Mortgage Market Update – Rates Continue Downward Slide But Fed Move Makes Rate Future Uncertain

By Douglas Katz – 12/15/2022

From Freddie Mac:

Mortgage rates continued their downward trajectory this week, as softer inflation data and a modest shift in the Federal Reserve’s monetary policy reverberated through the economy. The good news for the housing market is that recent declines in rates have led to a stabilization in purchase demand. The bad news is that demand remains very weak in the face of affordability hurdles that are still quite high.

My Commentary:

  • The numbers on inflation came out this week and they were better than expected but higher that desired.  This led to a Fed Fund Rate bump of 0.5%.  This was better than previous increases, but still sent the message that the fed is not yet done battling inflation.
  • Rates bounced around a bit this week, but they ended the week down again.  This downward trend has now been a 5-week run, which is encouraging in light of the aforementioned inflation news and Fed move.
  • The declining rate environment has not yet created the spark in the housing market.  While some buyers are beginning to seek out fairly priced homes some are even finding bargains.  Most, however, are still reeling from the previous brutal seller’s market which has lasted years.
  • As for housing, most if not all predictions are for lower home values.  While it varies from source to source and market to market, values will be lower in 2023 and likely beyond.  This uncertainty and the desire to not begin homeownership with an underwater mortgage is preventing many buyers from acting as well.  Additionally, inventory is remaining painfully tight, so even with more reasonable values in sight, there is nothing to bid on.
  • The lending industry remains very fluid with continued layoffs at many providers and, in some cases, attrition when lenders fail or are absorbed.  I recommend that any borrower or prospective borrower add health of the lender to their list of considerations to avoid surprises.
  • Guidelines continue to change as lenders work replace decreased volume by expanding the serviceable market.  This is primarily for good borrowers, so the lower tier credit applicants should not expect miracles, but strong borrowers may find that they now have access to loan options with features like lower down payments or more generous debt ratios.
  • Real estate investment activity is still going strong especially in the rental market.  Flipping has been tepid with the same inventory issues as we are seeing in the residential market.  With record high rents in the long-term rental market and meteoric growth in the short-term rental market, investors are aggressively growing their portfolios.

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