Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
There haven’t been many appealing options for borrowers in the last two years.
With inflation problematic, interest rates were elevated to help rein it in. And while that caused inflation to drop from a decades-high in June 2022, interest rates have been stuck at their highest level in 23 years. On Wednesday, the Federal Reserve elected to maintain that level, keeping the benchmark interest rate range unchanged between 5.25% and 5.50%. This has resulted in higher borrowing costs for everything from mortgages and auto loans to personal loans and credit cards.
One alternative that has remained cost-effective, however, has been home equity. By tapping into their equity via a home equity loan or home equity line of credit (HELOC), homeowners have gained access to large sums of money, often at much lower interest rates compared to the alternatives. But an even lower interest rate is always preferable, leading some to wonder if home equity loan rates will drop further this month. Below, we’ll break down what to expect now.
See what home equity loan rate you could secure online today.
While the Federal Reserve kept interest rates unchanged this week, the implication that higher rates may be staying high for longer was clear. Even absent a formal increase in rates, rates on borrowing products like home equity loans and HELOCs may rise slightly if lenders believe that a rate hike is imminent.
So not only is it unlikely for home equity loan rates to fall in May — they may actually rise. That possibility could become more pronounced if the next inflation report, scheduled to be released on May 15, shows inflation rising yet again. If that happens, an interest rate hike becomes more likely — and rates on home equity products could rise.
Against this backdrop, then, homeowners may want to be proactive. Home equity loan rates are fixed (unlike HELOCs, which are variable). So by pursuing a home equity loan today, owners can lock in today’s low rate before it potentially rises further. And, if rates somehow drop in the months to come, owners could refinance their loan then. What they shouldn’t do, however, is rate for a better rate climate. Instead, get started now and lock in the lowest rate you can find.
Explore your home equity loan options here to learn more.
A lower interest rate isn’t the only selling point for home equity loans now. Here are two other reasons why you may want to pursue this option today:
Home equity loan rates are unlikely to fall in May and they could even rise as the month goes on. But because of that likelihood, and because of the low rate borrowers can secure now, it may be beneficial to act promptly. Combined with beneficial features like access to large sums of money and potential tax deductions for qualifying uses, a home equity loan can be your go-to credit option now. As with all financial products, however, be sure to weigh the pros and cons of this unique loan, as you could risk losing your home in the process if you can’t pay back what you borrow.
Source: cbsnews.com
Higher interest rates are increasing pressure on homebuyers who are already facing a challenging housing market. Many would-be buyers are understandably putting purchasing plans on hold, but there are no signs mortgage rates will drop significantly in the near future, and there are some sensible steps to take if you want to become a homeowner soon.
Mortgage rates surged past 7% for the first time this year on April 18 and continued to climb last week. According to Freddie Mac’s benchmark survey, the rate on a 30-year, fixed-rate loan is averaging 7.17% — more than half a percentage point higher than at the start of the year. And the upward trend may not be over.
Len Kiefer, Freddie Mac’s deputy chief economist, says it’s hard to predict just how much higher rates could rise, given the volatility in the market. A lot depends on data regarding inflation, which is proving to be stickier than everyone hoped for, and market expectations as to when the Federal Reserve will start cutting short-term interest rates.
“Given the current [economic] trajectory we’re on, it’s looking like there’s still some upward momentum,” Kiefer says. “In the very near term, we’ll probably see these rates be at the current level or a little bit higher.”
Most early-year forecasts predicted that mortgage rates would start moving in a slow downward trend throughout the year. While those outlooks seemed to be on the money during the first two months of the year, the opposite has been true in recent months.
According to Bob Smith, head of real estate for Advisor Credit Exchange, for at least the remainder of the year, “Rates are going to be bounded in a range . . . probably in the 6%s, low 7%s.”
It’s unclear when inflation will finally be under control, meaning mortgage rates will probably remain volatile for a while before settling down.
In the long term, Kiefer and Smith see inflationary pressures easing later this year. That should help nudge mortgage rates lower — just “not as much as we had thought,” Kiefer says.
High mortgage rates are hitting buyers right in the middle of the spring buying season. According to Freddie Mac, about 36% of all home sales take place between March and June, making these months the busiest time in the housing market.
Elevated mortgage rates, combined with high home prices and a lack of enough inventory to meet buyer demand, have led to record-high monthly payments. Homeowners insurance costs are at all-time highs as well, up 20% in the past year. These factors are pushing many would-be buyers to put their plans on hold. According to a report by BMO Financial Group, 71% of would-be homebuyers are waiting for rates to drop before buying a house.
Potential home sellers are also feeling the crunch, especially those who bought when rates were much lower. The cost of obtaining a new mortgage at a higher rate is keeping owners locked into their homes.
Despite the challenges, buyers shouldn’t panic. “Rates are, for a large part, temporary. At some point, [they] will go down,” says Scott Bridges, chief CDL production officer at lender Pennymac.
Instead of worrying about things that are out of your control, it’s best to focus on the fundamentals of homebuying to see if purchasing a home right now is the right move (regardless of the rate). Here’s what you can do:
Check your credit score and try to improve it while you’re shopping for a home. Buyers with better credit generally have access to lower mortgage rates. On the other hand, taking on extra debt during this time will reduce your score as well as your debt-to-income ratio, which will cause lenders to offer a higher interest rate on a mortgage. “When rates are higher, every bit of debt counts,” says Bridges.
