Decoding Mortgage Rates: Factors, Predictions, and How to Unleash Inventory

The cost of borrowing money to buy a house went up a little bit today. It’s now at the highest level it’s been in almost two weeks, despite what the weekly survey shows below (remember that is a look back, as is the week in review section below). This happened because the bond market, where lenders get the money to lend to people, didn’t do well this morning. So, lenders had to raise their rates. But as the day progressed, things got better, and some lenders were able to reprice for the better. Just goes to show that when you or your clients ask us about interest rates, we often will reply with a “It depends” comment. We’re not blowing off the question. There’s just too many variables to evaluate to just give you a blanket number. Every borrower will have a different interest rate based on their FICO, down payment amount, loan size and type of home they wish to purchase. If you or your clients are interested in learning more about what rates are available to them, please contact me. I am happy to provide some counseling and education.

All of this movement doesn’t really matter compared to what might happen in the next two days. Tomorrow, the Consumer Price Index (CPI) that will come out. It’s a big deal because it can make mortgage rates swing wildly. Wednesday, we’ll find out what the Federal Reserve will pause or raise the overnight rate. Right now, the gurus think they will pause any hikes–for now.

If the CPI is really high, it could change what people think about the Fed’s decision. But even then, the Fed’s own prediction about interest rates will likely have a bigger impact on mortgage rates and the bond market.

While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers. If only we could free up some inventory from some of those “Accidental Landlords and “Household Hostages”.

Redfin’s chief economist Daryl Fairweather told Fortune that high rates are constricting activity. “They’re looking at their monthly payment, which is quite low if they locked in a 3% mortgage rate compared to what their monthly payment would be if they sold and bought again, which would be quite high given how high mortgage rates are,” Fairweather said“And it just makes a lot of sense for them to hold on to that low interest rate.”

But here’s the thing, the Fed has been raising the overnight rate, which impacts things like Home Equity Lines of Credit, Credit Cards, Student Loans, Personal Loans, Car Loans and other consumer revolving debt, which has led to higher monthly cash outflows for folks carrying these debts. For some, it might just be in their best interest to cash out, pay off these higher payment debts and get the home they want, even if it means a higher interest rate and monthly housing payment. Doing the math to determine monthly cashflow could help tell the story and could give some of these “hostages” a reason to move. Remember rates are temporary, even if you lock one in for 30 years. Very few of us hold a mortgage for its duration.

Want to run some scenarios for your clients? I can generate a blended interest rate review and debt consolidation evaluation that could help you uncover a listing. Call me! 650-207-4364, I’d love to help show you how that analysis works!

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the authors attempt to provide reliable, useful information, they do not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. ©2023 by Freddie Mac.

Week of June 5, 2023 in Review

Updates on home price appreciation, rising jobless claims and recession chatter overseas capped an otherwise quiet week. Read on for these stories:

  • More Signs of Home Price Strength
  • Has the Job Market Reached a Turning Point?
  • Why Recession Talk from Europe Matters Here

More Signs of Home Price Strength

CoreLogic’s Home Price Index showed that home prices nationwide rose by 1.2% from March to April and they were 2% higher when compared to April of last year. April marks the third consecutive month of nationwide price increases per CoreLogic’s Index, after prices also rose 1.6% in March and 0.8% in February. CoreLogic forecasts that home prices will rise 0.9% in May and 4.6% in the year going forward, up from the 3.7% annual increase they forecasted just two months ago.

What’s the bottom line? Home prices have reached an inflection point with gains occurring across much of the country. CoreLogic’s Chief Economist Selma Hepp explained, “While mortgage rate volatility continues to cause buyer hesitation, the lack of for-sale homes is putting firm pressure on prices this spring, leading to above-average seasonal monthly gains and a rebound in home prices in most markets.”

Meanwhile, Zillow’s Housing Market Report showed that home prices climbed 1.4% from April to May. Black Knight also reported that home prices rose 0.5% in April, with Vice President of Enterprise Research Andy Walden noting that, “April marked the fourth consecutive month of home price gains, which are now almost universally rising across the country again on a seasonally adjusted basis.”

Has the Job Market Reached a Turning Point?

 jobless claims (6)

Initial Jobless Claims surged by 28,000 in the latest week, with 261,000 people filing for unemployment benefits for the first time. This is the highest level in 20 months and this number has been trending higher, with Initial Jobless Claims topping 200,000 every week since the start of February.

Meanwhile, the number of people still receiving benefits after their initial claim is filed remains elevated with 1.757 million Continuing Claims reported. This is well above the low of 1.289 million seen last September and this upward trend shows the difficulties many people are having as they search for new employment.

Why Recession Talk from Europe Matters Here

Statistics agency Eurostat reported that the euro zone economy entered a recession in the first quarter of this year. This news comes after negative revisions to Germany’s and Ireland’s first quarter Gross Domestic Product (GDP), which pushed the 20-member bloc to a negative 0.1% first quarter GDP reading after a previous reading of 0%. Economists also noted they aren’t optimistic about growth in Europe the remainder of the year.

What’s the bottom line? The globe is interconnected, and economies of different countries rely on each other for trade. As a result, recessions tend to be globally synchronized because loss of demand in one country tends to pull activity in other areas down. While there is usually an average of 50% of global economies in a recession at the same time, certain circumstances like the COVID pandemic can lead to a larger level of synchronicity. This ongoing situation remains important to monitor in the months ahead.

What to Look for This Week

Inflation will be one of the top stories, with May’s Consumer Price Index releasing on Tuesday. Look for the Producer Price Index on Wednesday, which will give us news on wholesale inflation.

The Fed will also make headlines as their two-day meeting begins Tuesday, with their Monetary Policy Statement and press conference coming on Wednesday.

Also of note, Tuesday brings a read on confidence among small businesses last month from the NFIB. On Thursday, look for May’s Retail Sales, June’s manufacturing data for the New York and Philadelphia regions, and the latest Jobless Claims.

Technical Picture

Mortgage Bonds were able to break above the ceiling of resistance at the 99.845 Fibonacci level on Friday, with the next ceiling at the 25-day Moving Average. Bonds have traded sideways over the past two weeks, so Tuesday’s CPI data could be market moving. The 10-year tested the ceiling at 3.773% on Friday and was rejected to the downside. The next level of support is at the 3.644% Fibonacci level.

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