Mortgage Update - August 19th, 2024
Hello everyone! We’ve successfully navigated the first week following the NAR settlement changes! Woohoo! As industry pros, let’s focus on what we can control, adapt, and keep moving forward. The future is bright, and we’ll be here with you every step of the way! Now, let’s dive into the latest in the mortgage world. Let’s go!
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Read time: ~4 minutes
Inflation Continues Downward Trend ⬇️
For economic nerds like Nick and myself, the third week of every month brings a mix of excitement and anxiety. We wake up early on Wednesday morning, feeling like children on Christmas Eve, eagerly waiting for the clock to strike 8:30 AM. That’s when we get the highly anticipated monthly CPI inflation report, which often has a significant impact on the mortgage market. If you follow our newsletter, you know that the CPI inflation report is one of the two hardest-hitting economic reports, alongside the Jobs report.
This past Wednesday, the July CPI inflation report was released and came in at 2.9%, slightly below market expectations of 3.0%. While we’re still working toward that Fed target inflation goal of 2.0%, we’re at least moving in the right direction. This July CPI report continues the trend of easing inflation, making a September rate cut from the Fed almost certain.
The one thing that this report does not resolve is the debate over whether the Fed will start with a 0.25% or 0.50% rate cut. The current market is already pricing in a 0.25% rate cut. In order for the market to start pricing in a 0.50% rate cut, we would probably need to see something bad in the jobs market.
All eyes will be on the next Jobs Report, which will be released on September 6th. If we see unemployment tick up from the current level of 4.3% to 4.5%, expect the markets to freak and mortgage rates to drop as the market will shift their expectations from a 0.25% rate cut to a 0.50% rate cut. Let's all remember, our telepathic mortgage wizard, Nick Steinhauer, predicated we would hit a 4.50% unemployment rate by the end of this year!
Key Takeaway: Inflation numbers came in at a sticky 2.90%. Still have a way to go to hit the Fed level of 2.0%. With that being said, a September rate cut seems almost certain. If unemployment rises to 4.50% on September 6th, the Fed might consider cutting rates by more than the expected 0.25%.
Harris Releases Economic Plan 📝
Last month, we analyzed Trump’s economic plan and discussed its potential impact on the real estate and mortgage world. To reiterate, Nick and I aim to keep our analysis non-partisan, focusing solely on market implications. We promised to provide a similar breakdown once the Democratic nominee released their economic details. Last Friday, Vice President Kamala Harris unveiled her economic plan, highlighting key points that could influence the real estate market:
$25,000 Federal Assistance for first-time homebuyers - The Harris campaign says its plan would allow "over 4 million first-time buyers over 4 years to get significant down payment assistance on average of $25,000". While this sounds promising, our initial concern is that such a boost in down payment assistance could drive up housing demand much faster than supply can keep up. Those of us on the front lines know that the real challenge in the housing market is the lack of affordable housing inventory. We can only hope that this additional Federal Assistance for buyers doesn’t add fuel to the fire and further inflate home prices.
Creating a tax incentive to encourage builders to build starter homes - We can all agree that the U.S. housing market needs more homes. Just to bring housing vacancy rates back to historic norms, the U.S. housing market would need 1.5 million housing units built, according to Freddie Mac economist. Harris indicated her goal was to add 3 million additional homes beyond the current trajectory during her four-year term, which would be amazing! However, the reality of creating such a significant amount of housing inventory may not be an easy task. Lance Lambert with ResiClub indicated, "Such a significant increase in residential construction within a short timeframe, outside of a post-recession recovery, is unprecedented. Housing construction involves a massive number of inputs from around the world-such as lumber, windows, and concrete-which makes it challenging to achieve even a gradual increase in building capacity".
Eliminate Medical Debt for Millions - In the mortgage industry, we understand that medical bills and collections can heavily impact credit scores. Eliminating medical debt could boost consumer credit scores, leading to a larger pool of highly qualified borrowers!
Ban Price Gouging on Food - This was the most controversial topic of discussion in regard to her economic plan. Many have argued that there is currently no price gouging and that the increase in prices is simply due to the spike in inflation from government spending. Many have argued that other countries have tried government price controls in the past and the results led to empty shelves and black markets.
These are just a few key points from her speech that could affect us in the mortgage and real estate world. Our initial takeaway is that while the economic plan offers some promising ideas—like incentives to boost construction and eliminating medical debt—the proposal to provide $25k in down payment assistance raises concerns about its effectiveness in addressing the current housing market challenges that we are all currently facing.
Key Takeaway: Both parties have now shared their initial economic policies with the public. Unfortunately, neither the Republican nor Democratic nominee has provided much clarity on how they plan to fund these programs or how they would be implemented. It will be interesting to see how they intend to execute these policies as we approach the November election.
Big Week Ahead!
We have a number of important data points hitting this week! Below is a snippet of the newsworthy events:
Wednesday: Fed Meeting Minutes released - We will be looking for any hints on future rate decisions, Fed's stance on inflation, and economic forecasts.
Thursday: July Existing Home Sales Data - Should give us insight on the economic health in the housing market. We take this report with a grain of salt as economic conditions can be completely different depending on your local housing market.
Friday: Fed Chair Jerome Powell Speaks - Powell's speech at the Jackson Hole Symposium will be closely scrutinized for clues about the future of policy, particularly interest rates, inflation targets, and the economic outlook. His remarks have the potential to move interest rates significantly.