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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
Notably, the largest job increases were observed in the government sector, with 52,000 jobs added, while healthcare followed closely with 38,000 new positions. These gains helped offset notable losses in transportation and warehousing, shedding 23,000 jobs and in social assistance, which saw a decrease of 21,000 positions. Mike Fratantoni, chief economist of the Mortgage Bankers … [Read more…]
John Toohig, head of whole-loan trading on the Raymond James whole-loan desk and president of Raymond James Mortgage Co., said many of the same headwinds the market faced in 2023 remain as we roll into 2024. He said among them are higher rates (down a bit at yearend, but still in the high 6% range); “… the lack of liquidity in the banking sector; increasingly challenged affordability; and [consumer] credit starting to show some early cracks on the lower end of credit and with younger borrowers.”
Still, an interest-rate drop and soft landing for the economy, if the latter is truly achieved, will break some of the ice in a chilled housing market.
“For 2024, should the Federal Reserve determine they have overcorrected and start to lower rates [as indicated at the Fed’s December Federal Open Market Committee meeting], you will see a surge in trading volumes,” he added. “Discounts will be less impactful, loans will trade closer to par or gains again, and much of the frozen underwater coupons will transact again.
“Should credit break and the consumer buckle, [however,] you could see home prices fall, delinquencies and charge-offs on the rise and that will negatively impact pricing in a market with limited liquidity.”
It remains a guestimate game as far as when the Federal Reserve — which paused rates at its final meeting in 2023 — will decide to begin rolling back its benchmark rate in the year ahead from the current range of 5.25%-5.5%.
As 2023 moved toward a close, 30-year fixed rates had dropped into the mid-to-high 6% range. Few, if any, industry groups or market experts, however, have been accurate in predicting rates very far out in the current topsy-turvy market.
“If you look at futures, you’re looking at lower [Fed] rates by May of next year,” said Tom Piercy, chief growth officer at Incenter Capital Advisors (previously Incenter Mortgage Advisors). “I wouldn’t make a bet on it is because there’s just so much complexity in this.”
Piercy, whose shops advises both banks and nonbanks on mortgage servicing rights (MSRs) transactions, said the year ahead for MSRs will be impacted negatively if rates decline, but he adds rates would have to adjust downward significantly to accelerate loan-prepayment speeds, which would draw down the value of MSR packages. He said marginally lower rates would affect the returns holders of MSRs get from parked escrow accounts, however, which does impact MSR pricing.
Piercy expects that the combined MSR trading volume in the coming two years (2024 and 2025) will be on par with or slightly better than the combined trading volume of 2022 and 2023, when rates spiked and more than $1 trillion in MSR deals transacted each year.
“Over the next three years, including 2023, [we estimate] sub-$4 trillion [in MSR trades], maybe in the high $3 trillion [range], and again that’s for 2023 through 2025,” Piercy said. For 2023, slightly greater than 1.1 trillion in MSRs are expected to have traded, he added.
Part of that trading volume in 2024, Piercy said, is expected to be driven by MSR sales resulting from the continuing merger and acquisition (M&A) activity in the nonbank sector of the market.
“Unless there’s some type of pickup in the forecast for originations, I think you’re going to see still an active M&A market through 2024,” he explained. “Many shops will probably look to become part of a larger, more financially stable platform.
“We’re forecasting right now a fairly strong Q1 for MSR sales. I think it’s going to be a robust market.”
Robust is not the adjective to describe what’s ahead in 2024 for the agency (Fannie Mae, Freddie Mac and Ginnie Mae) mortgage-backed securities (MBS) market, however. Market observers say outsized spreads between the 30-year fixed mortgage rate and 10-year Treasuries and subpar MBS clearing rates are likely to continue, given the imbalance in supply and demand in the market as the Federal Reserve continues to unwind its $2.5 trillion portfolio of MBS.
