By Douglas Katz – 11/18/2022
Per Freddie Mac:
Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked. While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.
My Commentary:
- This week was great news on the rate front for borrowers with average rates retreating to the mid-6%s for the most qualified borrowers. There are hopes that this could be s stabilization and possible longer-term drop, but it may just be and plateau. For these reason, borrowers need to be opportunistic on locking a mortgage rate. You can always refinance down if rates plummet, but if they resume a climb, you could be stuck.
- Housing is still a problem, so lower rates may not help too much. There are just not enough homes and this scarcity is amplified by the growth of the investment market as of late. Even though investors need to make their return on investment (ROI), low vacancies and high rents in many areas are good incentive to acquire more properties. Short-term rentals are making this worse as the economics work even better in some circumstances which shifts the range of their many investors into higher purchase prices as the numbers still work for their required ROI.
- Speaking of investors, I wrote earlier this week about collapse of many of the investor businesses of some larger players in the business. Opendoor and Redfin joined Zillow Offers in major shifts where they are unloading hundreds of millions of dollars in real estate, some at a discounted price to right the ship. This should help some inventory, but I would expect it would mostly be in the previously hottest areas. Regardless, any inventory is good inventory.
- We tend to only talk about rates, but credit standards matter too. I also wrote this week about this and it needs to be top of mind, Guidelines and risk tolerance for lenders is not static. It changes and we are in flux now. One the one hand, some new programs and/or some enhancements to existing programs are hitting the market to help borrowers. On the other, the systems that do the automated evaluations of loans seem to be tightening a bit. This needs to be a consideration as changes can help or hinder a deal and you need to which you could experience on your own deal.
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