#Bidenomics Update: About Buying That House

Welp…maybe later, huh?

There had been some movement to the downside in rates lately, giving everyone hopeful little frissons in their extremities. It sure looked like the Good Ship USS POTATUS was going to right itself in spite of him.

Mortgage Rates Are Finally Falling: See How Much Homebuyers Can Save on a House Right Now

All eyes have been glued of late to the ups and downs of mortgage rates, and for good reason: In late October, they hit highs not seen in 23 years. This, in turn, pushed the cost of buying a home beyond reach for many Americans.

But what goes up has come down: Mortgage rates averaged about 6.63% for 30-year fixed-rate loans for the week ending Feb. 1, according to Freddie Mac data. That’s more than a full percentage point lower than the most recent peak* of around 7.8% just over three months earlier.

For potential homebuyers, lower mortgage rates mean that the cost of buying a house could likely be lower, too.

Going down. A full point can make a big difference – in Realtor.com’s calculations, it’s $366 month on a U.S. average $414K house.

…To calculate these savings, we applied the Feb. 1 average rate of 6.63% on a 30-year fixed-rate loan on a median-priced U.S. home of $414,000. The price was based on Realtor.com® national median list prices for early February. Presuming a 10% down payment, this pans out to a monthly mortgage payment of $2,385. (This doesn’t include property taxes, insurance, homeowners association dues, or other fees.)

…This adds up to $4,584 a year and a whopping $137,520 over the life of a 30-year loan.

It’s astonishing what a difference seemingly incremental changes in interest rates can make.

Alas. ‘Twas but a dream, and a fleeting one at that. 

The very next day – yesterday, in fact – the Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) core inflation data for January, and WOOF.

It was…

Yeah. Not the continuing moderation in inflationary pressures they’d been anticipating by a long shot.

Inflation is jumping again, rising every month since October and now running at 3.7% annualized. Core inflation, which the Fed takes as the real CPI, is even worse at 4.8% annualized.

In response, Wall Street is now slashing their rate cut projections. Meaning continued… https://t.co/0FvL9jLJmB

— Wall Street Silver (@WallStreetSilv) February 14, 2024

Wall Street went into a 500-point swoon and bonds about pooped the bed just for good measure.

Besides confirming everything the man and woman on the street have been trying to tell the Biden administration for two years, the CPI shocker had another effect, and on the sector demonstrably causing the most angst in the CPI data itself – housing. 

Those mortgage rates which had started to look accessible the day before shot up almost immediately. If you’d started the homebuying/mortgage application process based on a lower rate but with no guarantee and hadn’t signed yet, you were out of luck.

People in that position today were saying, “Fuggedaboudit. We’ll wait.” Sucks if you were counting on having your house sold.

Mortgage Rates Surge Higher Again, Causing Homebuyers to Pull Back

After a brief reprieve in December and January, mortgage rates are moving higher again, and that is taking its toll on mortgage demand.

Total mortgage application volume fell 2.3% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 6.87% last week from 6.80% the week before, with points rising to 0.65 from 0.59 (including the origination fee) for loans with a 20% down payment. That is the highest rate since early December 2023.

Applications to refinance a home loan, which are most sensitive to weekly rate changes, fell 2% for the week but were 12% higher than the same week one year ago. Rates are still about one-half a percentage point higher now than they were a year ago, but the recent drop in rates from a 20-year high last fall has brought more borrowers out looking for any savings they can get. The vast majority of current borrowers, however, have loans with rates far lower than those available today.

It’s not necessarily a good indication of a healthy economy that homeowners are refinancing their houses at higher rates., even if it’s only a half a percentage point compared to last year. I’ll bet a good many of those folks had mortgages that were originally dirt cheap, so are they trying to pull what equity they have out?

That would take some more digging. I’m really curious.

Industry insiders were even more downbeat at having the legs cut out from under them so suddenly.

Mortgage Rates Just Got Smoked by Barn Burner Inflation Report 

If it feels like there’s been an inordinate amount of focus on the Consumer Price Index (CPI) recently, today proved it was justified.  It’s not hard to understand WHY this data should matter.  After all, inflation is the biggest reason that rates moved higher at the pace seen in 2022/2023.  From there, we only need to know that CPI is the biggest market mover among inflation reports and the focus quickly makes sense.

But that’s not the only reason that today was highly consequential.  We were also in the midst of a bit of a correction in rates that took us from the best levels in 8 months to the worst levels in more than a month in the space of 2 days.  In not so many words, the bond/rate market was essentially asking itself if it had been caught flat-footed heading into February.  The jobs report on Friday, Feb 2nd said “yes!”  Now today’s CPI data says “see?!”

Mortgage applications have dropped for three weeks in a row and this trend upward is going to do nothing to stem that decline.

The totes adorbs young guy who de-bugs our house every three months and I got talking about housing here in Pensacola when I told him what I was working on. He really surprised me when he related their struggles as a young family who still rents. They finally found a house this year, but they’d been renting an apartment for $1650 a month until they lucked into it.

“For an apartment! ” he said. “Can you believe that in Pensacola? $1650 to have people overhead of us, and on the side of us, and noise all the time.” No, I couldn’t believe it.

That’s an astonishing number for our little slice of the Redneck Riviera. And what a burden with no benefits for a young family.

Many people are beginning to believe, because the housing market is so strangled, that there won’t be any mitigation in prices – no bubble bursting to relieve the pressure.

…The staggering jump in home prices is concerning, to be sure. But it’s a function of a severe lack of supply, not a byproduct of investors swarming the market or shady lenders artificially juicing demand. Those looking for parallels to 2008 are grasping at straws — homeowners are in far better financial shape than they were the last time prices cratered, and homebuilders, rather than flooding the market with new properties, aren’t keeping pace with the sheer volume of millennials suddenly consumed by dreams of backyards and picket fences.

So if you’ve been waiting — maybe even cheering — for prices to plummet: Don’t hold your breath.

If only we had someone in charge with a clue.

Keep hiking rates to lower housing prices.
It hasn’t worked for 2 years.. but it’s bound to work sometime right? https://t.co/49BJWAiVmK pic.twitter.com/BZm2SyC8yO

— Frog Capital (@FrogNews) February 13, 2024

If only.