According to projections by real estate investment firm the Amherst Group, agency MBS net issuance for 2024 is estimated at $300 billion, up slightly from $250 billion in 2023 — but still down significantly from the barnburner year in 2021, when net issuance totaled $870 billion. Net issuance in MBS represents new securities issued less the decline in outstanding securities due to principal paydowns or prepayments.
The Federal Reserve’s ongoing quantitative easing is expected to contribute an excess MBS supply to the market in 2024 of some $225 billion, which will need to be absorbed in addition to the projected $300 billion in net new issuance.
“Generally, our view has been that mortgages are really undervalued,” said Amherst Chairman and CEO Sean Dobson. “I’ve been doing this for 30 years, and they’re about as good in value as they’ve ever been.
“But we don’t see a lot of snapback, with mortgages getting back in line [in terms of interest rates] anytime soon. … Mortgage rates are high and one big reason … is the [agency MBS] investor base is impaired, and it’s not likely to be fixed soon.”
Dobson added that, in his view, monetary policymakers didn’t fully grasp that when the Fed stopped buying mortgages, “they had displaced the actual buyers for so long that the actual buyers are now gone.
“… Now you can buy billions of dollars in bonds [MBS] that are really undervalued relative to their intrinsic risk because there’s just no sponsor [a major new buyer since the Fed’s pullback].”
Richard Koss, chief research officer at mortgage-data analytics firm Recursion, also offers a bleak assessment of the agency MBS market ahead — primarily because mortgage originations are likely to remain depressed, which means agency MBS issuance will be depressed as well.
Koss points to the huge volume of low-rate mortgages outstanding as the vexing problem the market faces, adding that low-rate legacy (2020 and 2021) mortgage-backed pools “are mostly discount bonds in the current [high] rate environment.”
“All the 4.0% and lower mortgages that dominate the market are less than four years old,” he said. “If you have a 3% mortgage, you need a 2.5% rate to justify refinancing, which is a 1% Treasury yield.
“That could happen, but we don’t want it to, since it means some kind of disaster. I think a mortgage winter has frozen things hard and conditions are such that we can only expect a measurable improvement out past 2030.”
The Mortgage Bankers Association (MBA) estimates that total mortgage originations in 2023 will come in at about $1.6 trillion, down considerably from the $4.4 trillion in originations chalked up in the banner year of 2021. Next year, the MBA forecasts total originations at slightly more than $2 trillion — and its most current origination forecast shows only modest improvement in 2025, with originations (purchase and refinance) reaching $2.43 trillion.
The origination downturn and rate volatility in 2023 negatively impacted the private-label residential mortgage-backed securitization (RMBS) market. Many market experts, however, expect a tailwind of declining rates for the year ahead as a result of recent signals from the Federal Reserve that rate cuts are on the table, starting as soon as the end of the first quarter of 2024.
“Additional rate hikes no longer appear to be part of the conversation, MBA senior vice president and chief economist Mike Fratantoni said in a statement reacting to the most recent Fed rate decision. “It is all about the pace of cuts from here.
“…We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market. We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations, following an extraordinarily slow 2023.”
A report published in late November by Kroll Bond Rating Agency (KBRA) — which tracks RMBS offerings across the prime, nonprime, credit-risk transfer and second-lien sectors (RMBS 2.0). — assumed that the Fed was “closer to peak interest rates.” That assumption bodes well for the private-label market in 2024 — relative to its performance in 2023.
“We expect 2024 conditions to be more favorable and RMBS 2.0 issuance levels to be slightly higher than in 2023 at $56.5 billion (a 9% increase),” the KBRA report states.
Andrew Rhodes, senior director and head of trading at Mortgage Capital Trading, said the winter months ahead are going to be rough going for the housing market, including RMBS issuance.
“I think 2024 [overall] is going to be better from a [loan] origination standpoint, but I don’t think it’s going to be large increase,” he added. “…I really do think that 2025 will be a lot better, but that’s pretty far forward.”
