CHM Blog

Buyers wait, sellers cut, rentals take off

Mortgage rates took a tumble on Oct. 15. The cause? Worry about artificial intelligence. Real Estate News' Dave Gallagher reports that investors sold off AI stocks that Thursday morning and moved their money into Treasury bonds, which pulled the 30-year fixed rate down sharply.

Matthew Graham, COO of Mortgage News Daily, called it a trial balloon for a bigger correction, with a caveat. "It's what the beginning of such a correction would look like," he wrote, "but things could reverse surprisingly quickly if the market finds a reason to calm down on AI fears." Rates have bounced around a lot lately, though Freddie Mac's weekly survey, which uses different measures, held steady.

Sticky inflation and the expectation of more Fed hikes will likely keep rates high, according to Realtor.com economist Jiayi Xu. "Bringing inflation under control would pave the way for lower rates and a much-needed boost to affordability for the year ahead," she said. Fannie Mae's October forecast expects 30-year rates to hold through 2027 and projects housing starts to fall 2.9% that year, with a slight rise in existing home sales.

Buyers aren't responding yet. For the week ending Oct. 9, the Mortgage Bankers Association's purchase application index was down 16% from a year ago, and refinance applications dropped 56%. One thing is growing. Joel Kan, the MBA's deputy chief economist, says adjustable rate mortgages have reached their highest share in a year.

Sellers seem to be catching on. Redfin data shows the median price of a home for sale up just 0.5% from last year. New listings are down 1.3%, but active listings are up 2% because homes are sitting longer. Price cuts are climbing too. Compass Chief Economist Mike Simonsen estimates that 42.9% of active listings have had a price cut, the highest for this time of year in a decade. The average cut is 4.2%, about $18,000 off a national median list price of roughly $435,000. "That average price cut is growing and bigger than last year, but smaller than 2022 and 2023," Simonsen said.

With ownership out of reach for many, rentals are heating up. Zillow's renter demand index jumped 19.2% from a year ago, while typical rent rose only 2.7%. Zillow senior economist Kara Ng says higher rates "have pushed home shoppers straight into the arms of rentals."

She goes on to point to a growing group she calls “deliberate renters,” — people who choose to rent and invest the gap between a mortgage payment and their rent somewhere else.

RealEstateNews, 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 under a little pressure today. The MBS market improved by +29 bps last week. This may have been enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

These are the three things that have the greatest ability to impact rates this week. 1) The Fed, 2) Inflation and 3) Central Banks.

1) The Fed: On Wednesday we will get the FOMC Interest Rate Decision and Policy Statement along with a live presser with Fed Chair Warsh. This is NOT a meeting where we get their Economic Projections/Dot Plot.

2) Inflation: We will get the Fed's key measure of inflation, PCE on Thursday - one day after their meeting.

3) Central Banks: Our Fed is not the only game in town, as we get key interest rate decisions out of the Bank of Canada, ECB and the Bank of Japan.

This Week's Potential Volatility: High

This morning markets have started under a little pressure. Volatility has started at moderate to high levels and could easily become high later in the week.

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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