Looking Back: In our last blog (Feb 2022), we indicated that there were three main factors at play in what promised to be a year of transition – inflation, lack of real estate inventory, and an abundance of home buyers. All three ended up growing over these last five months.
Looking Now: As of today, we’ve seen the average 30yr mortgage rate increase over 2.5% in the last six months. The last time the market saw this type of increase in a short period was in 1994, and it was less severe. This is the shift we predicted, and it may not be over yet.
On Friday, June 10, the financial markets broke loose after the Consumer Price Index (CPI) was released. This report showed much higher than expected inflation, and the following week was extremely volatile (seen on only a few other days over the last 30 years –“irrational exuberance,” Lehman Brothers collapse, and COVID shutdown).
When mortgage rates rise significantly in a short time, the market is hesitant to purchase them due to heightened refinancing risk in the short-term. As a result, we saw higher upfront costs required to secure the same rates, without the ability to acquire a higher rate with less fees. Overnight, a borrower was being required to pay 1-2% in discount points for the same rate they were eligible for the day prior with no discount fees. Analysts like Barry Habib, at MBS Highway, stated it is a signal the markets see a recession ahead, likely in early 2023, which should bring lower mortgage rates.
Looking Ahead: The expected Federal Reserve rate hikes through the end of the year should help calm down the mortgage rate volatility as they demonstrate measures to combat inflation. In seven of the last eight recessions, home values remained strong. Housing demand now continues to be strong and inventory low. Lower rates brought on by a recession would support this strong housing market. By year’s end, we should move towards a more sustainable and balanced situation.
The mortgage lending market has shrunk 35-40% over last year. Layoffs are hitting lenders, real estate, and title companies in significant ways. While Planet Home Lending Boulder is not immune to the challenging market, we are continuing to grow and recently added two new top producers to our team.
Our outlook is optimistic given the culture, character, and structure of our office. We believe that our cumulative experience and commitment, combined with Planet’s stable and well capitalized platform, will allow us to continue to thrive in this rapidly dynamic economy. This stability will benefit our clients and partners, providing them with the support and tools to manage short and long- term objectives.
As the Planet Boulder Team constantly watches and monitors the market, we strive to explain this complex, confusing, and quickly changing real estate landscape. We are here to help.