Mortgage Rates and Economic Commentary

2024
What drives Mortgage Rates – and no it’s not the Federal Reserve
Read on to understand what does drive mortgage rates

The Federal Reserve’s new buzzword: Recalibrate
At Wednesday’s press conference after the Fed – finally – cut rates by 50 basis points (bp)(0.5%) – Fed Chair Powell introduced a new phrase to explain their action: “recalibrate.”
We have been through “transient inflation”; “data dependent”; “higher for longer”; and “data-dependent, not data point dependent” and have reached “recalibrate”.
Chair Powell denied that they were playing catch up because they waited too long to start cutting rates (they are, and they did).

Federal Reserve Chair Powell:”The Time has Come”
“The time has come,” the Chair announced,
“For easing to begin—
From tightening strings, and cautious holds—
And dovish, hawkish spin
And then the market breathed a sigh—
When at last the Fed gave in.”

Earth to Federal Reserve: What are you waiting for?
This: is the same headline I used in February 2022 in this article, when the Fed was dithering about raising rates. It is just as applicable today as they dither about cutting rates.
Indeed, sometimes I wonder if the Fed is more concerned about coming up with catchy phrases: “transient inflation; “data dependent”; “higher for longer”; and now “data-dependent, not data point dependent” – than actually taking decisions

The Federal Reserve’s Analysis Paralysis
The answer to that question I posed last November is “yes” – and here we are, 8 months later, and the Fed is still “data dependent”, although this year’s mantra has become “higher for longer.”

2023
INFLATION and RECESSION UPDATE
The question now is whether the Federal Reserve, having been extremely slow to start raising rates and reversing Quantative Easing, will be similarly late in easing. The Fed claims to be data dependent, but data tells us what happened in the past – and the Fed’s actions impact the future.

Why Mortgage Rates will fall in 2024
This article addresses two things: what drives mortgage rates, and why they will fall in 2024

Transitory inflation? Recession? What else will forecasters get wrong?

Core Inflation Prices Barely Budged in August
While inflation rose 3.5% year-to-year in Aug. – still above the Fed’s 2% goal – it was only up 0.1% month-to-month after backing out higher gas prices.

Two More Ways the Mortgage Market differs from 2007/2008
The chart below shows how loans with a credit score under 660 – the bottom colours of yellow and dark blue – which were about 20% of the total in the 2004-2007 period, have virtually ceased, with loans over 720 now making up the vast majority of new mortgages.

Two signs inflation is slowing
Here are two indications from my mailbox this week that the situation has changed (the first is from a car dealer, the second from Home Depot)

Federal Reserve increase rates; Mortgage Rates drop
Too often I see a headline like this one: “Mortgage Rates Continue to Slide Despite Fed Hike.” The 30-year Fixed Rate Mortgage (FRM) does NOT follow the Federal Reserve’s rate increases!

What drives Mortgage Rates in one chart
I read regularly comments such as “mortgage rates will move up after the Fed increased its interest rate.”
Look at this chart for the last few months, the dates being those when the Federal Reserve increased its interest rate.

Lies, Damned Lies and Inflation “Statistics”
housing inflation – which constitutes one-third of the CPI and 40% of “core” inflation (excluding food and energy) – is an imputed number (“assigned by inference”), not an actual one.

2022
Why Mortgage rates Will Fall
I have read and heard several comments suggesting that the increase in the 30-year Fixed Rate Mortgage (FRM) this year has been a direct result of the increase in the Federal Reserve’s Fed Funds rate (FF).This is not correct, as I shall show in this article

Mortgage Rates peaked? I spoke too soon
When the FRM hit 5.8% in June I suggested that it might drop below 5%. It did -very briefly – before rebounding to 6%. Why? Read on.

No, the Federal Reserve does not control mortgage rates
There is widespread misunderstanding about what drives mortgage rates. Indeed, I read an article recenlty on the National Association of Realtors website which stated that mortgage rates had risen sharply following the increase in the Federal Reserve’s interest rate.Not so.

Federal Reserve tries to rewrite history
Two comments from Federal Reserve Chair Powell struck me while I was listening to his Press Conference on Wednesday.