Higher mortgage rates could move some buyers out of the market, which means more opportunities and less competition for those who can afford to buy. Don’t be afraid to lowball a little bit. With fewer buyers, you may be able to negotiate a lower price or concessions with a motivated seller.
Ideally, you’ll find a move-in ready home that fits your budget. The reality is that homes requiring little to no work attract a lot of attention and you may find yourself in a bidding war. Don’t be afraid to look for homes that may need some TLC. The asking price is likely more negotiable, and you may find you can use the money you save to fix up the home to your taste.
Set a budget you’re comfortable with. Use a housing affordability calculator to get an estimate of how much you can pay towards a home purchase. You can also get loan estimates from several different lenders to find the best rates and loan terms. And remember, the maximum amount a lender is willing to lend isn’t necessarily what you should spend on a home. Set a lower budget if it makes better financial sense or if you want to have some wiggle room if you have to compete against other buyers.
A house is likely the most amount of money you’ll ever spend. Bridges says that homebuyers typically make mistakes when they rush the process. Take the time to inspect the property and ask to see a home appraisal. Make sure it’s the right fit for your needs at the right price for you.
“Try to do things patiently,” says Bridges. “Don’t overpay, and don’t panic.”
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Source: money.com
While mortgage rates remain higher than they were during the housing market’s booming pandemic years, Moody’s Ratings has predicted them to finally start declining over the next few years in a new report.
Exactly a week ago, the Federal Home Loan Mortgage Corporation, better known as Freddie Mac, reported that the average rate for a 30-year-fixed mortgage—the most popular among U.S. borrowers—had reached 7.1 percent, a record high for this year so far.
Read more: How to Find the Right Mortgage for You
Moody’s Ratings’ experts believe mortgage rates will come down—just not as quickly as homebuyers might wish for. The financial research company is currently estimating that mortgage rates will remain higher “than the extremely low levels during the decade of aggressive central bank stimulus that preceded the past two years” in the coming months, but will likely reach around 6 percent or somewhat less by the end of 2025.
This is good news for aspiring homebuyers who have been squeezed out of the market by skyrocketing home prices and high mortgage rates, which climbed as a direct consequence of the Federal Reserve’s aggressive rate-hiking campaign to combat the rise of inflation last year.
While most analysts expect the central bank to lower interest rates this year, the Federal Reserve has so far failed to do so, as the latest data on the cost of living show that inflation remains higher than expected at 3.48 percent in March. The Federal Reserve does not directly set mortgage rates, but any rise in interest rates impacts new mortgage lending.
Read more: Compare Low Rates With the Best Mortgage Lenders
Higher mortgage rates led to a drop in demand in late summer 2022 due to the unaffordability of buying a home for many Americans; but the price correction that followed this slide in demand was rather modest. In spring 2023, prices started climbing back up across the country, as the supply of homes remained low.
While the historic shortage of homes in the U.S. can primarily be traced back to the fact that the country has under-built following the bursting of the housing bubble and the financial crisis of 2007-2008, high mortgage rates have also caused many homeowners to hold on to their homes instead of putting them on the market.
“Many U.S. homeowners have low fixed-rate mortgages that they are reticent to give up, which is constraining existing property listings and sales,” Moody’s wrote in the report.
Faced with a growing demand for new constructions and mortgage interest rate buydowns, the company’s experts expect home prices to avoid significant decline in the coming months, sliding by a moderate 5 percent this year after falling 6.6 percent in 2023.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
The bottom line is the housing market remains in flux and is once again adjusting to the likelihood of interest rates remaining higher for longer after being teased by the potential of a falling rate environment.
This flux has created far more volatility in the housing market, particularly in recent weeks, with the MOVE Index — a measure of rate volatility in the U.S. Treasury market — jumping to as high as 121 in mid-April after ending March near 85.
Ben Hunsaker, a Beach Point Capital Management portfolio manager who is focused on securitized credit, said that during the past year, nonqualified mortgage (non-QM) AAA bond spreads have actually contracted from 155 to 135, while agency mortgage-backed securities (MBS) spreads have widened from about 118 to 134 over the same period.
“With agency spreads moving out 10 to 15 basis points, you would expect that non-QM spreads also have to widen eventually, otherwise the market’s a little bit out of sync,” Hunsaker said. “On a forward-looking basis, you would expect you don’t have the same tailwinds as you did before.”
Volatility in the Treasury market, which trades at a shifting spread below that of mortgage rates, also translates into uncertainty among housing market investors. Market observers say this normally leads to investor hesitancy and a tendency to keep more money parked on the sidelines.
“When interest rate volatility goes up, you generally have lower fund flows, which you’ve seen over the last few weeks,” Hunsaker said.
On top of that, mortgage origination volumes are projected to be flat this year in the agency (Fannie Mae, Freddie Mac and Ginnie Mae) sector, and only slightly better on the non-agency (non-QM) side compared to 2023, according to market experts.
Non-QM mortgages include loans that cannot be purchased by Fannie Mae or Freddie Mac. The pool of non-QM borrowers includes real estate investors, fix-and-flippers, foreign nationals, business owners, gig economy workers and the self-employed.
What does this market uncertainty — marked by low origination volumes and a move toward higher rates for longer — mean for the secondary mortgage market, which creates liquidity for the primary mortgage market via securitization and has a heavy finger on the scale in determining interest rates for homebuyers?