On a brighter note, Ben Hunsaker, portfolio manager focused on securitized credit for Beach Point Capital Management, points to the expansion of second-lien products in the primary market as a loan-origination and RMBS volume-driver in 2024, given the record-levels of home equity available to homeowners, many of whom are now locked into low-rate mortgages and have little incentive to sell or buy a new house.
“There’s this big pool of second liens and HELOCs [home equity lines of credit] that some of the originators have started to use as a key part of their toolkit, and you’re hearing them talk about it on earnings calls,” he said. “And so, I think that probably puts a kick in the pants to what 2024 [RMBS] volumes could look like.”
Charley Clark, a senior vice president and mortgage warehouse finance executive at EverBank (formerly known as TIAA Bank), also strikes a note of optimism for 2024 when it comes to the prospects for housing industry, specifically the large independent mortgage banks (IMBs) that feed the origination and securitization pipelines. Clark notes that EverBank serves about 40 of the largest mortgage banking companies in the nation.
“I think there’s definitely still some of the mom-and-pop shops [IMBs] — or let’s say a company with $20 million or $25 million or below in adjusted tangible net worth — that will be looking to sell,” he said. “But most of the big companies have solid balance sheets and have started to actually stop the bleeding.
“I’m encouraged because these companies [large IMBs] are much better positioned now. They’ve made the cuts, at least most of the cuts they need to make to right-size for where the industry is heading. And the best companies have really done a good job of that, so they’re positioned to do well next year, but it’s still going to be tough.”
Source: housingwire.com
The Thanksgiving holiday was followed by two strong weeks for mortgage applications, especially for refinancing, as mortgage rates fell. This past week, however, the lowest rates in six months failed to stir much interest among borrowers. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, eased back by 1.5 percent on a seasonally adjusted basis and was down 3.0 percent before adjustment.
Refinancing, which had increased by an aggregate of 33 percent over the previous two weeks, seemed to run out of steam. The Refinance Index declined 2.0 percent from the previous week, remaining 18 percent higher than the same week in 2022. The refinance share of mortgage activity increased to 39.7 percent of total applications from 39.2 percent the previous week.
The seasonally adjusted Purchase Index ticked down 1.0 percent and was 4.0 percent lower on an unadjusted basis. It was 18 percent lower than during the same week in 2022.
“With the positive news about the drop in inflation, and the FOMC (Federal Open Market Committee) projections proclaiming a pivot towards rate cuts, the 30-year fixed mortgage rate reached its lowest level since June 2023, declining to 6.83 percent,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “At least as of last week, borrowers’ response to this rate move was rather tepid. VA refinance applications jumped 18 percent for the week, but otherwise, both refinance and purchase applications showed small declines.”
Other Highlights from MBA’s Weekly Mortgage Applications Survey
MBA’s offices will be closed next week in observance of the Christmas holiday so there will be no application volume report. The office will reopen on January 2 and reports for the weeks ending December 22 and December 29, 2023 will be released on January 3, 2024.
Source: mortgagenewsdaily.com
Mortgage demand fell for the first time since November as mortgage rates reached their lowest level since June 2023.
Total home loan applications decreased by 1.5% for the week ending Dec. 15 compared to the previous week, according to data from the Mortgage Bankers Association (MBA).
Mortgage rates for the 30-year fixed loan averaged 6.83%, according to Freddie Mac‘s Primary Mortgage Market Survey.
“At least as of last week, borrowers’ response to this rate move was rather tepid,” Mike Fratantoni, MBA’s senior vice president and chief economist said in a statement. “VA refinance applications jumped 18% for the week, but otherwise, both refinance and purchase applications showed small declines.”
Purchase applications decreased by 1% week over week on an adjusted basis. Meanwhile, refinance applications decreased by 2% on a weekly basis.
The share of Federal Housing Administration (FHA) loan activity decreased to 15.5%, down from 16.1% the week prior. The share of Department of Veterans Affairs (VA) loan activity was 15.6%, up from 14.2% over the previous week, while the share of U.S. Department of Agriculture (USDA) loan activity remained unchanged at 0.4%.
