Mortgage Market and Rate Update – Rate Volatility Defines the Current Market

Per Freddie Mac:

Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices, increased recession risk, and declining consumer confidence take a toll on homebuyers. It’s clear that over the past two years, the combination of the pandemic, record low mortgage rates, and the opportunity to work remotely spurred greater demand. Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market normalizes.

Key Highlights and Takeaways:

  • The Fed raised rates the Fed Funds Rate again this week by another 0.75%.  This is not unexpected, but it has been a somewhat unprecedented.  This will NOT be reflected by the same amount in the mortgage market, but there was a bump that corresponded with it.  That said, the rate increase cannot be ignored as everything from cars to credit cards will have higher payments.  This will likely be the more impactful impact on loans as borrowers income ratios take a hit from other debt that they may have or be taking on.
  • Inflation continue to be stubbornly high and this will impact future Fed movement, but, more importantly, this will directly impact peoples pocket books and cash flow.  Like the higher payments mentioned above for short-term debt, higher cost of goods will adversely impact households.  This is where personal budgeting is essential because the loan approval process does not address things like milk costing more, so it is the individual or family that needs to decide if a mortgage payment is acceptable from a budgeting perspective.
  • Based on higher costs of everything and higher rates any one beginning or, more importantly, anyone in the process, i.e. pre-approved or under contract, should immediately review their situation to make sure that they can afford it and get approved.
  • Home prices are stabilizing and even dropping.  This has been widely covered in the media who have gone from soft landing to all out 2008 style crash in just a few weeks.  Granted the latter is not the broad consensus but the mere fact that this type of drop is part of the discussion is sobering.
  • Hard money investment and non-QM programs which are outside of the conventional market also jumped.  The increase was definitely more profound than in other loan types.  There were hopes that dropping prices could spark activity in the flipping and rental sectors and they still might, but higher rates will present a headwind.