If bond yields rise in the secondary market due to a supply-demand imbalance or because of increased perceived risk, then that also tends to put upward pressure on mortgage rates in the primary market.
HousingWire interviewed a range of experts across the secondary market to get a pulse on the dynamics at play at the end of April across the following sectors: whole loan trading, agency and non-agency MBS, and mortgage servicing rights (MSRs).
Following are excerpts from their responses that reflect on the good, the bad and the ugly of the current market.
“When we came into the year, we thought we were in for as many as five or six rate cuts. That was a problem for sellers of loans. For mortgages, specifically 30-year fixed rate, it was hard to find a buyer willing to make a strong premium payment [on a whole loan purchase] when you think you are going to get four or five or six rate cuts, because that meant rates were going to fall and [mortgage] prepayments [due to refinancing] were going to increase.
“However, what we’re discovering is that those folks that had the courage to put that trade on back in the third and fourth quarter of last year are in the first quarter of this year being rewarded. Because if we are now looking at only one rate cut [in 2024], maybe even one hike — although I think that’s still a pretty low probability — but let’s just say we’re flat — then prepayment speeds should remain low.
“Higher-coupon loans now may [offer] a higher rate of return for longer than someone might have anticipated in a rate assessment that was at the beginning of 2024. … So, basically, if I’m trading [as a seller] a 7% loan right now, I may get a premium — like a solid 102 [over par] or whatever.
“The buyer is going to be happy because the prepayment speeds are likely to remain low given the current Fed stance [of higher for longer], and you can amortize that premium over a longer period of time to get a better yield. So, both seller and buyer are happier with the newer loan.“
— John Toohig, head of whole loan trading at Raymond James and president of Raymond James Mortgage Co.
“There’s a lot of cash on the sidelines. There’s a lot of money out there. This translates into whole loans too.
“In RPL and NPL, which are reperforming loans and nonperforming loans, there’s a ton of demand. We just put a bid out recently and … had over 30 bids. That tells you that folks are trying to grab those loans, either for the real estate — if it’s a nonperforming loan … such as for rentals, accumulating assets for their portfolio — or if it’s reperforming, to get cash flows at a discount.
“Those loans [RPL and NPL] are really rich on the demand side, but the only sellers are those who are forced to sell because it’s at a discount, with the stuff we’ve seen trading in the 80s [below par].
— JB Long, president of Incenter Capital Advisors
“Rate volatility has persisted in the market. It’s essentially like playing a game of Keno [with bets being placed on] what number when, and that money can be lost doing so is not surprising. From my perspective, transaction volume and mortgage origination volume has been on its back — and stayed on its back — for the last year and a half.
“ … There is a book called “Who Moved My Cheese.” And it is a very simple book that highlights a very important premise. A mouse goes looking around, looking around, looking around, and spends all its time looking for cheese. Then [after it finds the cheese], it just keeps going back to the same place, but the cheese is gone.
“The mouse forgot the whole reason he ever found the cheese in the first place, and that’s because the mouse remained nimble and adaptive, as opposed to just hitting the same button as many times as he possibly could. The point is we have to continue to evolve with an evolving market.
“ … [For example], one of the big changes in the [agency] CRT [credit risk transfer] market has been a decision by the GSEs to not issue the most subordinate [securities] tranches. They are the riskiest tranches … and they’re the ones that offer the highest return. The supply of that profile has diminished considerably because they’re not issuing it anymore.
“… So, what happens is those investors go to non-QM subs. … There’s a lot of demand for that sub now [securities backed by non-QM mortgages, particularly those linked to home equity loan products].“
— Peter Van Gelderen, specialist portfolio manager in the fixed-income group and co-head of Global Securitized at TCW
“Inflation is running hotter than expected, but I wouldn’t say it’s out of control. We’ve just been kind of consistently in a range that’s higher than what the Fed would like. .. Rates do feel rich. They do feel high, but I think the market has adjusted pretty well to where the rates are and certainly it’s within the range of expectations.
“The credit spreads [for non-agency MBS] have come in throughout the year, and so the [non-agency] securitization market is open, and it’s functioning from the originator through the aggregator to the end buyer. Everyone can still make it work.
“It’s by no means the best market anyone’s ever seen, but [non-agency mortgage] originations are growing. … It’s a market that’s diverse in product types and participants.“
— Dane Smith, senior managing director and president of Verus Mortgage Capital
[Editor’s Note: Kroll Bond Rating Agency (KBRA) expects 2024 issuance for non-agency MBS to be approximately $67 billion, up 22% year over year. Home equity lines of credit (HELOCs) and closed-end second (CES) originations are expected to account for $11 billion of the increase. KBRA’s measure of non-agency loans encompasses the prime jumbo, nonprime/non-QM, and home equity lending spaces, as well as credit-risk transfer deals.]
“The lock-in effect [of homeowners staying in place due to low mortgage rates] has taken so many homes off the market that you’re seeing reduced sales volume, which creates fewer issuances of mortgages so that the market doesn’t have to metabolize that many loans.
“… But you still have this issue that the Fed displaced real money investors [in the agency MBS acquisition market] for a whole business cycle, a decade, [before pulling back from the market starting in 2022] and that market just doesn’t reappear overnight.
“… We’ve never had this many people that have a loan that’s so far below prevailing rates. So, we’re in a part of the cycle that people can’t look to a model and say, ’This is what’s going to happen,’ because we’ve never been here before.
