Real Estate News

How Global Uncertainty Is Impacting Mortgage Rates

March 10, 2022 By David Warren

If you’re thinking about buying or selling a home, you’ll want to keep a pulse on what’s happening with mortgage rates. Rates have been climbing in recent months, especially since January of this year. And just a few weeks ago, the 30-year fixed mortgage rate from Freddie Mac approached 4% for the first time since May of 2019. But that climb has dropped slightly over the past few weeks (see graph below):

The recent decline in mortgage rates is primarily due to growing uncertainty around geopolitical tensions surrounding Russia and Ukraine. But experts say it’s to be expected.

Here’s a look at how industry leaders are explaining the impact global uncertainty has on mortgage rates:

Odeta Kushi, Deputy Chief Economist at First American, says:

“While mortgage rates trended upward in 2022, one unintended side effect of global uncertainty is that it often results in downward pressure on mortgage rates.”

In another interview, Kushi adds:

“Geopolitical events play an important role in impacting the long end of the yield curve and mortgage rates. For example, in the weeks following the ‘Brexit’ vote in 2016, the U.S. Treasury bond yield declined and led to a corresponding decline in mortgage rates.”

Kushi’s insights are a reminder that, historically, economic uncertainty can impact the 10-year treasury yield – which has a long-standing relationship with mortgage rates and is often considered a leading indicator of where rates are headed. Basically, events overseas can have an impact on mortgage rates here, and that’s what we’re seeing today.

Will Mortgage Rates Stay Down?

While no one has a crystal ball to predict exactly what will happen with rates in the future, experts agree this slight decline is temporary. Sam Khater, Chief Economist at Freddie Mac, echoes Kushi’s sentiment, but adds that the decline in rates won’t last:

“Geopolitical tensions caused U.S. Treasury yields to recede this week . . . leading to a drop in mortgage rates. While inflationary pressures remain, the cascading impacts of the war in Ukraine have created market uncertainty. Consequently, rates are expected to stay low in the short-term but will likely increase in the coming months.”

Rates will likely fluctuate in the short-term based on what’s happening globally. But before long, experts project rates will renew their climb. If you’re in the market to buy a home, doing so before rates start to rise again may be your most affordable option.

Bottom Line

Mortgage rates are an important piece of the puzzle because they help determine how much you’ll owe on your monthly mortgage payment in your next home. Let’s connect so you have up-to-date information on rates and trusted advice on how to time your next move.

Are We In A Housing Bubble?

September 29, 2020 By David Warren

The Short Answer is No

The economic landscape of 2020 has been volatile and unpredictable due to the pandemic. Record numbers are being recorded for unemployment claims and we have a portion of the workforce working from home (some balancing kids online school with work). Conversely, interest rates are at all-time historic lows. These juxtaposing factors have some Americans wondering what pandemic-induced recession is going to mean for the real estate world. Are we headed toward another housing market crash that will mimic The Great Recession 2008? The short answer is no. A close analysis of what the market factors at work should leave homeowners feeling more assured.

Housing Values

Housing values have seen dramatic increases in the last year-plus, and in some locations housing values have increased as much as 20%. This is primarily due to a lack of inventory (sellers not wanting to sell, lack of new construction over the past decade) and a large number of buyers taking advantage of historically-low interest rates. This quick increase in housing value and buying frenzy is the main reason people are afraid of the previous recession repeating itself since some of the signs look familiar. The difference is that prior to the last recession, the sharp increase in housing values took place due to a buying frenzy caused by easy access to mortgages (more on this below). One could say that this was artificial demand since a percentage of those buyers should not have been able to qualify for a mortgage.

As compared to the period just before the recession, today’s homeowners have far more equity in their homes. Before the Great Recession, many new homeowners were getting homes with little down payment, meaning they had little or nothing to fall back on when prices declined. That is not the case today.

Interest Rates

Mortgage interest rates in the early 2000’s leading up to the housing bubble averaged between 5-6% for a conventional 30-year loan. Currently, interest rates have dropped below 3% on a conventional 30-year loan for the first time ever. This difference in interest means hundreds of dollars each month in mortgage payment interest savings, especially important if homeowners need to refinance or adjust their loans.

Mortgage Lending Requirements

In addition to the difference in interest rates, there is also a chasm between the underwriting guidelines on mortgages during the housing bubble and the guidelines being enforced now. Much of what caused the housing collapse of 2008 was lenient lending guidelines and predatory lenders. In the early 2000’s loans were being granted to borrowers who were overextended and unfamiliar with their mortgage terms. Many took out adjustable rate mortgages that were a stretch to afford in the first place, and impossible to pay once the rate adjusted.

