to 8% for a 30-year fixed loan. Several factors impact mortgage rates, including the repayment term, loan type and borrower’s credit score.
How to get a lower mortgage interest rate?
Comparing lenders and loan programs is an excellent start. Borrowers should also strive for a good or excellent credit score between 670 and 850 and a debt-to-income ratio of 43% or less.
Further, making a minimum down payment of 20% on conventional mortgages can help you automatically waive private mortgage insurance premiums, which increases your borrowing costs. Buying discount points or lender credits can also reduce your interest rate.
How long can you lock in a mortgage rate?
Most rate locks last 30 to 60 days and your lender may not charge a fee for this initial period. However, extending the rate lock period up to 90 or 120 days is possible, depending on your lender, but additional costs may apply.
The New York Times reported today that Countrywide fabricated documents related to the bankruptcy case of a Pennsylvania homeowner, raising questions about the business practices of the top U.S. mortgage lender.
The case involves Sharon Diane Hill, who filed for Chapter 13 bankruptcy protection in March 2001 in an attempt to save her home from foreclosure.
After a 60-month bankruptcy plan, Hill’s case was discharged and officially closed on March 9, 2007, with court records showing she was current on her mortgage.
But a month later, Hill received a notice of intention to foreclose from Countrywide, stating that she was in default and owed the company $4,166.
Kenneth Steidl, a lawyer representing Ms. Hill in her bankruptcy case, wrote to the lender a few weeks later stating that Hill had been deemed current on her mortgage during the period in question, but in May Countrywide sent Hill another notice stating that her loan was delinquent, demanding that she pay $4,715.58.
To justify the correspondence, Countrywide produced copies of three letters on company letterhead addressed to the homeowner, Mr. Steidl, and Ronda J. Winnecour, the Chapter 13 trustee for the western district of Pennsylvania.
Steidl said he had never received the letters in question, which were dated September 2003, October 2004 and March 2007, and noticed that his address on the first letter was not the location of his office at the time, but an address he later moved to.
In a later discussion, defense lawyer Ms. Puida said the letters had been “recreated” by Countrywide to reflect the escrow discrepancies.
The lawsuit in Pittsburgh is just one of 300 bankruptcy cases in which Countrywide’s practices have been scrutinized in western Pennsylvania.
Even Narrower Sideways Grind; No Reaction to Auction
By:
Matthew Graham
Tue, Jan 9 2024, 4:28 PM
Even Narrower Sideways Grind; No Reaction to Auction
Friday’s trading session set a reasonably wide range relative to the past few weeks. It also set the highest yields of the past few weeks. But things have gotten increasingly sideways since then. Yesterday’s entire range was well inside Friday’s. Now today’s range is well inside yesterday’s. What does it all mean? There are only so many conclusions to draw from a sideways, increasingly narrow trend. “Indecision” is the most obvious conclusion and that would stand to reason with December’s CPI coming out on Thursday morning. This week’s Treasury auction cycle has some potential to to increase volatility, but that was not the case after today’s 3yr auction (essentially no reaction).
NFIB Biz Optimism
91.9 vs 90.7 f’cast, 90.6 prev
IBD Econ Optimism
44.7 vs 42.0, 40 prev
10:23 AM
sideways to slightly weaker overnight, but buyers in charge early. 10yr down 2.5bps to 4.004. MBS up 1 tick (0.03).
01:25 PM
No major reaction to 3yr Treasury auction (reasonably strong). 10yr down 1.4bps on the day at 4.015. MBS down 2 ticks (.06).
04:08 PM
Still super flat into the close. MBS down 1 tick (.03). 10yr down 1bp at 4.019.
Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.
Stephanie Horan is a lead data analyst for the MarketWatch Guides Team, specializing in home buying and personal finance. Beginning her career in asset management and transitioning to data journalism, Stephanie is a Certified Educator of Personal Finance (CEPF®). She is passionate about translating data to provide digestible insights for a broad audience. Her studies have been featured in CNBC, Bloomberg and the New York Times, among many others.
