Mortgage Rates Rise – Real Estate Market Update
In the month since our last update, a lot has changed. People are suddenly talking about something they haven’t done in a while – inflation. Let’s see what this means for you and your customers.
The big story
The rate on a 30-year fixed mortgage has risen 27 basis points from the same period last month. What is causing this rapid increase? Well, it’s probably a combination of several things, but many analysts point out the inflation potential. Let’s analyze this for a few moments.
There is currently another round of stimulus packages being negotiated in Congress with a reported price of $ 1.9 trillion at the time of writing. It is believed that by combining the effects of the first two stimulus packages and the fact that some sectors of the economy are showing higher prices, such as houses, inflation could be poised to burst.
The Federal Reserve has also promised to keep short term interest rate weak for a long time to come. Also, they said they would prefer inflation to exceed 2% for a while because we have spent so long under the Fed’s 2% price growth target. In this environment, the expectation of higher inflation might be reasonable, but we have yet to see it.
The Consumer Price Index and the Personal Income and Expenditure Report show that inflation has not exceeded around 1.5% at the level of consumers on an annual basis for quite some time now. The evidence is not there at the moment. However, in the markets, where traders try to think ahead and gain an advantage, the line between perception and reality is thin.
Since bond yields need to rise to attract investors when inflation is real or expected, the mortgage bond rate has risen in recent weeks. In turn, mortgage rates have increased.
Although they are higher, the rates are excellent in just about any other historical context. If you have a client on the fence, it would be great to let them know the time is right.
News you can use
Now let’s take a look at some of the key data points that drive the markets. As always, this section is compiled with the help of our friends at Econoday.1
Consumer Price Index (CPI)
Prices rose 0.3% on the month and 1.4% year-on-year in January. Regarding food and energy, prices have remained stable and the annual rate of appreciation has matched. That’s well below the Fed’s 2% target for annual inflation.
Of particular interest to this audience is the fact that housing prices have only increased by 0.1% with corresponding increases in rent and the equivalent rent of a landlord seeking to secure the same amount of space. This is interesting because it does not match any of the other house price indexes.
Retail sales increased 5.3% overall last month. Sales of home gardening and construction supplies slightly underperformed this average, up 4.65%. Still, things are moving in the right direction. This should be encouraging for those of us in real estate.
Housing market index
Builders continue to be very confident as the housing market index rose 1 point to 84. Sales expectations 6 months later were down 3 points to 80, but traffic of potential buyers passing through homes increased 4 points to 72.
New residential construction
Starting with what has the greatest impact on supply, home completions grew 2.3% to an annual rate of 1.336 million. This is 2.4% more than a year ago. On the single-family side, completions are up 10% to 942,000, with 296,000 multi-family homes.
Housing starts fell 6% to a seasonally adjusted annual rate of 1.58 million. Single-detached home starts fell 12.2% to 1.323 million. During that time, there were 402,000 multi-family housing starts.
Finished with permits, these were up 10.4% to 1.81 million. This includes a 3.8% increase in single-family construction departments to 1.269 million, to accompany 557,000 multi-family permits.
Sales of existing homes
Existing home sales rose 0.6% to 6.69 million, 23.4% more than last January.
Supply remains tight at 1.9 months based on the current pace of sales. However, prices actually fell 1.7% last month to a median of $ 303,900.
Case-Shiller Home Price Index
On a seasonally adjusted basis, prices in this survey in 20 cities increased 1.3%. Excluding seasonal adjustment, prices rose 0.8% overall and 10.1% since December of last year.
A 3-month average that takes into account all house prices, this is the highest in the index for 6.5 years in terms of annual appreciation.
FHFA House Price Index
Unlike the Case-Shiller index above, the FHFA index only looks at purchases backed by conventional loans. Yet they continue to tell a remarkably similar story of a hot housing market. In December, prices rose 1.1% and they are up 11.4% since last December, setting a new record for the index which has been in existence for 30 years.
Overall consumer confidence rose 2.4 points to 91.3. However, when it comes to homes, there was a huge drop in the survey among those looking to buy a home in the next 6 months. It will be interesting to see if the price hike continues to have an impact here.
MBA Mortgage Applications
Higher rates reduce activity for sure. However, refinancing requests are 50% compared to this period a year ago and purchase requests are up 7%. The average rate for a compliant mortgage is 3.08% with 0.46 point paid for a 30-year fixed with 20% down payment. The same loan with a jumbo balance was 3.23% with 0.43 point paid.
New home sales
New home sales rose 4.3% to a seasonally adjusted annual rate of 923,000. Home prices in January did not fall 1.9% to $ 346,400. This may have helped reduce the supply to 4.4 months. While this is better than the tight market for existing homes, supply is still very tight.
Pending Home Sales Index
Pending home sales fell 2.8% in January to 122.8. This is a bad sign for the February Existing Home Sales report as it is a leading indicator for it.
If you have customers waiting for rates to drop another 10 basis points, it looks like things are not going in that direction anymore. It would be better to let them know that now is the time to act urgently if they are otherwise ready.
The average rate on a 30-year fixed mortgage with 0.6 points of fees paid rose 16 basis points to 2.97% last week. This is down from 3.45% last year.
With the same number of points paid, a 15-year fixed mortgage increased 13 basis points to 2.34%, from 2.95% a year ago.
Finally, the average rate of a 5-year cash-indexed variable-rate hybrid mortgage increased by 22 basis points to 2.99% with 0.1 point paid, compared to 3.2% at the end of February 2020.
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1 Important legal notice: Econoday has attempted to verify the information contained in this calendar. However, any aspect of this information is subject to change without notice. Econoday does not provide investment advice and does not represent or warrant that the information is accurate or complete at all times. Copyright 2021 Econoday, Inc. All rights reserved.