Mortgage rates have been back on the rise recently and that’s getting a lot of attention from the press. If you’ve been following the headlines, you may have even seen rates recently reached their highest level in over two decades (see graph below):  

 

That can feel like a little bit of a gut punch if you’re thinking about making a move. If you’re wondering whether or not you should delay your plans, what you really need to know is how higher mortgage rates impact you.

There’s no denying mortgage rates are higher right now than they were in recent years. And, when rates are up, that affects overall home affordability. It works like this. The higher the rate, the more expensive it is to borrow money when you buy a home. That’s because, as rates trend up, your monthly mortgage payment for your future home loan also increases.  

 Urban Institute explains how this is impacting buyers and sellers right now: 

 “When mortgage rates go up, monthly housing payments on new purchases also increase. For potential buyers, increased monthly payments can reduce the share of available affordable homes . . . Additionally, higher interest rates mean fewer homes on the market, as existing homeowners have an incentive to hold on to their home to keep their low interest rate.” 

Basically, some people are deciding to put their plans on hold because of where mortgage rates are right now. But what you want to know is: is that a good strategy? 

 Where Will Mortgage Rates Go from Here? 

If you’re eager for mortgage rates to drop, you’re not alone. A lot of people are waiting for that to happen. But here’s the thing. No one knows when it will. Even the experts can’t say with certainty what’s going to happen next.  

Forecasts project rates will fall in the months ahead, but what the latest data says is that rates have been climbing lately. This disconnect shows just how tricky mortgage rates are to project.  

 The best advice for your move is this: don’t try to control what you can’t control. This includes trying to time the market or guess what the future holds for mortgage rates. As CBS News states: 

 “If you're in the market for a new home, experts typically recommend focusing your search on the right home purchase — not the interest rate environment.” 

Instead, work on building a team of skilled professionals including a trusted lender and real estate agent, who can explain what’s happening in the market and what it means for you. If you need to move because you’re changing jobs, want to be closer to family, or are in the middle of another big life change, the right team can help you achieve your goal, even now. 

Bottom Line: The best advice for your move is don’t try to control what you can’t control – especially mortgage rates. Even the experts can’t say for certain where they’ll go from here. Instead, focus on building a team of trusted professionals who can keep you informed. When you’re ready to get the process started, let’s connect.

Joe

Week Ending 9/22/2023

Fed Projections

From the Joe Smith Team at Cross Country Mortgage At the highly anticipated meeting on Wednesday, Fed officials confirmed their outlook for short-term rates to remain at elevated levels for quite a while. While this was not much of a surprise, the news caused mortgage rates to climb to their highest levels in decades.

As expected, the Fed made no change in the federal funds rate, and the statement released after the meeting was very similar to the prior one. The key information was the latest set of projections from officials for future monetary policy. First, the median forecast from 19 Fed officials is for an additional 25 basis point rate hike this year. In addition, they anticipate that the federal funds rate will remain near current levels for a substantially longer period of time than in the last set of projections released three months ago. The bottom line is that officials currently do not see rate cuts coming as soon as investors expected. According to Chair Powell, they want to see "convincing evidence" that inflation is on track to return to target levels before loosening monetary policy. In housing news, sales of existing homes in August fell slightly from July and were 15% lower than last year at this time. Inventory levels stand at just a 3.3-month supply nationally, far below the 6-month supply typical in a balanced market. The median existing-home price of $407,100 was 4% higher than last year at this time. There is no doubt that additional inventory of homes available for sale continues to be desperately needed, but the latest data contained mixed news. Overall housing starts in August were disappointing with a larger than expected decline of 11% from July to the lowest level since June 2020. Most of the weakness came from the multi-family sector, however, with just a modest drop in single-family units. More encouragingly, building permits, a leading indicator, increased for both single-family and multi-family units. Builders again cited tight credit conditions for loans and high prices for land, labor, and materials as obstacles to a faster pace of construction.

Week ahead

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy. For economic reports, Consumer Confidence and New Home Sales will be released on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will come out on Friday.

Tue 9/26 New Home Sales Tue 9/26 Consumer Confidence Fri 9/29 Core PCE Fri 9/29 Personal Income

Mortgage Rates Rose 0.15% Dow Fell 500 NASDAQ Fell 400

Joe Smith Branch Manager / SVP M 617-308-3337 D 617-236-1555 W crosscountrymortgage.com/the-joe-smith-team E jsmith@ccm.com We would like to thank our partner, MBSQuoteline for their insightful information. All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.

 

Have you ever wondered how inflation impacts the housing market? Believe it or not, they’re connected. Whenever there are changes to one, both are affected. Here’s a high-level overview of the connection between the two.

