Housing market reform will be deep and ugly

HW+ Housing Crash

You think things are bad now in the housing market? Stick around and see if mortgage rates climb into the 7% range.

If that happens, the forecast for the current origination of $2.2 trillion in 2023 would look pretty promising. Even the most battle-tested industry players are preparing for one of the strongest housing market reforms in decades.

federal Reserve Chairman Jerome Powell sent a clear message during a press conference following which the central bank’s decision to increase the federal funds rate was announced. 75 basis points On Wednesday: The ongoing housing market reform, which led to the biggest mortgage rate hike in four decades, is far from the end.

Mortgage-backed securities are right about the worst place on the duration spectrum for this move. Freddy’s weekly survey is disappointingly low today – actual 30-year-fixed rates are now over 6.5%.

Matt Graham, CEO of MBS Live

“Builders are having a hard time finding lots, workers and materials,” Powell said. “Long-term, we need supply and demand to be better aligned, so home prices rise at a more reasonable pace and people can buy homes. Perhaps, the housing market needs to improve to get to that point. Is.”

So far, tighter monetary policy this week pushed the 30-year term mortgage rate to 6.29%, up 27 basis points from the previous week. freddy max The Primary Mortgage Market Survey (PMMS) showed on Thursday. At this time a year ago, rates averaged 2.86%.

Sam Khatter, chief economist at Freddie Mac, said in a statement: “After jumping to the highest level of 10-year Treasury yields since 2011, the housing market is facing a downward spiral as mortgage rates rise again this week. ” “Influenced by higher rates, home prices are softening, and home sales have declined. However, the number of homes for sale remains well below normal levels.

Some market watchers were expecting Powell to express some willingness to tighten. These observers were based solely on the expectation that current policies would have the desired effect to bring inflation closer to the 2% target, according to Matt Graham, founder and CEO. MBS Live,

“But the biggest takeaway for the mortgage industry is for Powell to remain steadfast in his commitment to raising rates to combat inflation,” Graham said. “Between yesterday afternoon and today, the entire financial market prepares to adjust to that new reality. Mortgage-backed securities are right about the worst place on the duration spectrum for this move. Freddy’s weekly survey today disappointingly is low – the actual 30-year-fixed rates are now over 6.5%.”

My guess is that traditional lenders are likely to keep charging points in the high 6s or push into the 7s now.

Future Mortgage CEO Blake Bianchi

Where did ‘reform’ take us?

Freddie Mac’s Index only compiles mortgage rates reported by lenders during the past three days. However, other estimates suggest that rates are even higher.

The 30-year term mortgage rate stood at 6.62% Thursday afternoon, up 20 basis points from the previous day, mortgage news daily informed of.

According to Bankrate.com, which surveys the 10 largest banks, primary mortgage rates are currently hovering around 6.4%. Rates are up more than 300 basis points year-on-year, the biggest 12-month increase since the early 1980s, analysts at the investment banking firm Keefe, Bruett and Woods wrote in a report on Wednesday.

“This creates a very challenging environment for volume-sensitive businesses such as mortgage originators and title insurers,” analysts said. “Given the magnitude of this move in rates, we think there may be a decline in current estimates of industry volume in 2023.”

fanny maeThe U.S.’s latest forecast, which was published this week, projects total mortgage origination activity at $2.44 trillion in 2022 and $2.17 trillion in 2023.

Owners may be locked into their existing homes as mortgage rates rise, and last year’s 3% rates may not return anytime soon.

Nadia Evangelou, an economist at NARI

KBW analysts said that with rates at this level, the entire mortgage market is up 150-200 basis points (or more). Besides, there has also been a sharp decline in buying activity in recent weeks. Mortgage Bankers Association The buying index is currently down 21% from the 2021 level and 26% below the 2019 level.

To understand the impact on borrowers, this week’s 6.29% increase in mortgage rates resulted in monthly payments on a $400,000 loan of about $2,470, compared to $1,660 a year ago, according to Nadia Evangelo, to understand the impact on borrowers. National Association of Realtors Senior Economist and Forecasting Director said in a statement.

“Owners may be locked into their existing homes as mortgage rates rise, and last year’s 3% rates may not return anytime soon. While the nation suffers from a severe housing shortage, low mobility housing That could make the list even tighter and house prices could continue to rise.

However, the median-priced home cost $80,000 more than in 2020 and $200,000 more than in 2012. “Thus, having positive equity in one’s home can reduce the impact of rising mortgage rates on mobility.”

Where is the housing market going?

Looking ahead, loan executives have begun to expect mortgage rates at the 7% level, a sign that the recovery in the housing market will bring even greater affordability challenges in the coming year.

A few years of 5-7% interest rates on mortgages is going to be good for the economy, great for buyers, as demand becomes less insane, and more sustainable long term.

Sean Grapevine, Branch Manager of UMortgage

“After the Fed raised rates yesterday, we now see the 10-year Treasury at 3.697% today. My guess is that traditional lenders are likely charging points to stay in the high 6% or move into the 7% now, said Blake Bianchi, founder and CEO of the Boise-based brokerage. future mortgage. “Mortgage brokers like us are most likely in the lower middle 6 on a primary residence.”

Bianchi said that in the current scenario, rate buying has become more important than ever, as saving half a percentage point or not paying any marks can financially impact buyers in this market. “The good news is that we see it driving down prices, so buyers can enter a home for a better price and less competition and hopefully refinance later to improve their loan position.”

Sean Grapevine, a branch manager for mortgage The Atlanta-based, said Wednesday’s Fed decision raised rates by 50 to 75 basis points over the past few weeks, which isn’t entirely bad for the housing market.

“Rising rates from the Fed will cause some temporary pain as people adjust to the differences, but 5-7% interest rates on mortgages will be good for the economy, great for buyers, as demand becomes less paranoid, and more Durable long term,” he said.

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