“… Lower interest rates will create more [agency MBS] issuance, but more issuance creates a wider basis [spread from Treasurys] because there’s now a lack of investor demand versus the added MBS supply, and this creates higher primary mortgage rates to account for the lower investor bids for the excess MBS supply.
“… It’s a structural issue that I would love to see more focus on … because if you don’t have a couple of trillion dollars of excess balance sheet out there somewhere that’s priced appropriately, then the homeowner is going to end up paying more for their mortgage than they otherwise would.“
— Sean Dobson, chairman and CEO of real estate investment firm Amherst
“I think agency spreads have a pretty high correlation to interest rate volatility, so when you go from relatively low interest rate volatility, like where we came into April, to where we are today, it’s a pretty big shock to the agency mortgage market.
“And accordingly, you’ve seen agency spreads widen pretty materially. [April has] been a really bad month for agency mortgage-backed securities. … The supply-demand for agency MBS is probably in balance, however, and it’s in balance because there’s very light creation of new agency MBS [about $232 billion of agency MBS issuance in Q1 2024, compared with $223 billion in Q1 2023, according to the Securities Industry and Financial Markets Association (SIFMA)].
“… The money managers who really drove spreads tightening [in the agency market] from middle of last year to the end of last year, they’ve become pretty overweight in agency MBS. … But there’s still a lot of annuity money being deployed from annuity sales, and so that should be a continued tailwind [for the overall secondary mortgage market].
“Insurance is really the 900-pound gorilla in the room driving the bus, so they matter a lot, and there’s not a lot of credit creation that can satiate their needs.“
— Ben Hunsaker, portfolio manager focused on securitized credit for Beach Point Capital Management
“You were able to get [MSR] trades off [much of] last year with interest rates somewhat certain. But then when the uncertainty hit [late in the year, with rates declining] that slowed the fourth-quarter [deal volume], and that’s what was reflected [in the number of deals closing] when we came into this first quarter.
“Then all this data starts coming out and it became obvious that [rate cuts were] not going to happen, and that gave a lot more confidence to the buy side. [MSRs tend to price better in a high or rising rate environment because prepayment speeds are reduced. They tend to lose value in a falling rate environment as mortgage prepayments increase, reducing the payout of MSRs.]
“So, look, pricing began to pick up [as it became clear rate cuts were not likely in the near term], but we also saw an interesting phenomenon. And that is the capital that was tied to highly efficient, highly capable [refinance- and home equity loan-focused] recapture platforms decided it was not as concerned about interest rates [going] either way.
“If rates do not move, [they are] comfortable with the pricing that they’re paying today based on just the steady prepayment speeds and the cash flows, and they’re clipping coupons each month based off of those payments coming in. However, when rates do move, they are going to be in position to recapture [those customers via refinancing].
“… So, we now have a strong appetite for the MSR asset, whether it’s out of the money — which to us is below prevailing market rates — or at the money, and we also have a strong demand for both conventional as well as government [MSR assets].
“I will paraphrase a seasoned veteran in the industry that I was talking to recently, who said candidly, ’I have never seen the market like it is today — how extremely active and busy it is.’
“I’m not calling a peak yet. There’s a lot of interest from some pretty significant [investor] sources, who have a lot of capital [and] who are still looking to buy … And it’s driven again by [a desire to] put units on their platform, maintaining efficiencies, while also then having the ability to recapture when — and who knows when — that market opportunity presents itself.“
— Tom Piercy, chief growth officer at Incenter Capital Advisors
[Editor’s Note: Year to date, Incenter has announced auctions for some $15 billion in new bulk MSR deals, which does not include privately negotiated deals.]
“I don’t know if this is the peak or if … rates are going to continue to go up from here, and MSR values are going follow suit or not. But I think people are of the mindset that it’s now higher for longer [on rates].
“It’s hard because of low [housing] inventory levels and higher interest rates to bring in new originations, but that’s the reason why so many of these servicers keep going back to the same well, with a focus on offering cash-out refinance [or closed-end second liens, or home equity lines of credit] to existing customers, given that can be a source of some volume.
“It’s been a strong [MSR] market [so far this year], with some really attractive execution levels that are, dare I say, being influenced by one’s ability to recapture these borrowers. … It’s hard to convince a borrower with a 3% note rate to cash-out refinance into a 7% note rate, but they can still tap their equity by taking out a HELOC or closed-end second without impacting the rate on their first lien.
“I’ve got probably three or four deals I’m currently working on, so [MSR] volume and pricing are strong. We’ve seen some high-5 multiple trades [historically a great deal in this measure of pricing on MSR pools].
“I think [MSR trading volume] this year is going to be on par, if not slightly better, than last year [which would mark the fourth year in a row that the MSR market has recorded trading volume near the $1 trillion level].“
— Mike Carnes, managing director of MSR valuations at Mortgage Industry Advisory Corp. (MIAC)
[Editor’s Note: Year to date, MIAC has announced auctions for some $6.4 billion in new bulk MSR deals, which does not include privately negotiated deals.)
Source: housingwire.com
The number one rule of the marketplace is to understand your customer. Knowing what they need, what they want and what they fear is fundamental for success. The housing market has shifted. Today it’s dominated by baby boomers who make up 39% of all homebuyers and 52% of all home sellers.
