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Mortgage rates dipped to their lowest level last week since early February, according to the Mortgage Bankers Association’s weekly survey, a welcome milestone for prospective homebuyers plagued by high borrowing costs that have surged in the past two years.
The average 30-year fixed rate last week was 6.84% for home loans less than $766,550, according to the poll of American mortgage brokers, down 18 basis points from last week’s 7.02% and dipping below 7% for the first time since the first week of February.
Mike Fratantoni, the Mortgage Bankers Association’s chief economist, explained in a statement the downward move in mortgage rates came as recent data painted a far more encouraging economic picture for the Federal Reserve to bring down interest rates.
That would likely cause mortgage rates to fall as the central bank’s rates strongly influence the rates set by lenders.
Homebuying activity ramped up as mortgage rates declined, as the Mortgage Bankers Association reported a 7% increase in national mortgage applications, though Fratantoni noted total volume is down about 11% year-over-year.
Mortgage rates remain significantly elevated from where they stood for much of the last two decades. The average 30-year fixed mortgage rate was about 3.8% in March 2022 and 3% in March 2021, according to federal mortgage lender Freddie Mac, with the low interest rates coming as the Fed held its target federal funds rate at close to zero in its bid to stimulate the economy in the wake of the Covid-19 pandemic. Still, mortgage rates are significantly below their 23-year peak of 7.8% hit last October. Though individual brokers actually set mortgage rates for individual applicants, the Fed’s monetary policy heavily influences mortgage rates as its target federal funds rate determines the costs at which banks can borrow from one another, setting a standard for the cost of borrowing throughout the economy.
Last week’s monthly jobs update revealed the highest unemployment rate since January 2022 and lower job growth than previously reported, while Tuesday’s inflation report indicated a significant decline in inflation in the services sector. Though some experts, such as Fratantoni, viewed the weak spots in the reports as a boon, the market remains unconvinced, as 10-year Treasury yields are up as hopes for an interest rate cut in the first half of this year declined.
The spread between mortgage rates (about 7%) and U.S, government bond yields (about 4.2%) sits at close to its highest level in more than three decades, an indication that institutional investors are less attracted to the prospect of holding riskier mortgages when safer government bonds are available at high yields.
Source: forbes.com
Mike Fratantoni, the chief economist and senior vice president of research and industry technology at the Mortgage Bankers Association (MBA), addressed three major challenges in the housing market during testimony before the U.S. House of Representatives‘ Financial Services Subcommittee on Housing and Insurance.
The biggest challenge in today’s housing market is the lack of inventory, Fratantoni said in his written statement on Wednesday.
“While the demographic fundamentals of the market continue to support strong housing demand for the next several years, the market is millions of units short of that needed to support this demand,” he said.
The silver lining, however, is that builders have picked up their pace of construction. New homes now account for roughly one-third of homes on the market, which compares to a more typical historical share of 10%.
As a result, a large delivery of multifamily units is expected over the next few years, but the recent trend in elevated mortgage rates has exacerbated this supply shortfall, Fratantoni explained.
Compounding the lack of supply is the proverbial “lock-in“ effect that has disincentivized homeowners to sell their current properties, thereby giving up a low mortgage rate and taking on a new loan at a much higher rate.
“A homeowner that was able to refinance into a low-3% or high-2% mortgage rate is just much less likely to list their property,” Fratantoni told lawmakers. “It doesn’t mean they’re never going to list … but it’s a friction in the system, so it’s going to keep existing inventory much lower than it otherwise would be.
“That’s been a support to home prices, but for someone trying to get into the market, it’s really an obstacle.”
Fratantoni also expressed concern that the recent Basel III Endgame proposal would accelerate the trend of the mortgage market shifting away from depository institutions, particularly large banks, toward non-depositories and independent mortgage banks.
The Basel Endgame proposal — issued by the Federal Reserve, Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) in July 2023 – boosted capital requirements for residential mortgage portfolios at large U.S. banks in comparison to international standards.
Under the draft proposal, 40% to 90% risk weights would be assigned for large banks that issue residential mortgages, depending on the loan-to-value ratio, which is 20 basis points above the international standard.
