Mortgage News Weekly

Welcome back to the whipsaw of rates.

We’ll dive into what happened between Wednesday and Friday, but the important thing to know is this. You MUST stay in close contact with your lenders in times like this.

Real mortgage pros have got instant access to what their banks and wholesalers are issuing rate wise, real time. Relying on old data and mainstream headlines is an excellent way to look  foolish.

I’d love to know what your prediction is going to be for inventory in your market moving into Spring. Reply to the email and let me know your thoughts.

– Glenn T. Groves

•   RATES – Dip on Wed, jump on Friday. Week to week slightly higher as we enter the 1st full week of February.
•   TECHNICALS – Why big job creation is bad for inflation.
•  EVENTS – Join us at our Q1 Lender Panel TOMORROW!
•  PRODUCT SPOTLIGHT -Temporary buydowns might be doomed.

TECHNICALS

Conflicting Data

Fed says one thing, job report indicates different.

The Fed did what everyone thought they were going to do, raise the Fed Funds Rate by .25% on Wednesday.

•  Feds benchmark Fed Funds is now in a range of 4.5% to 4.75%. For reference, we were basically at 0% from March 2020 through March 2022.
• Per the Fed, the sweet spot for a healthy economy is between 2% -5%.

• This was great because they are throttling back the more aggressive .50% and .75% hikes. It was signaling that the Fed thinks inflation is getting under control. Powell mentioned the phrase “Dis-Inflation” 10+ times during his speech.

 The market reacted well to the Fed…

The Jobs Report has two surveys, the Business Survey and the Household Survey. The headline job number comes from the Business Survey and is based on modeling and estimations, while the Unemployment Rate comes from the Household Survey which is derived by calling households.

The Household Survey showed 894k new jobs created last month, but there were big adjustments to the data, including new seasonal factors and new population estimates/controls.

Removing these adjustments would give only 84k job creations instead of 894k. Additionally, 606k of the 894k job creations in the Household Survey were part-time workers.

The problem with the creation of this many jobs means a tight labor market. As a result, employers will need to pay more to stay competitive (wages go up) and because of that companies need to charge more to afford these employees (prices go up) and the end consumer has to pay more.

This keeps fueling the inflation problem we currently have and flies in the face of the recent movements by the Fed.

•  Fed Chair Jerome Powell signaled “a couple” more hikes to be appropriate, with the next decision on March 21-22
•  Private Payrolls: 106k jobs created in January (lower than expected), with small businesses with under 50 employees being hit hardest
•  Home Prices: declined 0.6% from October to November (Case-Shiller), 0.1% (FHFA), but still up 7.7% and 8.2% YoY
•  Talk of Housing Crash not supported, prices only down 3.6% from peak (S&P DJI) and 5% from peak in 10-City and 20-City Indexes

 Rapid job growth signals that the Fed will not stop their interest rate rises in the months to come. Unknown where we will end up rate wise, this news needs to be digested by the market in the coming days and weeks.

PRODUCT SPOTLIGHT

Temporary Buydowns: AKA 2/1 Buydown

Was great while they lasted. If we can still pull them off for clients getting boat loads of seller credit, cool, but to me they are destined to be marketing tactics only moving into Spring.

This is an actual in escrow file that closed in January 2023.

• Can be seller paid or lender paid
• Borrowers must qualify off of the initial note rate
•  Non-disbursed and available buydown funds will be credited to the unpaid principal balance of the mortgage if the property is sold during the buydown period
• Buydown funds held in an escrow account will be used to pay down the principal of the new loan in the event of a refinance
• Benefits include: lower monthly payment, opportunity to use excess seller concessions, lower interest rate for 1-3 years, ability to use monthly savings towards renovations or other expenses, potential to refinance to a lower rate after the buydown period, and easing the transition from renting to buying

 Sellers can benefit too.

• Allows sellers to avoid price reductions and offer credits instead.
• A great opportunity to help sell a property without affecting the sales price.
• In a rising interest rate environment, sellers may be more likely to offer a temporary rate buydown to make their property more appealing to potential buyers.

Who should do this?

In my opinion, buyer only (no seller credit) funded temporary buydowns do NOT make financial sense. It is the same thing as just having a savings account to subsidize your monthly payment.