Known as “Peak 65”, in 2024 more than 12,000 people per day will turn 65. The massive age wave is cresting over the next three years, and by 2030 all boomers will have turned 65. This has baby boomers deeply concerned about retirement, as they are scrambling to prepare for life after work. The expensive and limited housing inventory today has created a scarcity mentality, that has Realtors struggling to provide appropriate housing for an aging population.
To retire successfully, to meet the challenges and manage the risks boomers face, they will need to secure their own personal, Financial Trifecta of:
These critical needs are the fundamentals of retirement planning, and “Peak 65” demographics will largely reshape housing, real estate and lending for decades to come.
To understand your boomer customer is to know what they fear most. In this age of longevity, when the boomer generation must plan for decades of life after work, the big fear is running out of money. In my experience of serving boomers for more than four decades, the biggest fear is the loss of their independence, and becoming a burden on their children if they run out of money.
Those Realtors, builders and originators who choose to serve this massive market shift, will need to accommodate the Retirement Trifecta. Baby boomers value relationships with those providers, that customize solutions to fit their needs and wants to retire.
Housing costs will likely be the number one expense through retirement. Because 78% of boomers surveyed want to age-In-place, costs of home modification and maintenance will need to be carefully planned out.
Boomers in pursuit of their Trifecta will need us to understand and accommodate the urgent demands of their retirement. A housing professional’s value proposition must extend beyond building and selling homes and originating mortgage loan transactions. The housing industry must provide real solutions to the challenges that a rapidly growing, elder centric population demands. The industry professionals with the vision to adapt their services will be those who will thrive and help usher in a great new era of American housing.
The baby boom generation has created more housing wealth than any other generation in history. Today, boomers have approximately 13 trillion in available home equity. Boomers home equity will likely grow past 20 trillion by the end of this decade. Today, boomers are living in the very asset needed to help provide for their personal Retirement Trifecta.
To solve the problems we face, and unleash the possibilities of the future, we as an industry must elevate the scope and purpose of our work. We need inspired home-building that includes universal design. We need Realtors trained in matters of aging-in-place, who are committed to guiding senior buyers into buying decisions that will provide housing security for the long-term. We also need a growing professional class of strategic mortgage planners committed to providing home equity conversion solutions that address the demands of the Retirement Trifecta.
From my experience as a home builder, and a mortgage planning specialist, having sat down at more than 4,000 kitchen tables, serving the housing needs of homeowners since 1976, this truth I confidently share with you.
“The single most impactful quality of life decision people make, is the home in which they choose to live.”
Home is where family happens, and we who provide housing have the great privilege, through our life’s work, to make the dreams of those we serve, the possible dream.
To contact the editor responsible for this story: [email protected]
Source: housingwire.com
Mortgage rates have climbed five weeks in a row and are now at their highest levels since the week before Thanksgiving.
The average rate on the 30-year fixed-rate mortgage rose to 7.32% in the week ending May 2, according to rates provided to NerdWallet by Zillow. It was an increase of nine basis points over the previous week. (A basis point is one one-hundredth of a percentage point.) It marked the highest level since mid-November.
The 30-year mortgage has risen 63 basis points in five weeks. That’s unusual. When mortgage rates go up, they usually climb unhurriedly, like they’re taking the stairs. But they hopped an elevator a little more than a month ago. Inflation is the culprit.
The core consumer price index stood at 5.6% year-over-year in March 2023. Six months later, core inflation had slowed to 4.1%. It looked like inflation was steadily moving toward the Federal Reserve‘s goal of 2% after the Fed had raised short-term interest rates 11 times in a year and a half.
But since last fall, progress on inflation has stalled. From October to March (the last inflation report available), core inflation dropped from 4% to 3.8%.
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Even the Fed expressed frustration about inflation’s persistence. “In recent months, there has been a lack of further progress toward the Committee’s 2% inflation objective,” the central bank said in a statement May 1 at the conclusion of its monetary policy meeting. That might seem like a mild-mannered assertion, but in the buttoned-up world of the Fed, it’s the equivalent of banging one’s head against the desk.
At a news conference, Fed Chair Jerome Powell was asked repeatedly if the central bank will be compelled to raise short-term interest rates again to restrain inflation. He said a rate hike is unlikely. But he said he’s not in a hurry to cut the federal funds rate, either. “We want to be confident that inflation is moving … sustainably down to 2%,” he said.
The Fed doesn’t set mortgage rates — financial markets do — but the central bank exerts a strong influence. This outlook wasn’t news to financial markets. Investors know that inflation is lingering. Markets concluded more than a month ago that the Fed wouldn’t cut rates in the near future. That’s when mortgage rates embarked on this multiweek rise.
Home buyers and sellers might be growing accustomed to these interest rates, prompting them to get on with their lives by making and accepting offers for real estate.
About 93,000 homeowners listed their homes for sale last week, according to Mike Simonsen, president of Altos Research, a real estate analytics firm. “That’s much more than in any week in the entire last year,” he said in his weekly YouTube commentary. He added that 76,000 offers were accepted last week, “more than any week in 2023.”
Increases in listings and sales reflect multiple motivations: Some sellers and buyers may have wanted to act before mortgage rates climb even higher, while others might have given up on the prospect of lower rates anytime soon, prompting them to take action. It’s best to avoid timing the market and instead to buy or sell a home based on one’s needs. The bottom line is that houses continue to change hands, even with mortgage rates above 7%.