MBA’s comment letter highlighted the overly conservative risk weights on mortgages — particularly for low down payment loans favored by first-time homebuyers — and the lack of benefit for loans with mortgage insurance. It also mentioned the punitive treatment of mortgage servicing rights (MSRs) and the burdensome treatment of warehouse lending as being particularly negative for the mortgage market.
The Basel Endgame proposal would increase capital requirements on all three types of mortgage activities by banks — low down payment loans held on balance sheets, mortgage servicing and warehouse lending.
As a result, the Basel Endgame proposal “poses a significant risk to the stability of the housing finance market if it is not modified across all of these dimensions,” Frantantoni stated.
Addressing the increased cost of property insurance for both prospective homebuyers and current homeowners is a priority for the MBA.
“The lack of availability and cost of homeowners insurance … it’s not only impacting the ability of borrowers to qualify for a loan, but increasing payments for existing homeowners to such an extent really puts them on an unstable path, so it really is front and center for us right now,” Fratantoni told lawmakers.
The average cost to insure a $300,000 home surged by 12% in 2023, reaching $1,770 per year, according to an Insurify report.
Certain insurance carriers have also limited their participation in natural disaster-prone states like California and Florida, given the increases in risks and costs.
Over the past 18 months, seven of the 12 largest insurance companies by market share in California have either paused or restricted new policies in the state, highlighted by the departures of State Farm and Allstate in June 2023.
Due to these departures and price hikes, the California FAIR Plan, the state’s insurer of last resort, has seen enrollment double over the past few years.
“Although these increases in premiums and reductions in availability of insurance have been concentrated in certain markets at this point, the concerns regarding property insurance continue to build for our lender members in the residential, multifamily and commercial sectors — and for all their customers,” Fratantoni said.
Source: housingwire.com
Mortgage application volume surged 7.1% last week as mortgage rates fell below 7% amid signs of economic cooling, according to the Mortgage Bankers Association’s (MBA) latest Weekly Mortgage Applications Survey. The market composite index, a measure of mortgage loan application volume, increased 7.1% on a seasonally adjusted basis for the week ending March 8, compared … [Read more…]
Editor’s Note: The Mortgage Mix is RISMedia’s weekly highlight reel of need-to-know mortgage-industry happenings. Watch for it each Friday afternoon.
Source: rismedia.com
A decline in interest rates buoyed mortgage demand for another week.
Mortgage applications increased by 7.1% on a seasonally adjusted basis during the week ending March 8, according to the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey. It was the second increase in a row.
“Mortgage rates dropped below 7% last week for most loan types because of incoming economic data showing a weaker service sector and a less robust job market, with an increase in the unemployment rate and downward revisions to job growth in prior months,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement.
Purchase loan application volume increased by 5% from one week earlier but remains about 11% below the level of the same time last year. By contrast, refinance volume picked up by 12%, driven by a large increase in the government refinance index (up 24%).
“While these percentage increases are large, the level of refinance activity remains quite low, and we expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years,” Fratantoni said.
As of Wednesday, the 30-year fixed rate on HousingWire’s Mortgage Rates Center stood at 7.06%.
The MBA survey shows that the average mortgage rate for 30-year fixed loans with conforming balances ($766,550 or less) decreased to 6.84%, down 18 basis points from the week before. Meanwhile, rates on jumbo loans (balances greater than $766,550) decreased to 7.04%, down 17 basis points from the prior week.
The Federal Housing Administration (FHA) share of total applications decreased to 12% last week, down from 12.7% the week before. The U.S. Department of Veterans Affairs (VA) share increased to 12.2%, up from 11.4% the week before. And the U.S. Department of Agriculture (USDA) share remained unchanged at 0.5%.
The MBA survey, conducted weekly since 1990, covers more than 75% of all U.S. retail residential mortgage applications.
Source: housingwire.com
“The latest data on inflation was not markedly better nor worse than expected, which was enough to bring mortgage rates down a bit, with the 30-year fixed mortgage rate declining slightly last week to 7.02%,” MBA senior vice president Mike Fratantoni said, adding that the significant boost in mortgage applications, particularly for FHA loans, underscores … [Read more…]
Higher interest rates continued to depress mortgage applications last week. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, decreased 10.6 percent on a seasonally adjusted basis during the week ended February 16. The volume declined 8.0 percent before adjustment.
