by tyler | Jun 1, 2023 | CNN, homes
US mortgage rates jumped higher last week as uncertainty about the debt ceiling standoff sent bond yields rising.
The 30-year fixed-rate mortgage averaged 6.79% in the week ending June 1, up from 6.57% the week before, according to data from Freddie Mac released Thursday. Rates jumped higher last week for the third week in a row. A year ago, the 30-year fixed-rate was 5.09%.
Mortgage rates tend to be pegged to US Treasury yields, which had been heading higher as America grows ever closer to default. A deal to raise the debt ceiling and avoid default is moving forward after a bill to suspend the nation’s debt limit through January 2025 overwhelmingly passed in the House.
A little over a year ago mortgage rates topped 5% for the first time since 2011 and have remained over 5% for all but one week during the past year. Since then they have gone as high as 7.08%, last reached in November. Since mid-March, rates have gone up and down but have stayed under 6.5%. Until a week ago when they tipped over 6.5%.
In addition, data shows the economy is strong, resurfacing concerns about inflation remaining too high and raising the prospect of another rate hike at the Federal Reserve’s June meeting. Although the Fed doesn’t have direct control over mortgage rates, higher interest rates tend to push bond yields higher, which also can nudge mortgage rates up.
“Mortgage rates jumped this week as a buoyant economy has prompted the market to price-in the likelihood of another Federal Reserve rate hike,” said Sam Khater, Freddie Mac’s chief economist. “Although there has been a steady flow of purchase demand around rates in the low to mid six percent range, that demand is likely to weaken as rates approach seven percent.”
The rate for a 30-year mortgage climbed this week as the debt ceiling standoff remained uncertain for much of this week.
“The fear of debt default affects mortgage rates through government-backed bonds,” said Jiayi Xu, and economist at Realtor.com. “If the U.S. defaults on its debt, bond investments become riskier, resulting in increased yields and potentially higher mortgage rates. With a debt deal pending, the likelihood of default remains very low.”
Once the deal is signed by President Joe Biden, the U.S. government is expected to quickly increase issuance of Treasury bills, said Xu. This, “has the potential to cause short-term liquidity challenges at banks, as businesses and households may reallocate their funds towards higher-yielding and relatively safer government debt.”
“In order to keep attracting depositors, banks might be compelled to raise interest rates, thereby squeezing profit margins,” she said. “This could lead to further rate increases across various loan products offered by banks, including both business loans and personal loans.”
However, the debt ceiling standoff isn’t the only thing troubling the markets or the economy.
Economic data this week highlight continued strength in the economy, said George Ratiu, chief economist at Keeping Current Matters.
The number of job openings rose in April to 10.1 million, exceeding market expectations and 3.8 million employees left their jobs during the month, with many finding better opportunities.
“Markets are keeping a close eye on Friday’s payroll employment report, looking for additional cues about the labor landscape,” Ratiu said. “The data are expected to inform the Federal Reserve’s rate decision at the June meeting.”
Fewer homes to buy and higher interest rates are making for a cooler spring market than typical.
Mortgage applications declined for the third straight week, as higher rates, ongoing economic uncertainty, and declining affordability continue to dampen borrower demand, according to the Mortgage Bankers Association.
“The lack of homes for sale remains a headwind for the housing market this year, leading to elevated home prices and households deciding to delay buying a home,” said Bob Broeksmit, MBA president and CEO.
But if mortgage rates remain elevated, sellers looking to wrap up a move during the summer months may be motivated to cut prices.
“We may see a potential decrease in asking prices during the upcoming summer season,” said Xu.
While a decline in home prices would be welcome to first time home buyers who lack existing equity to leverage, said Xu, it could potentially erode some of the equity of current homeowners and pose risks to the financial system.
“However, thanks to today’s near-record high home equity levels, even in the event of a substantial 10% decline in home values from their level at the end of the fourth quarter, whether occurring suddenly or over two years with a climbing mortgage debt – this is an incredibly unlikely scenario,” Xu said. “Home equity as a share of total real estate value would still exceed 60%, offering a significant cushion for existing homeowners in aggregate.”
by tyler | May 30, 2023 | CNN, homes
US home prices rose slightly in March, showing a continuing recovery, according to the latest S&P CoreLogic Case-Shiller US National Home Price Index, released Tuesday.
It’s the second month in a row that prices have increased, after an increase in February that snapped a seven-month streak of month-over-month declines.