Has Inflation Peaked?
There may be “unknown unknowns” out there, but as I write this it looks to me that inflation is at or close to a peak.

Have Mortgage rates peaked?
I believe there are good reasons for thinking that mortgage rates may have peaked. Read on to find out why I think this.

Federal Reserve in Fantasyland: Implications for Housing Market
If the house meets your needs and you plan to live there for the foreseeable future and you can afford it – buy it. And you may have greater choices in the coming weeks and months.

Are we already in a Recession?
I think the answer is yes. Here is the evidence, in three charts

Will the Federal Reserve show chutzpah today?
The Fed needs to increase its Fed Funds rate by a full 1.0% today to regain control of the inflation narrative

How far Behind the Curve is the Federal Reserve?
I continue to fail to understand why the Fed felt able to cut its fed Funds rate by 1.5% in less than two weeks, but has been tip-toeing when it comes to raising rates again.

Why are Mortgage rates so high?
Often, when mortgage demand slackens – and there is no evidence yet that that is happening – lenders compete on rates to generate business.

Federal Reserve: “Make me responsible…. but not yet”
With apologies to St. Augustine the gist from the release this week of the minutes of the last meeting of the Federal Reserve Open Market Committee (FOMC) was that, yes, inflation is worse than we expected, and yes, we need to raise interest rates and, yes, we need to sell some of our huge portfolio of Treasuries and Mortgage-Backed Securities, and we will …soon…I promise

Time to Consider an Adjustable Rate Mortgage
As 30-year mortgage rates (FRM) continue their recent vertical ascent, it is worth considering an Adjustable Rate Mortgage (ARM).

Earth to Federal Reserve: What are you waiting for?
As the debate amongst economists continues as to whether the Federal Reserve will raise interest rates 3 times, 5 times or 7 times this year, the Federal Reserve continues to do….nothing.

Can the Federal Reserve prevent a Recession?
Since World War II there has been a consistent pattern of the Federal Reserve hiking interest rates to control inflation and thereby triggering a recession. With the Fed finally acknowledging in late November that inflation was not transitory and committing to end its bond buying spree and also raise interest rates, will it be able to avoid a recession? Can this time be different?

2021
Mortgage rates back to 3% – again
While the spread between FRM and 10T has been hovering around the 1.5% level this year, that is below the long-term average of 1.7%. And the reason is that the Fed’s buying of MBS is estimated to be keeping mortgage rates about 1/4% below where they would otherwise be. So add 0.25% to 1.5% and we are pretty well in line with long-term, stable market spreads.

In other words, markets have returned to a more normal condition

Mortgage refinancing just got cheaper
The Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac will eliminate the Adverse Market Refinance Fee for loan deliveries effective August 1, 2021.

Adjustable-Rate Mortgages Staging a Comeback
ARMs dropped in popularity after the 2008 financial crisis, but they are starting to reemerge as buyers contend with record high home prices. “The epic surge in home prices has people looking to save money on monthly payments anywhere they can,”

Are mortgage rates heading up or down?
For several years “experts” have been forecasting that mortgage rates were about to rise, but forecasts of an imminent end to low rates are reminiscent of Mark Twain’s alleged comment that reports of his death had been greatly exaggerated.

Hello sub 3% mortgages – again
After rising steadily from 2.65% at the beginning of the year to 3.18% by the end of March, the 30-year Fixed Rate Mortgage (FRM) has backed off again and this week the rate dropped back under 3%

Goodbye sub 3% mortgages
It was only last July that the 30-year Fixed Rate Mortgage (FRM) dropped below 3% for the first time and this week it moved back above 3% again, following the direction of the 10-year Treasury Note (10T)

Mortgage Rates are Rising
The Mortgage Bankers Association (MBA) published its forecast for mortgage rates this week. While the MBA has a track record of forecasting rising mortgage rates, it is worth noting that the latest forecasts are for the FRM to reach 3.4% by the end of 2021, 3.9% in 2020 and 4.4% in 2023.

“Mortgage rates rise at the fastest pace in months*
The FRM as of last Thursday’s Freddie Mac survey was 2.73%, but will rise this week, possibly sharply.