The Refinance Index declined by 11.0 percent compared to the previous week but eked out a 0.1 percent gain from the level one year earlier. Refinance applications accounted for 32.6 percent of the total, down from 34.0 percent the previous week.
The seasonally adjusted Purchase Index dropped 10 percent week-over-week and was down 6 percent before adjustment. Purchase applications lagged the same week in 2023 by 13.0 percent.
“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near-term rate cut,” said Mike Fratantoni, MBA’s SVP and Chief Economist.
“Mortgage applications dropped as a result with a larger decline in refinance applications. Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.”
Other Highlights from MBA’s Weekly Mortgage Applications Survey
Source: mortgagenewsdaily.com
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Mortgage rates have jumped above 7 percent for the first time since early December, according to one leading index.
Figures from the Mortgage Bankers Association (MBA) show the rate on a 30-year fixed-rate home loan hit 7.06 percent in the largest weekly increase since October.
Soaring rates have poured cold water on demand, with home purchase mortgage applications tumbling 10.6 percent in the week to February 16, the MBA said.
It comes as several experts are warning prospective buyers to stave off purchasing their dream home as mortgage rates are certain to come down again before the end of the year.
Several measures of inflation not cooling as fast as expected are behind rates ticking up slighly. Once these fall, rates should follow later in the year.
US mortgage rates are tracked by several different indexes including the MBA and Freddie Mac. Freddie Mac reports rates on a 30-year home loan are slightly lower at 6.77 percent.
Mortgage rates have jumped above 7 percent for the first time since early December, according to the Mortgage Bankers Association
Soaring rates have poured cold water on demand, with home purchase mortgage applications tumbling 10.6 percent in the week to February 16, the MBA said
MBA SVP and chief economist Mike Fratantoni said: ‘Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.’
At today’s rate, a typical homebuyer faces paying around $1,000 per month than had they bought two years ago when rates were around 3.08 percent.
In February 2022, a buyer purchasing a $400,000 home with a 5 percent deposit would face monthly payments of $1,619. With a 7.06 percent rate, this rises to $2,543.
Mortgage rates echo moves in the 10-year Treasury yield which have been rocked by a stronger-than-expected inflation report that casts doubt on when the Federal Reserve will be able to cut interest rates.
The Fed’s benchmark funds rate is currently at a 22-year high of between 5.25 and 5.5 percent.
In theory, higher rates are supposed to reign in consumer spending and dampen inflation but prices have remained persistently high.
Investors had hoped for a rate cut during the Fed’s next meeting in March but now only 6.5 percent think this is likely, according to the CME FedWatch tool.
Realtor Sam DeBianchi, who starred on Million Dollar Listing Miami, told Fox’s Mornings with Maria prospective buyers should not ‘buy the American dream home right now’
Officials confirmed interest rates will remain at their current level of between 5.25 and 5.5 percent
However, around 75 percent agree there will be a rate cut by June.
Many real estate experts are now urging prospective buyers to wait for rates to come down.
Realtor Sam DeBianchi, who starred on Million Dollar Listing Miami, told Fox’s Mornings with Maria: ‘Because rates are so high or higher in general, people are trying to add all of the bells and whistles into their purchase, naturally, because they want to roll it all in. They want to come out of pocket too much.
‘I think, as a buyer, you need to maybe put your expectations aside. Don’t buy the American dream home right now. But, think about the American dream home in the future.’
Similarly, Melissa Cohn, regional vice president at William Raveis Mortgage, recently told Forbes that mortgage rates will be ‘at least 2 percent lower by 2025.’
Source: dailymail.co.uk
Mortgage industry analysts have been watching and waiting to see what the Federal Reserve will do—or say—next about rate cuts. They’re hedging their bets that the Fed will cut rates this year and, as an indirect result, mortgage rates will fall, too, and help revive the housing market.
Watch for coverage of today’s Fed meeting in RISMedia’s Daily News tomorrow.