After seasonal adjustment, the national index posted a month-over-month increase of 0.4%. Both the 10-City and 20-City composites posted increases, too. Before seasonal adjustment, the National Index posted a 1.3% month-over-month increase.
“The modest increases in home prices we saw a month ago accelerated in March 2023,” said Craig Lazzara, managing director at S&P DJI.
Prices are rising on a year-over-year basis, although the amount of that price growth has been getting smaller for the past several months. Home prices went up 0.7% in March from the year before, down from 2.1% in the previous month.
This is a developing story and will be updated.
by tyler | May 26, 2023 | CNN, homes
The credit ratings of US mortgage giants Freddie Mac and Fannie Mae were put on watch for possible downgrade by Fitch Ratings late Thursday. A downgrade is not expected to happen, as a deal to resolve the debt ceiling standoff continues to be worked out in Washington, but even the warning is having an impact on mortgage rates.
The warning came because the ratings for Fannie Mae and Freddie Mac are linked to the sovereign rating of the United States. The watch is a result of the ratings agency warning on Wednesday that America’s credit rating could be downgraded if the debt limit showdown was not resolved soon.
Fannie and Freddie, which guarantee roughly 70% of the country’s mortgages, do not directly issue mortgages to borrowers, but instead buy mortgages from lenders and repackage them for investors. They are each a government-sponsored enterprise, or GSE, chartered by Congress.
The aim of Freddie and Fannie is to provide liquidity into the mortgage market and enable a reliable flow of affordable funds to mortgage lenders. This ultimately allows more homeowners to borrow at more affordable rates.
The enterprises buy loans from lenders, pools them and sells them as securities to investors. Because they are backed by the government, these securities are viewed as less risky than other investments and considered to be as creditworthy as the US government.
But this flow of funds could be disrupted if the United States defaults on its debt, Fitch warned.
Placing the GSEs on watch for a downgrade, a status Fitch calls “rating watch negative,” is a direct result of uncertainty about the United States fulfilling its debt obligations and concern about the level of support the housing GSEs can expect if the US rating were to drop.
But, Fitch added, if it were to downgrade the US sovereign due to debt ceiling challenges, it would not necessarily lead to an immediate downgrade of the housing GSEs’ ratings — so long as the housing GSEs continued to perform on their respective obligations.
Fitch notes that the GSEs primarily cover their obligations with cash flows from operations, as opposed to direct reliance on the federal government.
“The housing GSEs continue to benefit from meaningful financial support from the U.S. government,” the Fitch statement said. “Fitch aligns the GSEs’ ratings to the U.S. rating due to their mission-critical function to the U.S. housing finance system and the U.S. Treasury’s Senior Preferred Stock Purchase Agreement. Fitch believes Fannie Mae and Freddie Mac continue to execute on their mission to provide liquidity, stability and affordability to the housing finance industry.”
Under the stock purchase agreement, Treasury is required to inject funds into Fannie Mae and Freddie Mac to keep each firm from being considered technically insolvent by their government conservator, the Federal Housing Finance Agency. At the end of March, Fannie Mae’s net worth was $64 billion and Freddie Mac’s stood at $39.1 billion. The current version of the agreement allows the GSEs to retain funds until they each meet minimum capital levels that would meet requirements for them to exit government control.
Already, the announcement is having an impact on mortgage rates, sending them higher as 10-year Treasury yields — which mortgage rates mirror — climbed on Friday.
“What Fitch is doing is providing a stark reminder of the problems that a default will cause us throughout the economy,” said Melissa Cohn, regional vice president at William Raveis Mortgage.
A recent Zillow analysis of the impact on the housing market of the US defaulting on its debts revealed home purchase costs could spike by 22% and mortgage rates could spike over 8%.
Even though a US default and a downgrade of Freddie and Fannie are not likely to happen, there is a scenario where the US government defaults and is unable to provide necessary support to the enterprises.
Much of the funding for GSEs comes from its own operations rather than government support, but, Cohn said, if mortgage rates spike and there is less revenue coming in to Freddie and Fannie, they might need that funding.
“If rates go to 8% or above? The volume of home purchases would just stop, it is kind of scary,” said Cohn, adding that because so may current home owners have ultra low mortgages of between 2% and 4%, buying a home at 8% would crush their purchasing power.
But a downgrade can be averted, Fitch said in its statement, if there is a resolution.
And for the typical home buyer looking at houses and trying to get a good mortgage rate, a deal reached soon will be the best outcome.