Edited By:
Andrew Dunn
Andrew Dunn is a veteran journalist with more than a decade of experience in the business and finance arena. Before joining our team, Andrew was a reporter and editor at North Carolina news organizations including The Charlotte Observer and the StarNews in Wilmington. In those roles, his work was cited numerous times by the North Carolina Press Association and the Society of Business Editors and Writers. Andrew completed the business journalism certificate program from the University of North Carolina at Chapel Hill.
Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates rose slightly in the first week of 2024, with the 30-year fixed-rate mortgage increasing by 0.10 percentage points, according to data from Curinos analyzed by MarketWatch Guides.
This slight increase took place in the midst of mixed economic signals. The Labor Department reported that employers added 216,000 jobs in December, exceeding economists’ expectations, while the stock market had a rocky start to the beginning of the year. Through last Friday, the S&P is down roughly 1% year-to-date.
Economists with the Mortgage Bankers Association are still confident that rates will fall over the coming months. The next Federal Reserve meeting is scheduled for the end of January, and though rates may be held steady at that meeting, the board previously indicated that they expect three rate cuts throughout the year.
Here are today’s average mortgage rates:
30-year fixed mortgage rate: 7.18%
15-year fixed mortgage rate: 6.41%
5/6 ARM mortgage rate: 6.90%
Jumbo mortgage rate: 7.03%
Current Mortgage Rates
Product
Rate
Last Week
Change
30-Year Fixed Rate
7.18%
7.19%
-0.01
15-Year Fixed Rate
6.41%
6.38%
+0.03
5/6 ARM
6.90%
6.94%
-0.04
7/6 ARM
7.11%
7.11%
0.00
10/6 ARM
7.19%
7.19%
0.00
30-Year Fixed Rate Jumbo
7.03%
7.08%
-0.05
30-Year Fixed Rate FHA
6.84%
6.90%
-0.06
30-Year Fixed Rate VA
6.85%
6.87%
-0.02
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Wednesday, January 10, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.01
The average 30-year fixed-mortgage rate is 7.18%. Since the same time last week, the rate is down, changing -0.01 percentage points.
At the current average rate, you’ll pay $677.43 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.19%.
15-year fixed-rate mortgages are up, +0.03
The average rate you’ll pay for a 15-year fixed-mortgage is 6.41%, an increase of+0.03 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.41% will cost approximately $866.17 per $100,000 borrowed. With the rate of 6.38% last week, you would’ve paid $864.52 per month.
5/6 adjustable-rate mortgages are down,-0.04
The average rate on a 5/6 adjustable rate mortgage is 6.90%, a decrease of-0.04 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 6.90% will cost approximately $658.60 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are down, -0.05
The average jumbo mortgage rate today is 7.03%, a decrease of-0.05 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product
Monthly P&I per $100,000
Last Week
Change
30-Year Fixed Rate
$677.43
$678.11
-$0.68
15-Year Fixed Rate
$866.17
$864.52
+$1.65
5/6 ARM
$658.60
$661.28
-$2.68
7/6 ARM
$672.71
$672.71
$0.00
10/6 ARM
$678.11
$678.11
$0.00
30-Year Fixed Rate Jumbo
$667.32
$670.68
-$3.36
30-Year Fixed Rate FHA
$654.59
$658.60
-$4.01
30-Year Fixed Rate VA
$655.26
$656.59
-$1.33
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
With mortgage interest rates climbing steadily throughout the first half of 2023 and exceeding 7%, prospective homeowners may be wondering: Will there be any relief going forward? Some experts are optimistic.
Fannie Mae and the Mortgage Bankers Association (MBA) project that rates will fall going into 2024 and throughout next year. In fact, the MBA predicts that rates will end 2024 at 6.1%.
More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
According to CNBC, Citigroup could announce a writedown as high as $24 billion when it reports fourth-quarter earnings Tuesday, more than doubling previous estimates.
The bank’s board is also expected to meet tomorrow to discuss a possible dividend cut, or even an outright suspension, a move Citi had previously said it would not make, but one that could save billions a year.
Additionally, as part of the massive restructuring plan, the New York-based bank and mortgage lender is expected to cut an estimated 20,000 jobs.
The struggling giant is also looking to raise as much as $15 billion from foreign and domestic investors, including Saudi Prince Alwaleed bin Talal.