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Source: nerdwallet.com
Making the move from an apartment to a house is a significant step in many people’s lives. It often signifies a transition to a new stage, whether it’s starting a family, advancing in your career, or simply desiring more space and freedom. While apartment living has its perks, such as convenience and lower maintenance, upsizing to a house offers numerous advantages that can greatly enhance your quality of life.
Breaking down what upsizing truly means creates a less overwhelming experience.
One of the most obvious advantages of moving from an apartment to a house is the increase in living space. Houses typically offer larger rooms, additional bedrooms, and more storage options, allowing you to spread out and enjoy more privacy. This extra space is especially beneficial for growing families or individuals who work from home and need a dedicated office space.
With more space, however, comes more stuff. Kelly Dever, founder of Your Right Hand Mom, recommends setting intention into place before you upsize. “Begin your upsizing journey by downsizing your belongings,” Dever notes. “A thorough declutter session before you pack means you only bring items that add value and joy to your new home. This not only simplifies moving but also eases the organization process in the larger space.”
Dever also notes this will create ease around filling your new space. “As you settle into your new house, systematically assign a home for every item. This practice wards off the sprawl of random clutter and cultivates an environment where order prevails.”
Ronda Bowen, of The Well Caffeinated Mom, echoes that decluttering is important when moving into more space. “If you have boxes of random things (referred to as doom boxes), go through those boxes, declutter them, and repack them where they belong,” Bowen emphasizes. “When you arrive in your new space, do your best to unpack your home within the first couple of weeks of living there to avoid new clutter.”
Upsizing your home will allow for more space to show your creative side in design, Jamie Mitri, founder and CEO, of Moss Pure shares. “Upsizing creates the opportunity to add wall art to your wall space and do it in a unique and custom way. For example, you can own a larger, custom piece of wall art, like one by Moss Pure, instead of several smaller pieces of art,” Mitri explains.
“Moss Pure creates stunning spaces using live moss wall art that doubles as an art filter and stress relief device. The live moss stays alive in the patent-pending design indefinitely without needing watering, sunlight, or maintenance. And it’s totally customizable to your space.” Unique decoration opportunities, like Moss Pure, can transform your house into a personalized sanctuary that reflects your taste and style.
Going from small decorating and living space to almost double the space can also be challenging and overwhelming. Ana with Mrs. American Made, recommends not jumping immediately to buying a ton of new furnishings and decor. “My best advice is to decorate and organize with secondhand items,” Ana suggests. “It’s better for the environment and more eco-friendly. There are so many gently used unique, useful, and cute items out there that it doesn’t make sense to buy new and at full price.”
For those who prefer to ease their way into decorating a larger space, Shay Moné recommends starting with simply painting the walls. “Paint is the easiest way to elevate a space, and a fresh coat of any shade of white can do the trick,” Moné explains. Her top six creamy white paint colors are:
Many apartments lack outdoor space or have limited access to communal areas. Moving to a house often means gaining a backyard, patio, or garden where you can relax, entertain guests, and enjoy outdoor activities. Having your own outdoor space provides opportunities for gardening, barbecuing, or simply soaking up the sun on a lazy afternoon.
Houses typically offer greater privacy compared to apartment living, where you may share walls, floors, or ceilings with neighbors. With more space between you and your neighbors, you can enjoy a quieter and more peaceful environment, free from the noise and disturbances often associated with communal living.
Owning a house can be a smart long-term investment, as real estate tends to appreciate in value over time. Unlike renting, where your monthly payments only benefit the landlord, homeownership allows you to build equity and potentially profit from property appreciation.
While apartment complexes often foster a sense of community through shared amenities and social events, living in a house within a neighborhood offers a different type of community experience. You can get to know your neighbors, participate in local events and activities, and become involved in neighborhood associations or volunteer groups. Building relationships with your neighbors can enrich your life and provide a support network within your community.
Unlike renting, where maintenance and repairs are typically handled by the landlord, homeowners are responsible for maintaining their property. This includes tasks such as lawn care, snow removal, and regular upkeep of the house’s exterior and interior. While this additional responsibility requires time and effort, it also allows homeowners to take pride in their property and ensure it remains in good condition.
Upsizing to a house often comes with higher expenses compared to renting an apartment. In addition to mortgage payments, homeowners must budget for property taxes, homeowner’s insurance, utilities, and ongoing maintenance costs. It’s important to carefully evaluate your financial situation and create a realistic budget to ensure you can afford the additional expenses associated with homeownership before moving from apartment to house living.
While moving from apartment to house living or otherwise upsizing may induce stress, Megha with Crafts N Chisel reminds us of the beauty in this exciting life change. “Transitioning from an apartment to a house presents an exciting opportunity to elevate one’s design and decorating experience. A well-adorned environment fosters mental agility, with walls and tables adorned with vibrant art and uplifting themes promoting a healthy mind and body,” Megha shares. “Harmony is achieved by aligning the color scheme of artworks with that of furniture and furnishings while ensuring proportional sizing and placement. This balance enhances both the beauty of art and the space it inhabits.”
By taking the time to consider these factors and truly embrace the excitement of the upsizing adventure, you’ll be equipped to make a decision that feels right for you and your loved ones. Sure, there may be hurdles along the way, but the potential rewards of homeownership just might be worth it. From having more space to call your own to the joy of customizing every nook and cranny, owning a house can be a deeply fulfilling journey that enriches your life and creates lasting memories for you and your family.