Economic data plays a key role in the Fed’s timing, though. A key performance metric Fed officials and economists watch is the personal consumption expenditures (PCE) price index, which measures core inflation.
PCE inflation (excluding food and energy costs) rose 0.2% in December from November’s 0.1%, and increased 2.9% from a year ago, according to data released Friday from the U.S. Commerce Department.
The annual rate of core inflation in December fell from 3.2%. That’s the lowest annual rate in nearly three years. Additionally, gross domestic product (GDP) grew at a pace of 3.3% in the fourth quarter, surpassing market expectations.
These strong economic readings pushed the 10-year Treasury yield, which mortgage rates tend to track, up to 4.14% on Friday before flattening later in the day.
Fed officials have hinted in recent speeches that cooling inflation supports the case for rate cuts—but at a more measured pace than before.
As for how those cuts will drive mortgage rates, expect “slow and steady declines,” likely in the latter half of the year, said Odeta Kushi, deputy chief economist with First American Financial.
“The Fed wants to see the long and variable lags of monetary policy so they can make their way through the economy before deciding on any rate cuts,” Kushi told RISMedia, noting that anything can happen between now and the end of the year to change the Fed’s stance. “I think that the Fed has emphasized that the path to rate cuts is highly uncertain, and they’re going to take a sort of data-driven, cautious approach.”
Fed officials’ comments temper rate-cut expectations
Several Fed officials have signaled a more cautious approach to rate cuts, dimming investors’ hopes of quick action.
During a virtual speech to the Brookings Institution on Jan. 16, Federal Reserve Governor Christopher Waller said he believes the Fed’s restrictive monetary policy is “set properly” to bring down core inflation closer to the Fed’s target of 2%. However, Waller isn’t in a rush to cut rates until inflation not only reaches the Fed target rate, but stays there for a prolonged period.
“When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” Waller said in his speech. “In many previous cycles, which began after shocks to the economy either threatened or caused a recession, the FOMC cut rates reactively and did so quickly and often by large amounts.
“This cycle, however, with economic activity and labor markets in good shape and inflation coming down gradually to 2 percent, I see no reason to move as quickly or cut as rapidly as in the past.”
It didn’t take long for the markets to react to Waller’s comments. The 10-year Treasury yield jumped sharply after his speech by about 30 basis points since late December and is currently hovering near 4.1% after reaching a recent low at about 3.8%.
In separate remarks earlier this month, Fed Governor Michelle Bowman, who tends to be more hawkish, said a sustained march toward the 2% inflation goal will make it more likely to lower rates to prevent the Fed’s monetary policy from being too restrictive.
“In my view, we are not yet at that point. And important upside inflation risks remain,” Bowman said in her remarks, adding that she was still willing to raise the Fed funds rate in the future if inflation stalls or ticks up again. “Restoring price stability is essential for achieving maximum employment and stable prices over the longer run.”
Mortgage industry looks to rate cuts to help spur loan activity
2023 was a painful year for housing. As mortgage rates soared near the 8% mark, existing-home sales cratered to their lowest level last year (4.09 million) since 1995 even as median home prices reached a record high of $389,800, according to data from the National Association of Realtors.
Hobbled by anemic loan originations and next-to-no refinance activity, mortgage lenders aggressively cut staff last year (especially back-office positions like underwriters and loan processors). Others merged with bigger players with strong cash positions. And some lenders threw in the towel altogether, closing up shop.
“Our data shows that your typical independent mortgage banker trimmed their employee count by more than 40% from the peak in 2021 to the most recent data points,” Mike Fratantoni, chief economist with the Mortgage Bankers Association, said in an interview with RISMedia.
Fratantoni said mortgage volume will be somewhat higher in 2024 in tandem with higher sales of new and existing homes. However, potential homebuyers—especially those with the headwind of having record-low mortgage rates—may be hesitant to make a move until rates hit a certain sweet spot.
“As we get to the low (6% range) at the end of this year and below 6% next year…that’s going to be enough to get people’s attention,” Fratantoni said.