Alwaleed, who assisted the bank during a crisis in the early 1990s, is Citigroup’s largest individual shareholder, holding a four percent stake in the company.
However, he is unlikely to raise his current stake beyond five percent to avoid regulatory headaches, the WSJ reported.
The Financial Times reported that Citi could also receive $9 billion from Chinese investors, and another $1 billion to $2 billion from The Kuwait Investment Authority.
In November, Citi obtained $7.5 billion in new capital from The Abu Dhabi Investment Authority, just weeks after former CEO Charles Prince was ousted.
At that time, the bank said it expected writedowns of just $8 to $11 billion, a far cry from recent analyst estimates of $15 to $18 billion.
According to a survey conducted by Bloomberg, analysts anticipate Citi to report a fourth-quarter loss of $4.21 billion.
Shares of Citi climbed 45 cents, or 1.60%, to $28.56 Friday on news the company was in talks to acquire new capital.
Check out the latest mortgage layoffs, closures and mergers.
While the average 30yr fixed mortgage rate is still more than 1% below the long-term highs seen in October, it has been rising slowly and steadily in the new year. Today’s average rate is now as high as it has been in 4 weeks.
That’s the dramatic way to say it, but things aren’t as scary when we consider rates are only about 0.2% off the December lows and that the entire drop was more than 1.4% from the October highs.
Today’s bond market movement was sideways. The change in mortgage rates occurred due to timing of market movements yesterday and today as well as the monthly settlement process for the mortgage backed securities (MBS) that underlie day to day mortgage rate changes.
Bond traders remain focused on Thursday morning’s inflation data via the consumer price index (CPI) as the next big potential flashpoint for rate volatility.
Morgan Stanley’s home price outlook is unchanged, but it does see something new in affordability, after a painful year for most homebuyers, as mortgage rates bit in a way they haven’t since the 1980s. James Egan, the bank’s co-head of U.S. securities products research, crunched the data on mortgage rates falling from their recent 8% peak to the 6% range, and sees affordability improving as early as next month to a point unseen since February 2021, which was less than halfway through the pandemic housing boom.
This is needed since “home prices have once again broken through to a new record high,” the note said. Egan and his team cited data showing October’s year-over-year increase of 4.8%. The catch, they say, is that mortgage rates decreased more than 50 basis points in December and close to 70 basis points the prior month. The average 30-year fixed mortgage rate is sitting at 6.8%—much lower than October’s 23-year high, but more than double the 3% range that put a floor under the pandemic era housing boom.
Mortgage rates will also support Morgan Stanley’s forecast from November, which sees prices mildly declining through 2024. “While home prices continue to climb, as these lower rates filter through our affordability calculations the pace of deterioration has slowed to its most benign levels since 2Q21,” the bank’s strategists wrote. “If rates were to hold at these levels, [year-over-year] affordability could improve as soon as next month—which would be the first time this has been the case since February 2021.
“It is our expectation of increases here that has us continuing to expect a mild decrease in home prices in 2024 despite improved affordability and the growth in sales,” the strategists wrote. In late November, the investment bank forecast a 3% drop in nationwide home prices through this year.
If current mortgage rates were to hold, the strategists added, the monthly mortgage payment on a median-priced home would be $185 lower than Morgan Stanley’s existing metric. That would bring the average monthly payment to its lowest level since April. Nonetheless, affordability has already improved some.
The bank found that pending home sales and mortgage purchase applications “remain soft, but the pace of their decline has moderated significantly,” the note read, citing a 15% year-over-year decline in purchase applications and a 5% decline in pending home sales last month. But the investment bank predicts sales to increase this year, with existing-home sales jumping 2.5% year over year, and new-home sales 7.5%.
“While a faster improvement in affordability than we expected introduces upside risk to our forecasts…we expect the absolute levels of affordability and inventory to keep growth from accelerating too quickly,” they wrote.
Existing-home sales retreated to their slowest pace in more than a decade—largely a result of the lock-in effect, which refers to homeowners refusing to sell their homes for fear of losing their low mortgage rates. More than 90% of conventional borrowers have a mortgage rate less than or equal to 6%; nearly 87% have a rate less than or equal to 5%; almost 75% have a rate less than or equal to 4%, according to Morgan Stanley.
