Mortgage activity continues to drop as rates reach highest levels since 2006
- Thread starter DerekJohnson
- Start date
It's hilarious to read the doom and gloom over 6.5% rates. Prices are correcting in some instances, but there's still a fundamental shortage of housing supply. I'm hearing competition among buyers is going to start up again if prices drop another 5-10%. They will soon balance out with the higher rates.
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MikeDamone
Well-known poster
I'm sure it will be fine
Maybe, or they could do what I'm planning which is roll some equity over to a new home, refi when rates tick down some, and keep the cheap mortgage as a rental. There are also other options outside of the traditional 30 year mortgage.
Buyers aren't going to sit on the sideline forever. Prices come down as they are and it negates the rate hike.
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I keep hearing this from my @MortgageDwags but I'm not buying it - philosophicly. The Fed ain't slowing down hiking rates at the window.
*Yes, I know the Fed and mortgage rates aren't technically linked, but still...
I would love to hear @El_K 's thoughts on the matter.
Maybe a (further) recession slows inflation without forever rate hikes. They'll have to drop rates again if that happens. All of my @mortgagedwags tell me rates will tick down next year, but they're also in the business of selling financing, so...
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greenblood
New Fish
Watch Meet Kevin on YouTube. He’s dialed in on the real estate markets. Believe it or not, we have the highest supply of homes since early 2020. The problem is affordability. Small bumps in interest rates are a big deal. For every 1% increase in interest, you eliminate 10% of a person’s buying power. So if interest rates go from 3.5% to 6.5%, the buyer at 6.5% loses close to 30% of their buying power they had a 3.5%. That changes their budget from say a $600k house to around $420k-$450k.
Yeah, the math I get on rates and all that. The increase in supply is not remarkable at all because the market was at 3 weeks and is now only at 1.5 months. Just got that updated data today. Normal market is 6 months. Nationally, there's a shortage of millions of homes to have a balanced market. Affordability, or lack thereof, is a problem because there's way more demand than supply. The price drops you're seeing now still represent a net growth year over year. Prices are not actually "declining" at the moment.
If the republicans don't take Congress in 2022, then all bets are off as the dems will try to use more stimulus to avoid the continuing recession. Most of the last "Let's Increase Inflation Act" is just funneling US dollars to the chicoms for wind turbines, solar panels and the necessary metals for any US production. Compare that to the huge potential of building the Keystone XL pipeline with US steel and moving Canadian oil to the US oil refineries by the Gulf. Toss in fracking US oil and gas and building LNG export facilities. US oil and gas energy industry is the game changer for a healthy US economy.
I wish I had a dollar for every time someone said the Fed sets interest rates or people wanted a 0% interest because the heard the Fed lowered the rate to 0%.
People have short memories. My parents were happy to get 18% back in 1979 or whatever. Granted our home in Woodinville cost $70K. The 40 year average on rates is about 7%, but people think it should be low forever. the market was artifivally low
In addition to the increased volatility in the market we are seeing agency loan pricing that, for lack of a better term, just seems “wonky”. Below is an explanation of what my employer feels is the cause and steps my employer has taken to ease the impact of the current market challenges.
It is no secret that the Federal Reserve (Fed) is trying to slow the economy to bring economic growth back to the Fed’s longer term target. The Fed can take many actions to accomplish this goal, most notably by increasing the Fed Funds Rate. Behind the scenes the Fed also is taking action to reduce its holdings of Treasuries and Mortgage Backed Securities (MBS) that it acquired as part of the Fed’s Quantitative Easing (QE) program. The issue that we are seeing is that due to the unwind of QE and overall tightening of financial conditions, liquidity has been drained from the MBS market. This lack of liquidity, coupled with the rapid increase in interest rates, has resulted in newly issued MBS’s not seeing much of a bid so therefore lenders are forced to price off of lower interest rate MBS pools and apply a buy-up in order to offer lower priced interest rate options. As with any MBS, Buy-Up/Buy-Downs get more expensive the farther from PAR you get. This is the reason why we have difficulty in offering a low priced option for our agency products.