Source: housingwire.com
The jobs figures were bolstered by the return of striking auto and film industry workers, and indicated that the economy continues to operate at a brisk clip despite Federal Reserve interest rate hikes. Health care saw a strong jobs uptick in November, adding 77,000, while government (49,000), manufacturing (28,000), and leisure and hospitality (40,000) also … [Read more…]
Federal Reserve Chair Jerome Powell left the door open to a future interest rate hike on Wednesday, but most housing professionals are hopeful that the Fed may be done hiking interest rates for 2023.
Tight financial and credit conditions, slowing inflation and high 10-year Treasury yields – the primary driver in the rise of longer-term interest rates – will likely discourage the central bank from a further rate hike this year, economists and mortgage professionals said.
In turn, this will provide relief and bring down stubbornly-high mortgage rates.
“I think the one thing I take away from today is that financial and credit conditions are tighter now, which was different than before,” said Logan Mohtashami, lead analyst for HousingWire. “Unless the 10-year Treasury yield falls considerably, the stock market rallies and home sales start to take off again, December should be off the mark.”
The 10-year Treasury yield, which acts as a benchmark for mortgage rates, fell to a two-week low at 4.766% on Wednesday after the Fed held interest rates steady in a range of 5.25%-5.5%.
Fed officials forecasted one more rate hike in 2023 in its September dot-plot estimates, which shows the range of forecasts for where interest rates could end up. The majority of Fed officials had expected interest rates to finish the year at around 5.6%.
Marty Green, principal of Polunsky Beitel Green, described the Federal Reserve as a “blackjack player with two face cards.”
“The only sensible play at this meeting was to hold pat,” Green said. “It is becoming increasingly clear that the Fed is indeed done raising rates in this cycle. While the cycle has been inordinately painful to the mortgage industry, with another interest rate pause, we should be at least one step closer to some relief in 2024.”
Inflation has fallen significantly since hitting a four-decade high last summer, but consumer prices have increased by 3.7% in September year-over-year, still climbing faster than the Fed’s target of 2%.
The economy is starting to slow down and inflation will moderate at a pace that suits the Fed, said Melissa Cohn, regional vice president of William Raveis Mortgage.
“We’re coming up against Nov. 17, when the government funding ends,” Cohn said.
Coupled with the Israel-Hamas war, the central bank could keep the Fed’s pause on another interest rate hike for a third consecutive month after its next meeting on Dec. 12-13.
“Even though Q3 economic growth came in quite strong, and several job market indicators continue to show strength, so long as inflation continues to come down, the Fed is likely to pause at this level for some time,” Mortgage Bankers Association‘s SVP and chief economist Mike Fratantoni said.
Fratantoni went a step further in anticipating the Fed to cut interest rates in the second quarter of 2024.
“If the Fed does indeed move to cut rates next year and signals its intent to do so, mortgage rates should trend downward. Our forecast calls for this to happen, which would support a somewhat stronger spring housing market,” Fratantoni said.
Powell, however, made clear on Wednesday that the committee is “not thinking of rate cuts” and is intent on bringing inflation down to 2%.
The best-case scenario is for the Fed to keep rates steady in December, said Raunaq Singh, founder and CEO of Roam, a platform for affordable homeownership.
Depending on November’s inflation readings, a slight rate hike in December is also likely, he noted.
“This will exacerbate the housing affordability crisis, which has already reached an all-time low,” Singh said. “Median monthly mortgage payments are at an all-time high. More than 50% of mortgages have monthly payments north of $2,000, whereas two years ago that number was more like 18%.”
While the odds of an additional rate hike is low, the Fed is expected to keep the option on the table, Danielle Hale, chief economist for Realtor.com, raised a cautious view.
“As long as a rate hike is on the table, investors are likely to position cautiously, and the tendency for rates to remain steady to slightly higher remains,” Hale said.
