Appraisal Waivers – Fanie Mae updated their guidelines and increased the scope to which they will grant ‘value acceptance’ or ‘appraisal waivers’. It is now possible to get an appraisal waiver on a primary residence when you put as little as 3% down! For more information on appraisal waivers please refer to Fannie Mae’s selling guide but generally speaking a prior appraisal needs to be done by Fannie Mae’s Collateral Underwriter and an automated underwriting approval is necessary. Factors such as high down payment, high credit, low Debt to Income Ratio (DTI), and reserves are also helpful. For more info please see my blog post on the subject.
Mortgage Rates improved this week to their best levels since mid-December as the price of Mortgage-Backed Securities (MBS) improved nicely. Rates are up approximately 0.25% from this time last year.
Inflation – the Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), rose 0.3% in December and the year over year rate increased 0.2% to 0.26%. The Core rate, which strips out food and energy and is the Fed’s focus, rose 0.2% and remained at 2.8% year over year. Shelter inflation in this index remains up 4.7% year over year compared with CoreLogic’s reading of only 1.5% so hopefully we will see improvement on that front as shelter does make up a large portion of the index (17% of core).
Employment Cost Index (ECI) increased 0.9% during the previous quarter. On a year over year basis, private sector wages and salaries grew 3.8% which is a decline from the previous year of 4.2% showing that while wages are increasing their rate of increase is slowing.
Home Values – the Case-Shiller Index for November showed that home prices rose 0.4% in November and are up 3.8% year over year (an increase from October’s report of 3.6%). This is the first year over year increase we have seen for a while. Despite higher rates home values continue to improve as our population grows, and the supply of available homes remains tight.
Fed Meeting – after their two-day meeting the Fed released a statement showing a more hawkish tone
Labor Market ‘unemployment rate has stabilized… and labor conditions remain solid’
Inflation – ‘Inflation remains somewhat elevated.’
These statements caused the bond market to sell off but during the press conference Powell walked backed many of the comments which helped the bond market to recoup its losses. Powell mentioned that since bank reserves are still abundant, they will continue to reduce their balance sheet and did not give a timeline on ceases quantitative tightening. Powell also said that Fed Funds Rate is meaningfully above neutral meaning that it will continue to slow down inflation while giving room to cut rates before getting to neutral.
Mortgage Applications to purchase homes were flat week over week and are down 7% year over year. Refinances fell 7% and are up 5% year over year. This included the MLK holiday so data is skewed.