“The typical home buyer is focused on finding a home — if they qualify for a mortgage — knowing what they need to compromise on, contract negotiations and the end-of-month payment,” said Jessica Lautz, deputy chief economist and vice president of research at National Association of Realtors.
“While politics are at play, the ratings watch is a just that — a watch,” she said.
by tyler | May 18, 2023 | CNN, homes
US home sales fell in April for the second month in a row and home prices had the biggest drop since 2012, according to a National Association of Realtors report released Thursday.
Sales had shown some life, rising in February after a full year of declines due to surging mortgage rates, but that momentum has since cooled.
In April, sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — dropped 3.4% from March. Annually, sales were down 23% from a year ago and the seasonally adjusted annualized sales pace dropped from 5.57 million units a year ago to 4.28 million in April.
April’s falling sales showed that February’s reversal — which ended the longest streak of month-to-month declining home sales on record, going back to 1999 for all homes — did not take off. Mortgage rates were rising in February and pushing toward 7% in March when many of these April closings went into contract.
“Home sales are bouncing back and forth but remain above recent cyclical lows,” said Lawrence Yun, NAR’s chief economist. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
This sales pace is higher than the end of last year, when sales hit a low for this cycle of 4 million units. But the current sales pace is down 33% from the cyclical peak of a 6.34 million unit pace in January 2022.
While all four major regions of the US registered both monthly and annual drops in sales, drops continue to be bigger in areas that are highest cost and saw the biggest run up in prices over the past few years.
Sales in the Northeast and the Midwest were both down 1.9% from March, while sales in the South decreased 3.4% and sales in the West were down 6.1% from the previous month. On an annual basis, sales in the West are down a whopping 31%.
In a bit of good news for potential buyers, home prices continue to drop — slightly. The median existing-home price for all housing types in April was $388,800, down 1.7% from April 2022. That’s the biggest drop in home prices since January 2012.
But prices and the competition for homes is uneven across the US.
“Roughly half of the country is experiencing price gains,” Yun said. “Even in markets with lower prices, primarily the expensive West region, multiple-offer situations have returned in the spring buying season following the calmer winter market. Distressed and forced property sales are virtually nonexistent.”
Prices rose in the Northeast and Midwest but retreated in the South and West. Median prices in the Northeast were up 2.8% in April from a year ago to $422,700 and were up 1.8% to $287,300 in the Midwest. In the South prices were down 0.6% to $357,900 and in the West prices have fallen 8% from a year ago to $578,200.
“Price declines are happening in areas where there are an outflow of people, where they saw a strong run up in prices and now they are giving up some of the huge gains they have experienced,” said Yun.
Spring is the most popular time of the year to sell a home, and inventory of homes to buy at the end of April was seasonally up, rising 7.2% from March to 1.04 million units.
But today’s inventory of homes that aren’t new construction is 44% below the 1.8 million units available in April 2019, prior to the pandemic.
While higher mortgage rates is stopping some buyers from getting into the market, low inventory of homes to buy is also hindering sales, said Yun. And the two are related.
Many current homeowners have mortgage rates that are several percentage points lower than the current average mortgage rate of 6.35% and are unwilling to part with it to buy another home.
“Fresh listings aren’t coming,” said Yun, adding that on a week-to-week basis there are fewer new listings coming to market than historical norms.
The US market remains relatively swift, with properties typically remaining on the market for 22 days in April, down from 29 days in March, but up from 17 days in April 2022. The majority of homes, 73%, were on the market for less than a month in April.
Demand is still strong especially when there are so few options to choose from, Yun said, with some homes selling above the listing price in a bidding war.
“Sales are down, prices are even down,” said Yun. “But multiple offers are being seen in one-third of the homes sold.”
by tyler | May 18, 2023 | CNN, homes
Mortgage rates bounced back up this week after falling for two weeks in a row.
The 30-year fixed-rate mortgage averaged 6.39% in the week ending May 18, up from 6.35% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.25%.
Economic crosscurrents have kept rates within a 10-basis point range over the last several weeks, said Sam Khater, Freddie Mac’s chief economist.
“While affordability remains a hurdle, homebuyers are getting used to current rates and continue to pursue homeownership,” said Khater.
Mortgage rates topped 5% for the first time since 2011 a little more than a year ago, and have remained over 5% for all but one week during the past year. Since then they have gone as high as 7.08%, last reached in November.
Over the last month, rates have gone up and down, but have stayed under 6.5%.