Source: rent.com
‘It’s not my motivation to always do something timeless,’ Kristina Crestin told me in our interview this week.
In a design landscape where we’re constantly discussing how to make interiors more ‘timeless’ or ‘anti-trend,’ it seems like a shocking revelation. The statement is especially surprising, coming from Crestin, a champion of the ‘classic’ modern farmhouse style in her HGTV series Farmhouse Fixer. Actually, her reasoning is quite freeing.
‘I get a lot of feedback from homeowners that have gone safer and more timeless with some things, but they just don’t love it as much as the places they took risks,’ Crestin explained on the home decor idea. Rather than guiding your interior design based on arbitrary ideas of what’s ‘outdated,’ Kristina recommends choosing an interior scheme based on personal taste.
When one is guided by personal taste, it’s easy to be drawn to current interior design trends. Crestin doesn’t necessarily think this is a bad thing. Instead, choosing where to integrate interior design trends you love requires reconfiguring where and how to spend budget. She used the analogy of buying a new wardrobe.
timeless interior design and focusing on the joy of the process. Crestin told Homes & Gardens: ‘I think people get trapped with the idea that they’re doing this once, they’re spending the money once and then they’re not going to change it for 15 years. Well, you wouldn’t address your wardrobe that way. Knowing that over time you might need to supplement some things takes the pressure off of feeling like it’s one and done. It’s more of a psychological thing.’
The modern farmhouse style, often seen on Farmhouse Fixer, perfectly strikes the balance of incorporating trendy elements, but also remaining true to timeless materials and high-quality design.
Sherpa Shams
Wheel Chandelier
Marble Coffee Table
Whether you prefer following interior design trends or opting for more classic interior design, Crestin’s ideas are helpful reminder that it’s always okay to decorate to the tune of your own drummer. If you hate it, you can always change it later.
Source: homesandgardens.com
Historically speaking, mortgage rates have remained relatively low since the Great Recession, with some fluctuation at times due to market conditions. As a result, a generation of homebuyers has become accustomed to a low 30-year fixed-rate mortgage.
But with mortgage rates on the rise, it can put a sour taste in the mouths of people trying to join the ranks of homeowners in the country. They may be thinking that they missed an opportunity to buy a home. However, it’s important to look at the history of mortgages and mortgage rates to put the current conditions into context.
The modern history of mortgage lending in the U.S. began in the 1930s with the creation of the Federal Housing Administration. From the 1930s through the 1960s, a combination of government policy and demographic changes made owning a home a normal part of American life. During this time, the 30-year fixed-rate mortgage became the standard for home mortgage loans.
When discussing the fluctuation of mortgage rate trends, analysts usually refer to the average 30-year fixed-rate mortgage. Here’s a look at the trend of these mortgage rates since the 1970s.
Throughout the 1970s, mortgage rates rose steadily, moving from the 7% range into the 13% range. This uptick in rates was due, in part, to the Arab oil embargo, which significantly reduced the oil supply and sent the U.S. into a recession with high inflation — known as stagflation.
As a result, Federal Reserve Chairman Paul Volcker made a bold change in monetary policy by the end of the decade, raising the federal funds rate to combat inflation. Though the Federal Reserve doesn’t directly set mortgage rates, its monetary policy decisions can still impact many financial products, including mortgages.
The average 30-year fixed-rate mortgage hit an all-time high in October 1981 when the rates reached 18.63%. The Federal Reserve’s tight monetary policy affected this high borrowing cost and put the economy into a recession. However, inflation was under control by the end of the 1980s, and the economy recovered; mortgage rates moved down to around 10%.
Mortgage rates continued a downward trend throughout the 1990s, ending the decade at around 8%. At the same time, the homeownership rate in the U.S. increased, rising from 63.9% in 1994 to 67.1% in early 2000.
Several factors led to a housing crash in the latter part of the 2000s, including a rise in subprime mortgages and risky mortgage-backed securities.
The housing crash led to the Great Recession. To boost the economy, the Federal Reserve cut interest rates to make borrowing money cheaper. Mortgage rates dropped from just below 7% in 2007 to below 5% in 2009.
Recommended: US Recession History: Reviewing Past Market Contractions
Mortgage rates steadily decreased throughout most of the 2010s, staying below 5% for the most part. The Federal Reserve enacted a zero-interest-rate policy and a quantitative easing program to prop up the economy during this time following the Great Recession. This helped keep mortgage rates historically low.
The Federal Reserve reduced the federal funds rate to near-zero levels in March 2020, causing a drop in rates of various financial products. The effects of the fallout from the Covid-19 pandemic pushed mortgage rates below previous historic lows. The average 30-year fixed-rate mortgage hit 2.77% in August 2021.
However, with inflation reaching levels not experienced since the early 1980s, the Federal Reserve reversed course. The central bank started to tighten monetary policy in late 2021 and early 2022, which led to a rapid increase in mortgage rates. In May 2022, the average mortgage rate was above 5%. While this was below historical trends, it was the highest rate since 2018. From there, the 30-year fixed rate mortgage crept upward, reaching a high of 7.79% in October 2023 before declining to 7.1% in April 2024.
Recommended: How Inflation Affects Mortgage Interest Rates
As we can see from looking at interest rate fluctuations, major economic events can significantly impact mortgage rates both in the short and long term. As noted above, this has to do primarily with the Federal Reserve.