However, the lock-in effect seems to be showing signs of easing, as existing-home sales rose in November after five consecutive monthly declines. They’re still down more than 7% on an annual basis, and new-home sales are only up more than 1% year over year. But it is expected that supply will increase this year. For-sale inventory was “virtually unchanged,” in December, following seven consecutive months of declines. Months of supply, which refers to the number of months it would take for all the current homes for sale on the market to sell, has also increased to its highest level since May 2020, the note said.
Subscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up for free.
Mortgage giant Mr. Cooper has tapped Mike Weinbach, a veteran banking executive, as president following current leader Chris Marshall’s expected retirement at the end of this year.
Weinbach, the longtime CEO of Chase Home Lending and former CEO of consumer lending at Wells Fargo, will begin his role Feb. 1, Mr. Cooper announced Tuesday. Marshall, also the company’s vice chairman, will remain onboard to assist with the transition and lead fundraising for Mr. Cooper’s mortgage servicing rights fund.
“I have long admired Mr. Cooper’s impressive record of growth and profitability as well as their commitment to the customer experience, and I am thrilled to hit the ground running with this fantastic team,” said Weinbach in a press release.
Company chairman and CEO Jay Bray in a statement commended Weinbach’s background in consumer lending. Weinbach worked at JPMorgan Chase from 2003 through 2020, heading mortgage operations in his final five years there. He worked in the newly-created consumer lending role at Wells from 2020 to 2022, overseeing the launch of a new portfolio of credit cards.
The incoming president will oversee Mr. Cooper’s originations, servicing and technology efforts. Weinbach steps in at a critical time for the publicly traded giant, following a massive data breach in November exposing the Social Security numbers of over 14 million customers. The incident has spawned over a dozen class action lawsuits from consumers, while Moody’s in November suggested the incident could impact the firm’s creditworthiness.
The company reported strong earnings in the third quarter, posting net income of $275 million, nearly double the amount of its second quarter results. Bray, at the time of the earnings and Marshall’s retirement announcement in October, credited Marshall for implementing “bank-like” efficiencies to the company during the pandemic.
Kurt Johnson, Mr. Cooper’s executive vice president and chief financial officer, then anticipated gains in owned servicing moving forward. As part of the firm’s busy 2023, it closed in August on the acquisition of the servicing business of Home Point Capital. That transaction added $83 billion in MSRs to bring Mr. Cooper’s servicing portfolio closer to $1 trillion.
Regional bank M&T Bank Corp. said today that fourth-quarter earnings slid 70 percent thanks in part to the falling value of its CDO holdings and higher provisions for loan losses.
M&T’s fourth-quarter income dropped sharply to $64.9 million, or 60 cents a share, compared to $213.3 million, or $1.88 per share, during the same period last year.
Analysts polled by Thomson Financial had expected fourth-quarter earnings of $1.63 a share on average.
“The past year was marked by unprecedented turbulence in the financial markets and, in particular, in the residential real estate arena,” CFO Rene Jones said in the earnings release.
The company took a $127 million charge in the fourth quarter related to the falling value of its collateralized debt obligation holdings, reducing earnings by 71 cents per share.
On a positive note, the bank said it reduced its exposure to the risky investments to just $4.4 million as of December 31, 2007.
“M&T has quickly taken the necessary actions to appropriately address a few areas of heightened concern,” Jones added.
“We have eliminated all but $4.4 million of our exposure to collateralized debt obligations backed by residential mortgages and have adequately reserved for losses inherent in the Alt-A residential real estate loan portfolio.”
The Buffalo, NY-based bank pumped up its loan loss reserves to cope with rising mortgage defaults, setting aside $101 million during the quarter, up from just $28 million the prior year.
The total provision for credit losses in 2007 totaled $192 million, up from $80 million a year earlier.
Net loan charge-offs for the year totaled $114 million, or .26% of average loans outstanding, including $53 million in the fourth quarter, up from $68 million, or .16% of average loans in 2006.
“While it is likely that weakness in this sector will continue for some time, we believe that our exposure to residential real estate has been appropriately provided for,” Jones added.