Mortgage rates have dropped close to .5% over the past week.
Some of this improvement was given back Monday afternoon and so far Tuesday morning.
To say this market is volatile is an understatement.
Below are average interest rates across America as of 3/13.
The news of the Silicon Valley Bank Failure shook financial markets and had many investors fleeing toward the safety of bonds, which helps interest rates improve.
Ironically, the major component of the Silicon Valley Bank failure was their investment in bonds.
Silicon Valley Bank purchased bonds when interest rates were much cheaper.
When rates moved higher, their bonds were not worth as much as there are higher yield bonds available today.
If they have to sell, they would need to sell at a discount and lose money on their investment.
As depositors started pulling money out of the bank, the bank is forced to raise capital to meet this demand.
Large investments would have to be sold at a loss, thus causing the bank to become insolvent.
With the news of multiple other bank failures, I’m left to wonder if the FED has moved too far too fast?
Actually I’m not wondering, I firmly believe the FED’s actions have been too drastic.
Banks only have to hold onto 10% of their deposits and they invest the other 90%.
Banks that invested in bonds will have difficulty selling due to the much higher rate levels today then when many of these bonds were purchased.
This could put them in a liquidity crisis should depositors take their money out of the bank.
I also strongly believe the labor markets are much worse than the jobs reports make them out to be.
A large amount of companies have had large layoffs or hiring freezes, yet the jobs numbers are good?
While people are out of work or working less hours, we have higher interest rates on short term loans, car loans, HELOCS, etc. due to the FED rate hike.
Less and less people are going to be able purchase goods and services thus hurting the economy more.
The FEDs actions have worked, but it takes time for those results to show in the numbers they monitor.
It’s my opinion that the FED is pushing rates higher too fast putting a lot of other areas in the economy at risk.
The Consumer Price Index which measured inflation was just released and came in where experts predicted.
8:39 AM : The Consumer Price Index (CPI), which measures inflation on the consumer level, was reported at 0.4% for the month, and decreased by 0.4% to 6% year over year, in line with expectations.
The Core CPI Rate, which strips out food and energy prices, increased by 0.1% for February, which was above the 0.4% estimate, and decreased by 0.1% to 5.5% year over year, also in line with expectations.
Next week is FED week where they will announce if they will raise rates and by how much.
Today, the average interest rate across America for a conventional 30 year fixed loan is 6.99%.
All eyes are on the Jobs Report this week and the CPI Inflation Report next week.
Remember that the January Jobs Report started this trend towards higher rates in February.
The US Jobs Report comes out Friday and if the job creation numbers are weak, I think we will see some nice interest rate improvement.
If we add that to a nice inflation drop next week, rates could erase some of the gains from February.
So if you want rates to go down, you’re a big fan of a weak Jobs Report and an Inflation Report showing a good drop in inflation.
If you lock a mortgage and interest rates drop significantly after you lock, you could be eligible for a Float Down.
A float down is when interest rates move .25% lower or more with same costs and you are able to negotiate your rate down.
This week, I’m the #1 fan of a weak Jobs Report!
DO HIGHER RATES PROVIDE A UNIQUE OPPORTUNITY?
This week, Barry Habib from MBS Highway provided a demonstration of how higher interest rates could be a unique opportunity for a homebuyer to benefit the most.
When the market hits or comes close to the bottom, buyers will usually benefit from great home appreciation as demand picks up.
It’s no secret that we have a ton of pent up demand for would-be home buyers that are on the sidelines due to higher rates and payments.
See the appreciation after the market hit the bottom in 2012.
In the example below, he illustrates this with a $500,000 purchase price with a $400,000 mortgage.
If rates go up 1%, the $400,000 mortgage will be $257 more per month or $3,084 more per year.
With demand down, the buyer can likely negotiate better terms. In this example, he shows the buyer negotiating $10,000 off the list price.
Everyone in the mortgage industry is expecting interest rates to go down.
As they come down, demand will pick up and home appreciation is likely to occur.
In the example below, he estimates 3% appreciation or $15,000.
He also assumes the below client will likely refinance to a lower rate when the circumstances make sense.
This may cost the client $5,000 in costs though that is dependent on the rate a customer chooses.
If this happens, the client would lose $3,084 in interest but would gain $25,000 in cost savings and appreciation.
Even when accounting for a $5,000 refi fee, the customer comes ahead $16,916 in the first year.
HOW DEBT HELPS AVOID INFLATION
In the video below, I explain the powerful principle of debt shifting inflation from a home owner to a mortgage holder.
Interest rates continued to move higher this week.
Average 30 year fixed conventional rates across the country are moving towards the high 6%’s depending on credit and cost considerations.