Federal Reserve actions influence nearly all interest rates, including mortgages through the prime rate, long-term treasury yields, and mortgage-backed securities. The Federal Reserve sets the federal funds benchmark rate, the overnight rate at which banks lend money to each other.
This rate impacts the prime rate, which is the rate banks use to lend money to borrowers with good credit. Most adjustable short-term rate loans and mortgages use the prime rate to set the base interest rates they can offer to borrowers. So, after the Federal Reserve raises or lowers rates, adjustable short-term mortgage loan rates are likely to follow suit.
Longer-term mortgage rates have also risen and fallen alongside economic and political events with movement in long-term treasury bond yields. In the short term, a Federal Reserve interest rate change can affect mortgage markets as money moves between stocks and bonds, affecting mortgage rates. Longer-term mortgage rates are influenced by Fed rate changes but don’t have as direct an effect as short-term rates.
Recommended: Federal Reserve Interest Rates, Explained
If you have a mortgage with a variable interest rate, known as an adjustable-rate mortgage, changing rates can affect your loan payments. With this type of home loan, you may have started with an interest rate lower than many fixed-rate mortgages. That introductory rate is often locked in for an initial period of several months or years.
After that, your interest rate is subject to change — how high and how often depends on the terms of your loan and interest rate fluctuations. These changes are generally tied to the movement of interest rates, but more specifically, which index your adjustable-rate mortgage is linked to, which can be affected by the Fed’s actions.
However, most adjustable-rate mortgages have annual and lifetime rate caps limiting how high your interest rate and payments can change.
If you took out a fixed-rate mortgage, your initial interest rate is locked in for the entire time you have the home loan, even if it takes you 30 years to pay it off.
Recommended: What Is a Good Mortgage Rate?
If you are in the market to buy a home, it might be tempting to rush and buy when mortgage rates drop a bit, or to put off buying until rates hopefully decrease in the future. However, choosing the perfect time to buy a home based on the ideal rate can be difficult. You’re probably better off letting your need for a home and your personal financial situation drive your decision making. (Do you have a down payment saved up? Is your debt under control?) When it’s time to buy, do your research and choose the best mortgage available for your personal situation.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
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Source: sofi.com
America’s housing crisis is real, and it’s getting worse. Home prices have shot up by an average of 30 percent over the past several years, and in 2023 home sales were lower than they had been in almost 30 years. A recent survey revealed that only 53 percent of non-homeowners believe they could one day own a home, while 12 percent say the possibility of owning a home feels “hopeless.” The Cold And Uncared For Society (CAUFS) defines housing as unaffordable if it costs more than 30 percent of an individual’s income, yet more than 18 million households in the U.S. currently pay more than half their income for housing.
In response to this crisis, independent presidential candidate Robert F. Kennedy Jr. has proposed a new federal home loans program, aiming to provide government-backed 3 percent mortgage bonds to anyone unable to afford a house.
“If you have a rich uncle who co-signs your mortgage, you will get a lower interest rate because the bank looks at his credit rating,” Kennedy said at a town hall in South Carolina. “I’m going to give everyone a rich uncle, and his name is Uncle Sam.”
This should ring an ominous bell to anyone trying to pay off federal college loans. Kennedy’s plan is essentially a clone of the federal student loans program but for first-time home buyers instead of teenage college students. The concept is that if you can’t buy a house because of insufficient funds, the government will lend you the money. What could possibly go wrong?
To answer this question, just look at what happened with federal student loans. Colleges know that students have access to easy loans, so they raise tuition with little fear of losing enrollment. This has resulted in a vicious cycle where college tuition far outpaces inflation, leaving millions burdened with crippling debt and limited financial opportunities after graduating.
As student loan debts ballooned, so did tuition rates. The Congressional Budget Office reports that between 1995 and 2017 federal student loan debt grew “from $187 billion to $1.4 trillion (in 2017 dollars).” This is because colleges kept raising tuition, knowing that students could borrow to cover it.
Al Lord, the former CEO of Sallie Mae—once the largest federal student loans lender—explained the phenomenon simply: “Schools were able to hike tuition since students now had expanded access to loans.” Lord further admitted that colleges raise tuition rates “because they can, and the government facilitates it.”
A study from the Federal Reserve Bank of New York revealed that each additional dollar in student aid corresponds to a 60-cent increase in tuition. The pattern is clear: more student aid means higher tuition.
Applying this logic to Kennedy’s home loan plan, it’s easy to see the potential pitfalls. If the government makes it easier to buy homes, will it lead to higher prices? Almost certainly, because Kennedy’s proposal doesn’t address the core problem: There aren’t enough houses in the market for people to buy.
Construction of multifamily housing units in America has declined by one-third since 1987, and of those built in 2021, only 5.4 percent were for sale as condominiums rather than rental apartments. This scarcity drives prices up, creating a market where even modest homes are out of reach for many.
Onerous regulations, such as single-family zoning, height restrictions, and permitting delays make it difficult to build more housing, which is the key to solving the crisis. Yet, these harmful rules persist because local politicians are afraid to upset residents who fear that new developments will raise housing costs. However, research shows in reality, these developments reduce the cost of housing.
A basic grasp of economics makes clear that when supply is low, prices go up. To lower prices, we certainly shouldn’t replicate the student loans debacle by giving people federal bonds that will undoubtedly lead to further price increases. We should build more homes.
If Kennedy wants to solve the housing crisis, he should start by understanding it.
Source: reason.com