Are mortgage rates about to rise?
Following the Georgia Senate election results, which gave control of the Senate to the Democrats, along with the House of Representatives and the White House, the yield on the 10-year Treasury Note (10T) – the most sensitive to increased Government spending – jumped from 0.93% on Monday to 1.13% on Friday, based upon the expectation that increased Government spending would lead to more borrowing which would need higher interest rates to attract investors.

2020

“Mortgage rates low, housing prices high for three years”
CoreLogic has released its Three-Year Housing and Mortgage Outlook and the report says millennials will add substantial demand for housing, while finding low rates and high prices. 12/09

Mortgage Markets Return to Normal
As financial markets have calmed down, the spread between FRM and 10T has been falling steadily since the middle of the year and is now within the normal range again.

Mortgage rates: Another new low
The 30-year Fixed Rate Mortgage (FRM) as reported by Freddie Mac dropped to yet another new low this week of just 2.72%.

Mortgage Rates: another Head Fake or Early Warning?
Back in June I wrote Mortgage rate head fake, when mortgage rates jumped but only very briefly.

On Wednesday this week I wrote: “In normal times, the 30-year Fixed Rate Mortgage (FRM) is priced based upon the extra yield investors require over and above that which can be received on the US 10-year Treasury Note (10T). In recent years that extra yield – spread – has averaged 1.7%.

Mortgage rates dip below 3% – where next?
The 30-year Fixed Rate Mortgage dropped below 3% this week but the spread over 10-year Treasuries remains elevated.

Mortgage rates are rising – and that’s good news
The reason that the rise in interest rates this week is good news is that it is an indication that markets are at least starting to return to normal. We are not going to see mortgage rates fall into line with the 10T + 1.7% formula (implying a FRM of 2.6%) because in times of economic stress the formula changes slightly to 10T +1.7% + a risk premium.

Mortgage rates hit all-time low – again
Remember late March when the 30-year Fixed Rate Mortgage jumped more than 1% in one day when the financial markets were in disarray? The multiple actions taken by the Federal Reserve have created both liquidity and confidence and the impact has been dramatic in both the stock market and the conventional mortgage market.

Mortgage applications spike
U.S. applications for home mortgages jumped last week, in a sixth straight weekly increase, suggesting the housing market could lead the economy’s recovery from the novel coronavirus crisis even as high unemployment is expected to linger.

Mortgage applications almost back to 2019 levels
The problem now is not demand, which is clearly there, but supply which, as the next table shows, has dropped dramatically compared with a year ago.

A Calmer Mortgage Market
The most likely outcome is that, as the US economy rebounds later this year, the yield on 10T will rise and the risk premium demanded by buyers of MBS decline, narrowing the spread. But there are no models for this pandemic, and no forecasts – just guesstimates at this stage

Mortgage rates Stabilise
The FRM remains very close to all-time lows and we may have seen the actual bottom, but it is unlikely that rates will rise significantly any time soon.

Mortgage rates after the collapse of bond yields
My best guess – and at this stage it is a guess – is that in time, when we know the extent of the economic slump and the pace of recovery, interest rates will raise again. Could the FRM reach 3%? Yes. Will it? Ask me again in a couple of weeks.

Coronavirus-and-the-housing-market-part-2
The US economy continues to show steady, if unspectacular grow. Provided coronavirus just delays economic activity, that will continue to be the story. A longer slowdown may well lead the world into a recession but it really is too early to tell.
Meanwhile the story of recent years continues to apply: Record low inventory + record low mortgage rates + strong demand = rising home prices.

Coronavirus and the housing market
While it is too early to forecast the impact of the coronavirus, world stock markets this week suggest that investors believe it will be limited beyond the short term. And meanwhile, ultra low mortgage rates only exacerbate the impact of the extreme low level of supply in the housing market.

Refinancing – don’t make just the minimum payment
The reason my website includes a mortgage calculator that shows the amortization table is to demonstrate just how expensive it is to borrow money over 30 years. It is rather like paying only the minimum on a credit card. In fact, a 30 year mortgage pays down just 3% of the principal in the first year.

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or Andrew.Oliver@DomainRealtySalescom.
Andrew Oliver is a Realtor with Domain Realty in Naples, Bonita Springs and Fort Myers