Lower Inflation Portends a Further Slide in Mortgage Rates

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The U.S. Bureau of Labor Statistics released the December Consumer Price Index (CPI) This Week in Real Estate reporting the largest month-over-month decrease since April 2020. The CPI has had the most significant impact on the bond market and mortgage interest rates over the past year as the Federal Reserve attempts to fight inflation. While still elevated, inflation experienced the third month below an 8% annual growth rate since February 2022. December marked the sixth consecutive month of deceleration. Below are a few newsworthy events from the second week of January that influence our business:

Today’s Housing Market is Nothing Like 15 Years Ago. In the second half of 2022, there was a dramatic shift in real estate, and it caused many people to make comparisons to the 2008 housing crisis. While there may be a few similarities, when looking at key variables now compared to the last housing cycle, there are significant differences. In the latest Real Estate Forecast Summit, Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), drew comparisons between the last housing cycle and the current housing cycle: (1) 8 million jobs cut during the last housing cycle compared to none during current housing cycle, (2) 138 million jobs during the last cycle compared to 158 million jobs during the current cycle, (3) subprime loans were prevalent during the last cycle and virtually none during the current cycle, (4) 7.65 million new construction homes during the last cycle compared to 4.6 million during the current cycle, (5) inventory of 3.8 – 4 million homes during the last cycle compared to 1 – 1.2 million homes during the current cycle, (6) mortgage delinquency of 10.1% during the last cycle compared to 3.6% during the current cycle and (7) 4.6% of homes in foreclosure during the last cycle compared to 0.6% of homes in foreclosure during the current cycle. And in today’s market, with inventory rising and less competition from other buyers, there’s an opportunity right now. “This may be the one and only window for the next few years to get into a buyer’s market. And remember…as the Federal Reserve data shows…home prices only go up and always recover from recessions no matter how mild or severe. Long-term homeowners should view this market…right now…as a unique buying opportunity,” says David Stevens, former Assistant Secretary of Housing. Read the full story here.

Lowest Rates in 4 Months After Inflation Data. Of all the monthly economic reports, the Consumer Price Index (CPI), has had the biggest impact on the bond market and mortgage rates for roughly an entire year now. October’s CPI (reported November 10th) was the biggest revelation as it was viewed by many as a sign of a shift away from the hyperinflation of 2022. November’s report offered no objection and now December’s report paints a similar, calmer picture. Inflation has been the biggest source of upward pressure on rates during what has been the fastest rate spike in 40 years. Even if it’s merely heading back in the right direction, it’s a big win for rates. The average lender brought rates roughly 0.125% lower today versus yesterday. This makes for conventional 30yr fixed rates in the low 6% range. You’d have to go back exactly 4 months to see anything lower. Read the full story here.

Lower Inflation Portends Further Slide in Mortgage Rates. Inflation has been dropping over the past six months, and consumers can expect mortgage rates to soon follow, says Lawrence Yun, chief economist for the National Association of REALTORS. The 30-year fixed-rate mortgage could even drop below 6%, Yun adds. That would be welcome news to home buyers who were shell-shocked by the surge in rates above 7% this fall, which prompted a sudden contraction in the housing market. Mortgage rates have been receding over recent weeks, with the 30-year fixed-rate mortgage averaging 6.33% this week, according to Freddie Mac’s weekly survey. Since peaking in mid-November, mortgage rates have now fallen by 0.75 percentage points. “The gate is beginning to open for home buyers who got shut out in October and November when the rates went above 7%,” says Yun. “However, there is still a housing shortage and not enough listings.” That likely will keep home prices higher, economists note. Inflation was at 6.45% in December, according to data released this week, which is down considerably from a peak of 9.1% in June 2022. “This downward trend of mortgage rates gives a scrap of hope for many home buyers for the months ahead,” says Nadia Evangelou, NAR’s senior economist and director of forecasting. “With a 6% rate instead of 7%, buyers pay about $2,700 less every year on their mortgage. As a result, owning a home becomes affordable to about 1.4 million more renters and 4.3 million more homeowners. This could bring more buyers back to the market, boosting demand for housing and increasing market competition.” Read the full story here.

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