The latest 30-year fixed-rate mortgage average from Freddie Mac showed that mortgage rates stayed relatively flat at 3.55% after increasing steadily the last few weeks. Freddie Mac’s economists note the trend that, “as history demonstrates that potential homebuyers who are on the fence will often enter the market at the start of rate increase cycles. We do expect rates to continue to increase but at a more gradual pace. Therefore, a fair number of current homeowners could continue to benefit from refinancing to lower their mortgage payment.”
A refinance may seem silly for so many people who bought a home at rates below 3% over the last two years, but there are still folks who bought before 2020 who might have interest rates well above 4%. Remember that refinances are not always just to change your interest rate. Right now, with home values as high as they are, homeowners may be able to take advantage of a cash-out refinance to help them pull some equity out of their home. As always, check with a Movement Mortgage loan officer to get the full story on what a refinance looks like for you.
The same home values that could be a positive for people looking to do a cash-out refinance are a consistent issue still standing in the way of many people looking to buy a home. The matter seems even more dire when you combine high home prices with rising interest rates. The S&P CoreLogic Case-Shiller National Home Price Index is still showing deceleration of home price gains, which is good news, but they’re not slowing down by much. November’s data showed the 20-city composite index growing by 18.3%—down just .2% from October’s pace of growth.
Keep in mind, because this data runs a few months behind it doesn’t reflect what is happening real-time in the market. You might be seeing home prices be marked down as competition falls off due to the higher interest rates. This could go a long way in helping balance out the market, but as always the best thing to do is contact your Movement Mortgage loan officer to get information before you start shopping. Your interest rate could be higher or lower than the average depending on a lot of factors including your credit score, current debt vs. your current income and the type of loan you apply for.
WHAT’S HAPPENING WITH THE FED
The latest statement from Federal Reserve Chairman Jerome Powell gave the housing industry a more clear picture of what the Fed is planning as it moves back to a “normal” way of doing business. And it may not be the best news for mortgages.
The Fed reiterated its stance that the economy is growing but to help curb inflation it will be appropriate to raise the overnight lending rate from its current range of 0%-0.25%. That raise will likely happen in March. Furthermore, the Fed confirmed its tapering of Treasury and bond purchases will also conclude in March. What the Fed added this time around, however, was a specific mention about what it will hold in its portfolio.
Specifically, the Fed’s statement noted “In the longer run, the Committee intends to hold primarily Treasury securities in the SOMA (System Open Market Account), thereby minimizing the effect of Federal Reserve holdings on the allocation of credit across sectors of the economy.” That statement specifically leaves out mortgage-backed securities (MBS) which means the Fed is not making MBS part of its holding strategy moving forward.
The Fed’s decision could be an issue for the housing industry because as the Fed sells off and slows its purchases of MBS that puts upward pressure on interest rates because investors will want to be paid more for the risk of buying them. Currently, the Mortgage Bankers Association predicts that rates will be at or near 4% this year but this change in tone could change the speed at which rates accelerate.