The Relationship Between Housing Inflation and Overall Inflation

Shelter inflation is the measure of price growth specific to housing. It comes from a survey of renters and homeowners that’s done by the Bureau of Labor Statistics (BLS). The survey asks renters how much they’re paying in rent, and homeowners how much they’d rent their homes for, if they weren’t living in them.

Much like overall inflation measures the cost of everyday items, shelter inflation measures the cost of housing. And for four consecutive months, based on that survey, shelter inflation has been coming down (see graph below):

Why does this matter? Well, shelter inflation makes up about one-third of overall inflation, as measured by the Consumer Price Index (CPI). So, when shelter inflation moves, it leads to noticeable moves in overall inflation. That means the recent dip in shelter inflation might be a sign that overall inflation could fall in the months ahead.

That moderation would be a welcome sight for the Federal Reserve (the Fed). They’ve been working to get inflation under control since early 2022. While they’ve made some headway (it peaked at 8.9% in the middle of last year), they’re still trying to get to their 2% goal (the latest report is 3.3%). 

Inflation and the Federal Funds Rate  

What’s the Fed been doing to lower inflation? They’ve been increasing the Federal Funds Rate. That interest rate influences how much it costs banks to borrow money from each other. When inflation climbed, the Fed responded by raising the Federal Funds Rate to keep the economy from overheating.

The graph below shows the relationship between the two. Each time inflation (shown in the blue line) starts to climb, the Fed raises the Federal Funds Rate (shown in the orange line) to try to get it back to their target of 2% (see below):

The circled portion of the graph shows the most recent spike in inflation, the Fed’s actions to raise the Federal Funds Rate to fight that, and the moderation of inflation that happened in response to that hike. As inflation gets closer to the Fed’s current 2% goal, they may not need to raise the Federal Funds Rate much further.

A Brighter Future for Mortgage Rates?

So, what does all of this mean for you? While the actions coming out of the Fed don’t determine mortgage rates, they do have an impact. As Mortgage Professional America (MPA) explains:

“. . . mortgage rates and inflation are connected, however indirectly. When inflation rises, mortgage rates rise to keep up with the value of the US dollar. When inflation drops, mortgage rates follow suit.”

While no one can predict the future for mortgage rates, it’s encouraging to see the signs of moderating inflation in the economy. 

Bottom Line

Whether you’re looking to buy, sell, or just stay informed about the housing market, let’s connect. 

Weekly Update | June 12, 2023

Interest Rates Up Slightly

An unusually quiet week for economic news and housing data saw mortgage interest rates rise slightly. More significant rate movement was expected this week following the release of May’s Consumer Price Index (CPI) report and the latest Federal Reserve announcement. Economic data is one of the most important influences on the bond market, which determines day-to-day rate movement. Weak economic numbers typically push rates downward, and this was the case following Thursday’s Weekly Jobless Claims report. Initial filings for unemployment benefits totaled a seasonally adjusted 261,000 for the week ending June 3—well ahead of the Dow Jones estimate of 235,000 and the highest amount since late October 2021. Earlier in the week, rates moved upward following the Bank of Canada’s rate hike announcement. The bank raised its overnight rate to a 22-year high of 4.75%. The move was in response to surprisingly strong consumer spending, a pick-up in housing activity, and a tight labor market. This week’s CPI report will be one of the highly anticipated of the month. April’s reading of 4.9% marked the 10th consecutive month that the index slowed. While economic forecasters are predicting that inflation will continue to fall, it is not clear when it will drop to the Federal Reserve’s target of 2%. [Note: today's report showed May's annualized inflation at 4%, a sharp drop from April's 4.9%, and slightly lower than expected-jw] The U.S. central bank will hold its next meeting June 13 and 14. At its May gathering, the Fed raised its benchmark rate for the 10th time in 14 months. But the biggest headline to come out of the last meeting was not the rate increase but the central bank removing previous language—specifically, the phrase “some additional policy firming may be appropriate”—that signaled future rate hikes. Many economists believe that with inflation and the labor market showing signs of cooling, officials will halt the rate increases. Otherwise, they will raise the benchmark rate again, despite the growing risk that the move will trigger a mild recession. Monday’s ISM Services Index revealed that economic activity in the services sector expanded in May for the fifth consecutive month. The index reading of 50.3 was down slightly from April’s 51.9. The sector has grown in 35 of the last 36 months with the lone contraction coming in December of last year. Wednesday’s Weekly Mortgage Applications Survey from the Mortgage Bankers Association revealed that applications fell 1.4% from one week earlier. The Refinance Index was down 1% on a weekly basis and 42% lower than one year ago. Meanwhile, the seasonally adjusted Purchase Index decreased 2% for the week.

smorrison@berkshirebank.com