Why Industry Experts Don’t Expect Mortgage Rates to Fall

Record-high mortgage rates have frozen the housing market, forcing lenders to find businesses outside the wheelhouse.

Despite the Federal Open Market Commission’s new words statement suggesting a potential slowdown in inflation containment, federal reserve Fed Chairman Jerome Powell maintained his hawkish tone about raising the federal funds rate at Wednesday’s press conference.

And with Fed rates expected to rise further, industry experts and economists expect mortgage rates to remain volatile for at least another year.

“Even if the Federal Reserve raises the short-term federal funds rate further significantly, long-term rates appear to move only marginally. National Real Estate AssociationSaid.

If inflation is contained, mortgage rates will begin to fall. It may be another year or two before that happens.

Lawrence Yun, chief economist at the National Association of Realtors, said:

mortgage interest rateis now close to a 22-year high, declining slightly from last week ahead of the Fed’s announcement of its sixth rate hike. The average contracted interest rate for 30-year fixed-rate mortgages with a fixed loan balance (less than $647,200) fell to 7.06% on Wednesday from 7.16% last week, according to financial institutions. Mortgage Bankers Association.

The Fed’s short-term interest rate does not directly affect long-term mortgage rates, but it induces market activity to raise interest rates and reduce demand.

“The mortgage market has already priced in the latest Fed move, but mortgage rates are still at a 20-year high, hurting homebuyers. interest rates will start to fall, and it may take another year or two for that to happen,” Yun said.

The new language in the policy statement noted that the Fed considers the “cumulative” impact of previous rate hikes when deciding on future rate hikes. Still, Powell took a different tone during the press conference, indicating that the idea of ​​a potential moratorium was premature.

“Bond yields fell after the Fed announced its rate hike statement, but rose again after Jay Powell talked longer about rate hikes,” said Logan Motashami. . housing wire“Bond yields have seen a slight move in the morning, but a strong move during the day. If this slightly higher bond yield continues, rates could be slightly higher today.”

The occasional drop in mortgage rates is “inexplicable” for the upward trend that started almost a year ago, said Holden Lewis, a home and mortgage expert. Nerd Wallet.

“It’s clear that the Federal Reserve intends to continue raising short-term rates, which will raise the floor on mortgage rates,” Lewis said.

‘The housing crisis is coming’

For homebuyers and sellers, mortgage rates are rising sharply in response to the expected Fed move, said Danielle Hale. Realtor.com.

“In the last 12 weeks alone, mortgage rates have risen by more than 2 percent, significantly reducing the purchasing power of homebuyers and potentially causing shoppers to reconsider their budgets,” said Hale.

The question is when the Fed will pivot to signal a pause, or at least significantly reduce its upward pace.

Marty Green, Principal, Polunsky Beitel Green

Sale of existing homes September marked the eighth straight month of decline, dropping from 6.18 million units in September 2021 to 4.71 million units. when the median home price was $355,100, according to the NAR.

Here Comes the Housing Depression, Marty Green, Principal Polanski Vitel Green,Emphasis.

Sharp rises in interest rates have made potential homebuyers less willing and able to enter the market, Mr Green said, and potential home sellers bound by ultra-low interest rates are making buyers It does not attempt to reduce the selling price significantly enough to incentivize

“The question is when the Fed will pivot and signal a pause, or at least slow the pace of rate hikes significantly,” Green said.

Motasami is also his recent Commentary A housing recession is likely due to declining sales, production, employment and income in the housing sector. The difference between this “traditional housing recession” and the housing bubble era is that household balance sheets are high and there is no credit stress.

“They (the Fed) know housing is already in recession, but they don’t care because they haven’t seen a credit crunch or unemployment recession yet,” Mohtashami said.

Goldman Sachs expects the FOMC to lean toward slowing the pace of tightening to 50 bps in December.

The good news is that more realistic sellers will try to beat the market.

Engel & Völkers real estate agent Mitch Burns

Roger FergusonFormer General Council Vice Chairman US Federal Reserve Systembelieves the Federal Reserve will raise interest rates by 50 bps next month, followed by two 25 bps hikes in early 2023.

The tables have been reversed for some sellers

With mortgage rates more than doubling this year and rates expected to rise further in the coming months, sellers are becoming more realistic. Meanwhile, buyers are gearing up for higher mortgage rates and have more leverage in the market, countered by loan originators and real estate.

“It’s no longer a seller’s market. Rice Park Capital Management“The number of days on the market for homes sold, the number of homes that received multiple offers, mortgage applications, and actual home sales — they’re all moving in the negative direction.”

“The good news is that more realistic sellers are trying to beat the market,” says Mitch Barnes, licensed partner at real estate advisors. Engel & Volkers, Said. “After 30 days, if the seller has not had an offer after perhaps 10 exhibitions, we will make an adjustment to lower the price.”

This gives borrowers more bargaining power than they did when interest rates were as low as 3% at the beginning of the year.

If a home has been on the market for more than a month, borrowers have a lot of flexibility, says LO’s Todd Davidson. U Mortgage.

“Sellers 2-1 buy down Or lower the price or accept an offer that is contingent on a sale,” Davidson said.

In a high interest rate environment, more buyers are opting for 2-1 or 1-0 rate buy-downs to reduce monthly mortgage payments. With a buydown, the borrower pays a lower interest rate during the first her one or two years, then is paid in full for the remainder of the loan term.

Low housing inventories and sluggish new home construction remain challenges for the housing market, but buyers are in a better position to negotiate contracts for contingencies, Davidson added.

“Six months ago, if someone had made a conditional offer, they would have laughed,” says Davidson. “But now when a home sits on the market he sits on the market for 10 days, people are used to the homes selling too quickly, so realtors and sellers get a little nervous.”

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