Early this week I locked a client purchasing a primary home at the best 30yr fixed conventional par rate* I’ve locked since October 2022. I’m certainly not a huge producing loan officer, but in that time period I’ve closed 100 loans and about 85% of them were conventional. If we look back over the previous 36 months, there were 4 very brief windows, where the price of Mortgaged-Backed Securities (MBS) danced in the same ballpark (we are talking days). Remember there is an inverse relationship between MBS and mortgage rates: as the price of MBS goes up, mortgage rates go down. When it comes to purchasing a home, it’s an impossible challenge to time these windows, but when looking to refinance you can set a ‘strike point’.
*par meaning they did not pay any additional closing costs to ‘buy down’ their rate or receive and credit towards their closing costs
Mortgages rates improved this week and are at their best levels since Oct. 2022. Many folks are hearing that the Fed will lower their interest rates and are waiting to see the impact on Mortgage rates, assuming it will be positive. If you look at the chart of MBS you will see that on the 22nd the Fed telegraphed their rate cut and the MBS market has responded favorably to that, which is what it means to say ‘the market has already priced that in’ as the MBS market responds to Fed rate hikes/cuts before pre-emptively.
Inflation – the BLS released their CPI index for August and the report showed inflation rose 0.4% during the month. Year over year inflation is up from 2.7% to 2.9%. The core rate, which strips out food and energy, rose 0.3% in August and remained flat year over year at 3.1%. Shelter continues to make up a big portion of the inflation, accounting for 56% of the rise. Owners’ equivalent rent comprises 1/3 of the report which is interesting because it is a survey that simply asks homeowners how much they could rent their unfurnished house for.
Home Values – Cotality’s Home Price Index showed that home prices fell 0.2% in July but remain up 1.4% year over year. While values continue to trend up, that upward trend is decelerating. Cotality is forecasting home values will rise 0.2% in August and 3.9% over the next 12 months.
Fed Update Fed govenor and voting member Adriana Kugler stepped down from her position on Aug 1st after serving since September 13, 2023. Stephen Miran has been nominated to fill the post and the Senate Banking Committee has advanced this nomination. If confirmed by the senate (seems likely) he would be able to participate and vote at the Sept 17 meeting. His term as a replacement would be until Jan 31st (when Kugler’s term expired). Known to be dovish, it is likely Miran will vote for rate cuts while Kugler was on the hawkish side and resisting rate cuts.
Mortgage Applications to purchase homes rose 7% last week and are up 23% year over year. Refinances increased 12% and are up 34% year over year. Overall volume rose 9% from the previous week and is at its highest since 2022, showing the influence rates have on application volume.