The good news is that this is typically a short to medium term issue and my employer can take steps to lessen the impact of this dislocation in the markets.
Steps we have taken:
Fannie/Freddie
My employer made the decision to begin pricing our agency loans off of the Fannie/Freddie cash window rather than the MBS market. This is a higher risk option for us as we use MBS to hedge so therefore the behavior of our price indicator (cash window) may be different than our hedge (MBS). Typically these two behave similarly but at certain times they do disconnect, most recently this occurred in early 2020 at the start of the pandemic (and it was not fun). Although pricing is not in line with what we typically see, we have been able to arrive at a base price much closer to par / with a slight premium.
Ginnie
Ginnie does not offer a cash window for delivery so our options are limited. We have made the decision to significantly reduce our margin on Ginnie product to reduce the overall cost of a loan so it can be an option for more of our borrowers. Unfortunately the margin reduction will not be as impactful as the steps we have taken with Fannie/Freddie.
People have short memories. My parents were happy to get 18% back in 1979 or whatever. Granted our home in Woodinville cost $70K. The 40 year average on rates is about 7%, but people think it should be low forever. the market was artifivally low
In addition to the increased volatility in the market we are seeing agency loan pricing that, for lack of a better term, just seems “wonky”. Below is an explanation of what my employer feels is the cause and steps my employer has taken to ease the impact of the current market challenges.
It is no secret that the Federal Reserve (Fed) is trying to slow the economy to bring economic growth back to the Fed’s longer term target. The Fed can take many actions to accomplish this goal, most notably by increasing the Fed Funds Rate. Behind the scenes the Fed also is taking action to reduce its holdings of Treasuries and Mortgage Backed Securities (MBS) that it acquired as part of the Fed’s Quantitative Easing (QE) program. The issue that we are seeing is that due to the unwind of QE and overall tightening of financial conditions, liquidity has been drained from the MBS market. This lack of liquidity, coupled with the rapid increase in interest rates, has resulted in newly issued MBS’s not seeing much of a bid so therefore lenders are forced to price off of lower interest rate MBS pools and apply a buy-up in order to offer lower priced interest rate options. As with any MBS, Buy-Up/Buy-Downs get more expensive the farther from PAR you get. This is the reason why we have difficulty in offering a low priced option for our agency products.
The good news is that this is typically a short to medium term issue and my employer can take steps to lessen the impact of this dislocation in the markets.
Steps we have taken:
Fannie/Freddie
My employer made the decision to begin pricing our agency loans off of the Fannie/Freddie cash window rather than the MBS market. This is a higher risk option for us as we use MBS to hedge so therefore the behavior of our price indicator (cash window) may be different than our hedge (MBS). Typically these two behave similarly but at certain times they do disconnect, most recently this occurred in early 2020 at the start of the pandemic (and it was not fun). Although pricing is not in line with what we typically see, we have been able to arrive at a base price much closer to par / with a slight premium.
Ginnie
Ginnie does not offer a cash window for delivery so our options are limited. We have made the decision to significantly reduce our margin on Ginnie product to reduce the overall cost of a loan so it can be an option for more of our borrowers. Unfortunately the margin reduction will not be as impactful as the steps we have taken with Fannie/Freddie.
I'm assuming that your hedging strategy would only create a small marginal difference in your mortgage pricing to the consumer. Not that this couldn't mean some significant profit to your company, but not really a strategy to reduce mortgage interest rates. We had significant inflation in the 1960 through the early 80s that drove up mortgage rates. An inflation target of say 2-3% will bring down mortgage rates. Lots of pain to get there. Not like the early 80s pain of 18% rates, but Americans don't like pain and the dems and lots of RINOs are not committed to a US worker based economy free of obscene regulation. Hell, the dementia patient wants a US regulatory attack on the Gig economy like Cali and AB 5.