Mortgage Market Update – Rates Reverse Recent Declines

By Douglas Katz – 08/12/2022

Per Freddie Mac:

The 30-year fixed-rate went back up to well over five percent this week, a reminder that recent volatility remains persistent. Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market. Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.

Highlights and Takeaways

  • Volatility still dominates, but the general trend line is still up.  Be very careful about interpreting a data point with a trend reversal.
  • Inflation was better this month, but only slightly and much of the decline was attributed to fuel prices, which have dropped.  When the tapping of the strategic reserve ends, this could drive prices back up.  Also any other items that are transported using fuel (basically everything) could go up too.  The lower number was seen as a good sign to investors and the market did well this week, but as with rates, be cautious of misinterpreting a data point as a trend.  If we are not done with heavy inflation, we may see more aggressive movements by the Fed instead of the tempering that many see lower than the expected inflation number signaling.
  • Sellers continue to see pressure in the real estate market.  Price reduction and higher time on market are no longer shocking.  I think it is safe to say we are still in the fog of a crazy market without any lights.
  • Buyers are still a bit hesitant to pull the trigger based on concern that they will overpay and because of the economic and geopolitical uncertainty.  Everyone has a price that will make them act and most buyers just have not seen it yet.  Even though they are regaining control, values are still high and rates are unpredictable.  To counter this, any buyer should be regularly reassessing their assumptions to make sure they are still good for any offer.
  • More and more lenders are trimming their workforce or closing all together.  The slowing of the market typically does this and we are right on schedule.  What remains to be seen is what lenders will do from a product perspective to keep the deals coming.  Typically, we see a loosening of some guidelines or a more liberal scoring for certain credit issues, like medical collections, by the lenders and credit scoring companies, but this has yet to be seen broadly applied.

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