Since the housing market crash there were a series of regulatory guidelines put into place to protect the American population from predatory lending. Additionally, mortgage lenders have tightened their approval conditions, even more so since the pandemic began to mitigate the risk of mortgages going into default.

By and large, the housing market crash of 2008 was one of the key factors for the recession. The real estate market changes right now represent higher-than-normal demand for scarce inventory plus a reaction to the pandemic economy. While no one can assuredly say exactly what is in our future, real estate experts across the board do not see a looming bubble in our future.

SOURCES:

https://www.bankrate.com/mortgages/foreclosures-crisis-wont-look-like-great-recession/

http://www.freddiemac.com/pmms/pmms30.html

House Prices Rising Even as Mortgage Rates Remain Low

March 6, 2020 By David Warren

September 2019 Summary

At the end of September 2019, there were 1.83 million homes on the market. While this figure is comparable to the previous month, it’s down 2.7% from September 2018. At the current sales pace, the current supply would sell in just 4.1 months, which is up from 4.0 months in August but down from September 2018’s 4.4 months. The average home stayed on the market for 32 days, which is a day longer than August 2019 but the same number of days as September 2019. Of all homes sold in September, 49% were on the market for less than a month.

Equity Gains

Good news for home sellers: every major sales region reported increases in price this past September. In fact, that month marked the 91 consecutive months of year-over-year price gains. Be warned, however, that the lack of inventory combined with increasing prices is leading to a decline in the number of home sales. After two months of increases, sales of existing homes declined in September. While declines were prevalent across the board, the Midwest was hit the hardest. According to National Association of Realtors chief economist Lawrence Yun, “We must continue to beat the drum for more inventory.” Yun has spent the last year campaigning for an increase in home construction, which should provide the inventory needed to curb the pain of the housing shortage.

Regional Sales Breakdown

Northeast: Existing-home sales had an annual rate of 690,000 in September 2019. This is a decline of 2.8% from August, but an increase of 1.5% from September of the previous year.

Midwest: Existing-home sales saw an annual rate of 1.27 million, a decrease of 3.1% from the previous month but on par with September of 2018.

South: Existing-home sales annual rate was at 2.28 million, a decrease of 2.1% from August but an increase of 6% from a year ago.

West: Existing-home sales annual rate of 1.14 million, which is a 0.9% decrease from August 2019 but an increase of 5.6% from September 2018.

National Home Sales Reach Highest Pace In A Decade

March 7, 2018 By David Warren

A strong stock market and high employment has resulted in a booming economy for the past few quarters, which has also led to an increase in demand for homes. According to Lawrence Yun, chief economist for the National Association of Realtors, “Move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month.” While a greater supply of upper-end homes is great news for buyers looking to upgrade their current home, inventory issues elsewhere continue for first-time buyers.

First-Time Buyers Priced Out of the Market
More and more first-time buyers are finding themselves priced out of the market due to fewer lower-priced homes on the market and home prices appreciating rapidly in many regions of the country. Mortgage rates are expected to continue to rise next year, severely impacting home affordability. According to Yun, “The increase in homebuilder optimism must translate to significantly more new construction in 2018 to help ease these acute inventory shortages.”

Who Is Buying?
With the shortage of lower-priced homes on the market, it’s not surprising that first-time buyers accounted for only 29% of sales in November 2017, down from 32% in both October 2017 and November 2016. Over the whole of 2017, first-time buyers represented only 34% of total home purchases.

On another front, 22% of all sales in November 2017 were case, up from 20% in October 2017 and 21% in November 2016. The current percentage matches the highest market share since May 2017. Most cash sales are made by individual investors and account for 14% of total transactions, up from 13% in October 2017 (but consistent from a year ago). Yun adds, “The elevated presence of investors paying in cash continues to add a layer of frustration to the supply and affordability headwinds aspiring first-time buyers are experiencing.”

First-time buyer demand is expected to continue rising in the coming year, thanks to a healthy job market and rising wages. These buyers, however, will not be able to get their foot in the door of the market unless there is an increase in the inventory of smaller, affordable homes on the market.

Strong Sales
Existing-home sales increased for the third month in a row in November 2017, when sales reached 5.81 million. This is an increase of 5.6% from October 2016, and an increase of 3.8% from the same time in 2016. Sales haven’t been this strong in almost eleven years; according to NAR, the last time sales set a pace this rapid was December 2006, with 6.42 million existing homes sold. Every region, excluding the West, posted an increase in sales activity in November 2017.