Melissa Cohn, regional vice president of William Raveis Mortgage, points to a Fed rate cut as being a positive signal to potential homebuyers of an improving market. However, Cohn added that a notable drop in mortgage rates will likely push home prices higher due to higher demand, so buyers shouldn’t stay on the sidelines too long.
Source: rismedia.com
A strong U.S. economy will be a boon for the housing market, Mortgage Bankers Association’s (MBA) chief economist said on Thursday, as it will buoy demand and as inflation continues to fall, mortgage rates will decline as well making home loans more affordable for buyers.
The U.S. economy accelerated at a faster-than-expected clip in the fourth quarter of 2023 at 3.3 percent, the Commerce Department’s Bureau of Economic Analysis revealed on Thursday.
Meanwhile, the personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred measurement of inflation’s progress—jumped by 1.7 percent during the quarter. Core PCE, which excludes the often volatile food and energy prices, increased by 2 percent.
These dynamics bode well for the housing market that has been struggling under the weight of record-high mortgage rates, sparked in part by the Fed’s hiking of rate at the most aggressive clip since the 1980s to fight soaring inflation.
The Fed’s funds rate currently sits at 5.25 to 5.5 percent—the highest they have been in two decades—and policymakers have signaled that they will slash rates should inflation come down to their 2 percent target.
But an economy that may avoid a recession as inflation moderates without the Fed’s tight monetary policy doing too much damage to the jobs market would help the housing sector.
“Stronger economic growth will benefit the housing market, keeping demand robust,” Mike Fratantoni, MBA’s chief economist, said in a statement shared with Newsweek. “Moreover, today’s report also showed further reductions in inflation, which will enable the Federal Reserve to cut rates later this year—as they have been hinting.”
Mortgage rates ticked up slightly for the week ending January 25, Freddie Mac said on Thursday, with the 30-year fixed rate averaging 6.69 percent.
“The 30-year fixed-rate has remained within a very narrow range over the last month, settling in at 6.69% this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Rates look to have stabilized, Khater suggested, encouraging buyers to jump off the fence.
“Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace,” he said.
A slowdown in rates could have a negative impact on home buyers, some analysts say.
A decline in the cost of home loans would encourage more purchases, and this increase in demand will spark competition at a time when there is a limited supply of homes for sale.
More buyers who can afford mortgages entering the market will push up prices, analysts from Goldman Sachs said this week.
The investment bank’s experts project prices to soar by 5 percent in 2024, a marked revision from their earlier expectation of a 2 percent jump. That trend will continue through next year when prices are forecast to increase by nearly 4 percent, which is also a change from a previously estimated increase of close to 3 percent.
Amid the price increases, Goldman Sachs analysts anticipate that rates will fall to 6.63 percent for the year. This drop in rates from the near 8 percent highs of November 2023, will make house loans more affordable, sparking more demand for properties.
“We have very low inventory of houses for sale, which is generally supportive of prices, along with generally stable demand that is coming from things like household formation,” Roger Ashworth, senior strategist on the structured credit team at Goldman Sachs, said this week.
On Thursday, new home sales climbed up by 8 percent in December, according to government data, while prices declined to two-year lows. The fall in prices and a rise in sales was partly due to builders offering inducements to buyers, according to Yelena Maleyev, a senior economist at KPMG.
“Builders have pivoted to building smaller homes and offering more discounts and concessions, such as mortgage rate buydowns, to bring in buyers sidelined by rising mortgage rates,” she said in a note shared with Newsweek.
But the data from the U.S. Census Bureau also showed that inventory of newly built homes fell last month after going up the previous months. There were 453,000 houses available for sale at the end of December, which accounts for 8.2 months’ worth of supply.
This constituted a 3.5 percent decline from the same time a year ago, Maleyev pointed out.
The lack of inventory also comes at a time when the used homes market has struggled. Sales are down in that segment amid a lack of supply of homes as sellers are reluctant to give up their low rates for new home loans hovering in the mid-6 percent.
This lack of supply will be key to how prices shake out and the outlook for the year is not encouraging.
“If mortgage rates fall below 6 [percent] in 2024, more owners will feel comfortable listing their homes for sale, alleviating some of the shortages, but not enough to close the supply gap,” Maleyev said.
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