Improvement in data should reflect lukewarm readings on the economy and lower inflation, which will be more important drivers of lower rates, she explained.
At the final FOMC meeting in December, two months of inflation and labor market numbers will be reviewed to determine the direction of future interest rates.
Source: housingwire.com
The trough for the mortgage origination market is nearing an end point and 2024 is shaping up to be a better year for the industry, economists of the the Mortgage Bankers Association (MBA) said at the 2023 Annual Convention & Expo in Philadelphia, Pennsylvania.
The MBA doesn’t expect the Federal Reserve to hike interest rates further this year as real rates – which are inflation-adjusted– are 2%.
“They’re already at a place where if they do nothing, and inflation holds or falls further from here, they’re going to be slowing the rate of growth and the cumulative impact of the rate increases they’ve already made are not fully felt yet,” said Mike Fratantoni, MBA’s chief economist and senior vice president for research and industry technology.
Based on the cautious messages from even the hawkish Fed members, Fratantoni projected that the central bank will “definitely not be going to hike in November, a small chance that they would come back in December if these numbers turn around.”
The MBA’s view is that the Fed will cut interest rates three times in 2024 and inflation may come down a bit faster as a result.
“I’m pretty confident that if this rate path precedes as we’re expecting, this is the bottom. 2023 is going to be the low-volume (mortgage origination volume) year for this cycle. So after falling 50% from 2021 to 2022, our current estimate has it falling almost 30% from 2022 to 2023. But then a rebound in 2024 — up 19%,” Fratantoni said.
Purchase originations are forecast to increase 11% to $1.47 trillion next year.
In terms of units, the MBA expects about 5.2 million units in the total number of loans originated in 2024, up from this year’s expected 4.4 million.
“It’s still a pretty challenging environment relative to if you look back historically, this is close to where we were in 2014. Maybe just below where we were in 2018 — still a challenging year for the industry,” Joel Kan, vice president and deputy chief economist of MBA, said.
MBA’s baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and as the spread narrows.
The historically high spreads between mortgage rates and the 10-year Treasury yield – which was triggered by the uncertainty about monetary policy and the direction of quantitative tightening – will resolve in a “favorable direction over the course of the next six to 12 months,” Fratantoni added.
The MBA raised expectations of a mild recession in the first half of 2024 due to the combination of the cumulative impact of the rate hikes, the banking system tightening down on all forms of credit and the slow global environment all leading to a slowdown in the US.
The unemployment rate is expected to rise to 5% by the end of 2024 from the current rate of 3.8%. Inflation, in return, will gradually decline towards the Fed’s 2% target by the middle of 2024, Fratantoni said.
As mortgage rates come down to the 6%-range in 2024 and the 5% range in 2025, borrowers will see less of a trade-off in moving, Kan projected.
Kan added: “I think that’s when you’re going to see more inventory free up, that’s when we’re going to see more of these housing transactions able to take place.”
The MBA anticipated first-time homebuyers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages.
“There will still be challenges, as median purchase and interest payments remain high, for-sale inventory is scarce, particularly for entry-level homes, and credit availability is low,” Kan said.
The mortgage origination market for banks and independent mortgage banks was painful given that they all saw five consecutive quarters of net production losses.
While production losses were less severe in Q2 2023 from the previous two quarters, lenders are projected to have a few more painful quarters until the end of the spring of 2024 – mainly due to the traditionally slow winter season, Marina Walsh, CMB and vice president of industry analysis, anticipated.
For lenders, excess capacity continues to be a challenge with low productivity levels and high expenses per loan.
“Lenders have reduced their head counts and gross expenses, but the record-low volume is a primary driver of these escalating per-loan costs,” Walsh said.
The MBA previously estimated that a 30% decrease in the mortgage industry employment from peak to trough will need to occur, given the decrease in production volume.
The MBA estimated that the industry is roughly two-thirds of the way there from the previously mentioned 30% overcapacity in the industry.
