CHM Blog

More of the same, but hope springs eternal for homebuyers

Round and around it goes and where it stops, nobody knows. Sound like a hustler at a state fair? Sometimes it feels like that to the home-buying public when it comes to interest rates lately. Because after two weeks of declines, mortgage rates rose again this past week.

“As for where those rates might head next, that will hinge heavily on what happens on Tuesday and Wednesday, when the Federal Reserve is slated to meet about whether or not to hike benchmark rates in its ongoing fight against inflation,” says Margaret Heidenry of Realtor.com.

While worries swirl over the U.S. Department of Labor report released last week announcing that the producer price index increased by 0.7% in August—higher than July’s 0.4%—some market experts still predict that the Fed won’t raise rates this week.

Heidenry quotes economic analyst Hannah Jones, saying, “As both core inflation and employment have shown signs of cooling, markets expect the Fed to hold rates steady in next week’s meeting as the committee aims to ease the economy into health without overshooting.” If the Fed leaves rates alone next week? This could spell good news for housing. “Should incoming data continue to fall in line with market expectations, the housing market can look forward to stability, allowing buyers and sellers to plan for the future more effectively,” Jones adds.

Affordability, however, will remain a challenge. “In addition to optimistic predictions about the Fed’s next move, autumn tends to be an advantageous season for homebuyers,” says Heidenry, who echoes Jones. “Though today’s housing market is decidedly challenging, the fall typically ushers in more favorable buying conditions relative to the rest of the year.” So far at least, though, these buyer-friendly conditions seem slow to unfold, particularly on the affordability front.

She goes on to explain how in August, home prices hovered at a median of $435,000 — only 0.7% below what they were last August, which means prices seem to be holding more or less steady annually. “As the summer begins its transition to fall, prices have settled below the year’s peak but continue to hover around last year’s level,” says Jones.

The biggest obstacle? There just aren’t enough homes for sale. Active inventory officially hit a three-month slump for the week ending Sept. 9. And high mortgage rates are yet again to blame for this bleak lack of inventory, as sellers feel “locked in” to their current lower-rate mortgages—and their homes by extension.

One workaround desperate buyers have been exploring in bigger and bigger numbers is new-construction homes. Why? Because a growing number of builders have been willing to offer concessions such as lower interest rates than buyers might get on the open market.

But Heidenry asks that buyers take note: Those few sellers who are willing to list their homes are facing a historically slow time in the market. And this cracks open a significant opportunity for buyers who are paying attention. Again, she quotes Jones, who says, “As the summer’s busy market slows, buyers may see less competition and relatively more homes than in the last few months. Active inventory continues to lag last year’s level, but is improving.”

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are moving sideways today. The MBS market worsened by -29 bps last week. This may have been enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) The Fed, 2) Central Banks and 3) Oil.

1) The Fed: On Wednesday we will get their latest interest rate decision and policy statement. The markets are not currently pricing in a rate hike at this meeting. However, we could see a lot of volatility in response to their Economic Projections.

2) Central Banks: We will get key interest rate decisions out of the People's Bank of China and the Bank of England. The BofE is the one central bank that is expected to continue to press higher with their rates and guidance.

3) Oil: Oil Prices are a major factor in inflationary input and have been on tear upward in September. Increased pressure higher will be bad for rates while a reversal in oil prices (a large drop lower) will be helpful.

This Week's Potential Volatility: High

This morning markets were under some initial pressure but have recovered. Volatility will be high this week as markets wait on FOMC.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

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