Some FED members are in favor of a 50 bps Federal Funds Rate hike at their next meeting in March, even after the FED telegraphed a likely 25 bps hike moving forward.
It’s a very volatile time for interest rates with inflation numbers not coming in as low as expected and a better jobs report than expected.
MBS highway expects slower jobs growth on the March 10th report and better inflation numbers on the March CPI report.
This will hopefully bring back some of the recent interest rate improvements the market has gotten used to.
VA FUNDING FEE DROPS
The VA Funding Fee is being reduced for closings after 4/7/2023.
VA Funding Fees for less than 5% down payment are going down from 2.3% to 2.15%.
Subsequent use for less than 5% down payment is going down from 3.6% to 3.3%.
This is great news for Veterans!
FINANCIAL ADVISOR CLASS
Here is the recording of Matt Lipscomb’s class if you missed it.
Rate lock volumes rose 32% in January driven by declining rates and seasonal tailwinds, snapping a 9-month streak of declines
Purchase (+32%) as well as both rate/term (+37%), and cash-out (+25%) refinance volumes increased proportionally, with refinance locks making up 15% of the month’s overall activity
Optimal Blue Mortgage Market Indices from Black Knight showed 30-year rates dropping 36 basis points to 6.16%, continuing a downward trend that began in November 2022
Despite the improvement, rate and affordability pressures continue to challenge purchase lending, with the dollar volume of such locks down 44% year over year and 14% below January 2020 levels
Purchase lock counts – which exclude the impact of home price changes – were down 41% year over year
Nonconforming loans – including jumbos and expanded guidelines – fell as a percentage of total volumes to just under 10%; conforming (58.5%), FHA (18.5%) and VA (12.4%) all picked up share
The average loan amount rose from $336K to $340K, while the average purchase price climbed from $419K to $421K
Credit scores fell 4 points among cash-out refis – now down 36 points over the past 12 months – and 9 points for rate/terms, but remained relatively unchanged (+1 point) for purchase transactions
The ARM share of lending dropped further in January to just above 8% of total locks, as lower rates pushed borrowers back toward fixed-rate offerings
MONTHLY MARKET REPORT
Keeping Current Matter’s excellent monthly market report is now available.
Spring is typically a high buyer season and we expect this trend to continue as more home buyers come into the market and I expect mortgage rates to slowly move lower.
Mortgage interest rates hit 4 month lows after the Consumer Price Index Inflation Report on Thursday, January 12th.
They have since moved up some, but are about .1% lower than the week before.
December’s inflation numbers fell in line with estimates and show that inflation is coming back down to earth.
Year over year inflation dropped from 7.1% to 6.5%.
As inflation goes down, interest rates should follow.
Many experts are currently giving a LOCK recommendation as the Mortgage Backed Security Market has a level of resistance on the 200 day moving average that may be difficult to surpass. This means that rates have a higher likelihood of going up some verses going down in the short term.
We are also seeing an inverted yield curve when comparing the 10 year treasury and 3 month treasury.
This data typically signals a recession, which usually results in a drop in the stock market and improvement in interest rates.
I still expect interest rates to come down in 2023, but it won’t be a linear process.
More down than up days over a period of time = gradual rate improvement.
Mortgage interest rates are down approximately .2% from last week and rates are near 4 month lows.
Friday was a great day for rates with 2 important economic reports.
The first was the U.S. Jobs Report showing there were 223,000 jobs created in December.
Most of the December jobs appear to be part time or seasonal jobs.
The report also gave a negative revision to October and November numbers by 28,000 jobs.
Although job growth was stronger than expected, wage growth and average weekly earnings were down.
Less money to buy goods/services helps inflation. Less demand equates to lower pricing.
Also on Friday, the Institute of Supply Management’s Index fell way below projections signaling more economic weakness.
With these 2 reports, interest rates had a fantastic day on Friday and are hovering near 4 month lows.
This week’s big report is the Consumer Price Index Inflation Numbers which comes out Thursday. Low inflation numbers will be positive for mortgage interest rates.
HOME BUYING ACTIVITY INCREASING
Our team is seeing a substantial increase in home Buying activity in January.
I’m hearing the same things happening from my Mortgage colleagues and Realtor partners.
Our mortgage applications are up 47% and our contracts accepted are up 60%.
We are also seeing higher consumer confidence in housing.
Interest rates are lower
Home prices are lower
And Seller Concessions are up.
According to Redfin, 42% of sellers offered seller concessions in Q4 of 2022.
It’s too early to say that this is sustainable, but we are seeing a shift in mindset and home buyer activity.