Mortgage industry employment dropped 20% in 2023 from the peak in 2021 and the number of active MLOs for state-licensed companies dropped 29% from the same period, according to the MBA.
Source: housingwire.com
The housing market will remain subdued until the Federal Reserve starts cutting rates next year, according to economists and housing pros following the central bank’s Wednesday announcement to leave the benchmark rate unchanged in the target range of 5.25%-5.5%.
Until interest rates come down, affordability challenges will continue to put first-time buyers on the sidelines, housing industry observers said. Real estate experts reiterated caution against further rate increases.
While Fed Chair Jerome Powell emphasized incoming data will determine whether the central bank will raise its federal funds rate at its next FOMC meeting in November, the “dot-plot” of rate projections showed policymakers foresee one more hike by the year-end. The bulk of central bank officials expect to have interest rates finishing the year at around 5.6%.
In an elevated rate environment, the lack of inventory continues to be the biggest challenge for many potential buyers, the Mortgage Bankers Association said.
“While homebuilder sentiment is clearly impacted by the recent surge in mortgage rates, permits for single-family homes provide a positive outlook for the pace of construction in the year ahead. If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume,” Mike Fratantoni, SVP and chief economist at the MBA.
The MBA expects mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases. MBA’s mortgage finance forecast projected the 30-year fixed mortgage rate to decline to 5.4% in 2024 and 5.1% in 2025.
Powell also noted in a press conference that because people locked in “very low rate mortgages, even if they want to move now, that would be hard because the new mortgage would be so expensive.”
Rates are most likely to stay elevated until 2024, said Danielle Hale, chief economist at Realtor.com, thus putting a damper on the number of home sales transactions.
“Higher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022 to the roughly 4 million unit pace in recent months,” Hale said.
More importantly, higher mortgage rates continue to keep existing homeowners sidelined, with as many as one in seven buyers out of the market because they don’t want to borrow at today’s much higher rates, Hale noted.
In the short-term, mortgage rates are likely to bounce around a bit as the markets digest upcoming economic data, Melissa Cohn, regional vice president of William Raveis Mortgage, said.
Incoming data of job and CPI reports next month will provide more clarity on how strong the economy is. Reports on jobs and inflation will be released on October 6 and October 12, respectively.
“If the data reveals that inflation remains elevated and employment is still growing, then mortgage rates are likely to move up and we can look for what we hope to be the last rate hike of this cycle,” Cohn said.
The rapid ascent is mostly behind us but it will be a while before the economy sees any sign of a gradual descent, Marty Green, principal at mortgage law firm Polunsky Beitel Green, added.
“In my view, this means the mortgage interest rate environment will continue to bounce sideways through the next several months,” Green said.
Mortgage rates have been on an upward trend this year with rates in August surging to 7.23%—the highest since 2001.
Fed officials expect interest rates to be at 5.1% in 2024, up from the 4.6% projected in June. Officials expect fewer cuts in 2025 with the median estimate for the benchmark rate to be at 3.9%, up from 3.4%.
The committee raised its projections for growth, and is looking for a better-than-expected labor market as well, with the jobless rate peaking at 4.1%, rather than 4.5%.
With two more scheduled FOMC meetings in November and December, housing experts cautioned against further rate increases.
The Fed must consider the potential economic damage arising from any future rate hikes, Lawrence Yun, chief economist at National Association of Realtors, reiterated his position.
“Commercial real estate has come under stress from higher interest rates, which will further negatively impact community banks due to their large exposure to the sector. Therefore, the Fed needs to wait and not raise rates. Possible interest rate cuts then need to be considered once inflation is fully under control,” Yun said.
Overall data point to an accelerating slowdown but continues to be mixed because of some lagging indicators, Green noted.
Unemployment rates and the CPI component lags measures of market rents by around a year.
“With rates elevated into restrictive territory, I expect the Fed to be patient and hold off on any additional increases until it becomes clearer that an additional rate hike is warranted,” Green said.
