Mortgage Update - March 25th, 2024
Good morning, team! Was anybody’s week consumed with hypothetical ways the NAR settlement would play out? It’s safe to say this will be in the news for quite a while as everything shakes out.
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Fed HOLDS Rates at March Meeting ✋
Markets were expecting Federal Reserve Chairman Jerome Powell to hold the Fed Funds Rate at the March meeting and he delivered. Additionally, he reaffirmed the expectation of 3 rate cuts in 2024.
The S&P shot to all-time highs and mortgage rates improved through the balance of the week off the news.
Powell’s remarks in the press conference were also “dovish” in nature, suggesting once they have greater confidence inflation is under control, he intends to cut rates. Remember, in late 2023 the markets were projecting 7 rate cuts in 2024. That number is down to 3 and we have a hard time seeing even 1 rate cut this year based on the hot labor market/economy.
The housing industry and businesses could really use a few rate cuts to reduce costs. However, a move too soon would likely trigger a resurgence in inflation.
Key Takeaway: On Friday, Powell spoke in another public forum and heard news from Svenja Gudell, chief economist at job website Indeed, who suggested signs of a cooling labor market were starting to show themselves in recent data. High-paid sectors like technology have seen the biggest loss in job postings. Even food service and other lower-wage jobs that saw HUGE spikes in 2021 and 2022 have also slowed dramatically. Until we see a negative trend in the jobs data, we don’t foresee the need for rate cuts.
NAR Settlement Updates You Need to Know 👂
All last week, the entire housing industry was absorbing the fallout of the NAR settlement. While there is still A LOT of unknowns, we are starting to hear some good news and some potential bad news.
I always like the bad news first. What we are hearing is that the Department of Justice (DOJ) MAY intervene. If that’s the case, they will postpone the settlement and start their own case which will likely end in a worse outcome.
Take for example this past week, the Department of Justice dropped the hammer and sued Apple for potentially monopolizing the smartphone market. Now Apple has their hands full and more than likely will need to make some serious changes to their business practices.
What the DOJ would likely do is “de-couple” commissions, where sellers would no longer be able to pay the buyers agent fees. In that scenario, the buyer or other parties (not the seller) would need to pony up. We don’t want this, ya’ll.
Now for the good news : Fannie and Freddie have been secretly in talks to figure out how to potentially cover buyer agent commission through the mortgage. This could solve some potential issues moving forward. Nothing has been formally announced.
Key Takeaway: It’s going to be a while until all the dust settles on commission situation in the housing industry. Let’s just hope the DOJ stays out and other options show up to help keep this industry prosperous and efficient.
“Lock-in Effect” Suppressing Sales 🔒
The Federal Housing Finance Agency published a 52-page working paper titled “The Lock-In Effect of Rising Mortgage Rates” on Monday suggesting 1.3 million homes have been unrealized between Q2 2022 and Q4 2023.
The “lock-in effect” is where low-interest rate homeowners are unwilling to sell and purchase another home if it means taking on a higher mortgage rate. The author writes “In the United States, nearly all 50 million active mortgages have fixed rates, and most have interest rates far below prevailing market rates, creating a disincentive to sell.”
This has also led to upward pressure on national home prices.
“The supply reduction [created by the lock-in effect] increased [national] home prices by 5.7%, outweighing the direct impact of elevated [mortgage] rates, which decreased prices by 3.3%. These findings underscore how mortgage rate lock-in restricts mobility, results in people not living in homes they would prefer, inflates prices, and worsens affordability. Certain borrower groups with lower wealth accumulation are less able to strategically time their sales, worsening inequality,” wrote the FHFA researchers.
Key Takeaway: The lock-in effect will linger for a while as interest rates stay higher for longer. However, new listings in February 2024 were up slightly vs. last year suggesting we may see some relief with folks throwing in the towel. An interest rate hike can’t curtail a home that a family has outgrown or a new job opportunity in another city.