Topping our headlines today is the Federal Reserve’s approval of a half-percentage point increase in interest rates.
While the Fed action is designed to curb record inflation, The Wall Street Journal speculates that borrowing costs for home mortgages, auto loans and business debt could begin to slow economic growth later this year. The average 30-year mortgage was 5.36% last week, up 2 percentage points since late last year, according to the Mortgage Bankers Association, which also reported an 11% drop in mortgage applications from one year ago.
How high mortgage rates will go is another question, but most analysts expect it to hover about 5%.
HousingWire Lead Analyst Logan Mohtashami, commenting on the Wall Street’s reaction to Powell’s announcement, said “…after the press meeting, bond yields fell. Why? I believe that many Fed rate hikes have been priced, taking the 10-year yield toward 3%. If bond yields keep rising; we have more room to get toward 6% on mortgage rates. However, if economic data fades and yields are coming down, mortgage rates will go down with it.”
There is little concern about rates rising enough to crash the housing market. Rob Hahn, managing partner of 7DS Associates in Las Vegas said it would take mortgage rates in the high teens to have that kind of deleterious effect.
Rising mortgage rates have improved inventory somewhat, but now people with lower rates have less incentive to move and are likely to simply stay put. Even so, the National Association of REALTORS® reports that March sales of existing homes dipped 2.7% from February. Tight inventories are keeping prices high. The median existing-home price for all housing types in March was $375,300, up 15% from March 2021. This marks 121 consecutive months of year-over-year increases, the longest-running streak on record.
Meanwhile, some of the housing industry’s biggest players are using the current climate to make major moves.
Intercontinental Exchange Inc., a software and data company that includes ICE Mortgage Technology, has bought Black Knight for $13.1 billion. The two are generally regarded as the two biggest suppliers of mortgage loan origination software.
In a bid to unseat Zillow and Realtor.com as “go-to” source for consumers searching for homes, CoStar Group is making massive investments in its residential real estate channels, including a relaunch of Homes.com in June.
Finally, the National Association of REALTORS®, which is wrapping up its Mid-Winter meetings, has rolled out a federal legislative agenda aimed significantly at improving housing inventory and affordability. Included, NAR is supporting efforts that provide for additional housing for low- and moderate-income homeowners; incentives for public and private investments to redevelop abandoned or under used commercial properties; and tax credits to help first-time low-income homebuyers purchase affordable, entry level homes.
Industry volatility keeps things interesting. We look forward to keeping you up-to-date on changes.