Source: housingwire.com
Mortgage rates were mixed this week, according to data compiled by Bankrate. See below for a breakdown of how each loan term moved.
After increasing interest rates at 10 consecutive meetings in 2022 and 2023, the Federal Reserve finally paused at its June 14 meeting — only to resume July 26, with a quarter-point increase.
Official inflation has fallen to 3 percent, near the Fed’s official goal of 2 percent, and housing economists say the end is near for the central bank’s intense fight against inflation.
“We do expect mortgage rates to trend down once the [Federal Open Market Committee] clearly signals that they have reached the peak for this cycle, as the reduction in uncertainty with respect to the direction of rates should narrow the spread of mortgage rates relative to Treasury benchmarks,” says Mike Fratantoni, chief economist at the Mortgage Bankers Association.
Rates accurate as of September 6, 2023.
The rates listed here are marketplace averages based on the assumptions indicated here. Actual rates listed across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Wednesday, September 6th, 2023 at 7:30 a.m.
>>Check out historical mortgage interest rate trends
You can save thousands of dollars over the life of your mortgage by getting multiple offers. Comparing mortgage offers from multiple lenders is always a smart move, but shopping around grew especially critical during the interest rate run-up of 2022, according to research by mortgage giant Freddie Mac. It found the payoff for bargain-huntng borrowers doubled last year.
“All too often, some homeowners take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
The average rate for the benchmark 30-year fixed mortgage is 7.59 percent, an increase of 6 basis points from a week ago. This time a month ago, the average rate on a 30-year fixed mortgage was lower, at 7.40 percent.
At the current average rate, you’ll pay principal and interest of $705.39 for every $100k you borrow. That’s an increase of $4.12 over what you would have paid last week.
Choosing the right home loan is an important step in the homebuying process, and you have a lot of options. You need to take several factors into consideration, including your credit score, income, down payment amount, budget, and financial goals.
The average 15-year fixed-mortgage rate is 6.79 percent, down 2 basis points from a week ago.
Monthly payments on a 15-year fixed mortgage at that rate will cost $887 per $100,000 borrowed. That may squeeze your monthly budget than a 30-year mortgage would, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more rapidly.
The average rate on a 5/1 ARM is 6.54 percent, ticking down 1 basis point since the same time last week.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. In other words, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate loans. These types of loans are best for people who expect to sell or refinance before the first or second adjustment. Rates could be materially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.54 percent would cost about $635 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.
Today’s average rate for jumbo mortgages is 7.63 percent, up 10 basis points over the last week. This time a month ago, the average rate on a jumbo mortgage was below that, at 7.43 percent.
At the current average rate, you’ll pay $708.14 per month in principal and interest for every $100,000 you borrow. That’s an extra $6.87 compared with last week.
The average 30-year fixed-refinance rate is 7.75 percent, up 9 basis points compared with a week ago. A month ago, the average rate on a 30-year fixed refinance was lower, at 7.46 percent.
At the current average rate, you’ll pay $716.41 per month in principal and interest for every $100,000 you borrow. That’s an additional $6.21 per $100,000 compared with last week.
The days of sub-3 percent mortgage interest on the 30-year fixed are behind us, and rates have so far risen beyond 7 percent in 2022.
“Low interest rates were the medicine for economic recovery following the financial crisis, but it was a slow recovery so rates never went up very far,” says McBride. “The rebound in the economy, and especially inflation, in the late pandemic stages has been very pronounced, and we now have a backdrop of mortgage rates rising at the fastest pace in decades.”
The 30-year fixed-rate mortgage is the most popular option for homeowners, and this type of loan has a number of advantages, including:
That said, shorter-term loans have gained popularity as rates have been historically low. Although they have higher monthly payments compared to 30-year mortgages, there are some big benefits if you can afford the upfront costs. Shorter-term loans can help you achieve:
Source: bankrate.com