“Mortgage rates have remained in the roughly 6% to 7% range for the last eight months and will likely remain in this range until incoming economic data makes the economy’s path forward more clear,” said Hannah Jones, Realtor.com economic data analyst. “Buyer demand has been sensitive to the ebb and flow of mortgage rates, but near-peak home prices and elevated inflation mean many would-be buyers are still waiting on the sidelines.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Mortgage rates went up following a rise in the 10-year Treasuries this week, as investors continue to digest data related to inflation and keep their eye on the ongoing standoff in Washington about raising the debt limit, which is creating uncertainty.
While inflation is cooling, recent data shows signs of a stubborn, though slowing economy, said Jones, suggesting that the Federal Reserve’s rate hikes are having the intended effect. However, inflation remains well above the central bank’s target level and unemployment remains near all-time lows.
If a deal is not reached providing an extension of the debt limit, the United States would default on its debts for the first time. This could further crush an already struggling housing market, sending the cost to purchase a home up 22% and spiking mortgage rates to over 8%, according to one projection.
“The economy remains on fragile footing and a US default would cause an interest rate spike that could erase any progress towards a healthier housing market by cutting deeper into home sales,” said Jones.
A default remains unlikely, but, Jones said, the closer we get to a possible event date — which could be as soon as June 1 — without an increase in the debt limit, the more households will be hurt by higher interest rates.
“The sooner the debt impasse is resolved, the less likely it is to negatively affect households already plagued by high prices,” she said.
Home shoppers who are facing higher mortgage rates are also facing low inventory of homes to buy and still-strong competition from other buyers, especially at entry- and middle-level prices. Even though housing sales are down, demand for the few homes coming to market in an area can result in a bidding war that pushes prices higher.
This makes buyers even more rate sensitive, as they calculate how much house they can afford.
“Higher rates and low inventory levels continue to keep many prospective first-time buyers on the sidelines,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “Purchase applications for FHA loans — popular with many first-timers — were down 5% from last week and 17% from a year ago.”
Inventory is low because many homeowners who may otherwise put their home on the market are holding back and holding on to a mortgage rate several percentage points lower than a rate they’d take on by buying another home.
“Constrained buyers and reluctant sellers mean the spring market hasn’t picked up as much momentum as in years past, but each improvement in affordability is met with an increase in buyer activity,” said Jones. “Prices are likely to remain elevated in many markets where low inventory, especially at an affordable price point, is creating a competitive environment.”
by tyler | May 18, 2023 | CNN, homes
While rents are cooling in some parts of the United States, the cost to rent a Manhattan apartment hit a record high for the second month in a row.
Typically, rental activity builds from the spring to a peak in late summer, but median rent last month was the highest on record, according to a report from Douglas Elliman, a brokerage, and Miller Samuel, an appraisal and consultant firm.
The median cost of renting an apartment in Manhattan was $4,241 in April. That’s up 8% from a year ago and up 1.6% from March, when rents hit a record high of $4,175.
A one-bedroom apartment had a median rent of $4,200, up 5% from last year; while a two-bedroom apartment had a median rent of $5,500, up 11% from a year ago. A studio apartment rents for a median price of $3,235, up 13.5% from last year.
The Manhattan rental market is continuing to trend slightly better than sideways, said Jonathan Miller, president and CEO of Miller Samuel.
Not only are median rental prices going up, but the amount of concessions — or incentives offered by landlords — are dropping. In April, concessions paid by landlords fell to their lowest level since November 2019.
Listing inventory in Manhattan expanded annually, but remained more than 10% below the decade average for April.
But the data suggests that more renters are opting to stay put, given rental prices, with the number of new leases dropping sharply. New leases of apartments were down 20% from March and down 14% from a year ago.
“The drop in new leases indicates that there is a sharp increase in lease renewals,” said Miller. “It means the tenant consumer has accepted that we’re not going to see any improvement in affordability in the near term. They are signing renewals instead of testing the market trying to find better opportunities.”
Many renters are looking for when rental prices will actually go down.
“The only real answer to that seems to be a recession,” said Miller. “Economists have been calling for a recession for two years. Given the current state of the market, it doesn’t seem to be anything people are expecting any time soon.”
Miller said more record-high prices are to be expected between now and late summer when lease prices and leasing volume both tend to peak.
“Not necessarily every month, but we could see several more months with record-setting median rental prices,” said Miller. “If we don’t see some economic event that would change that course.”
