AravindKCRealtor – What do the New Loan Limits Mean?

What New Loan Limits Mean; Should We Worry About “Worst Ever” Pending Home Sales?

It’s been a good week for extremes in the housing market with rates at 3 month lows, pending home sales at “record” lows, and conforming loan limits up to record highs. Here’s why at least two of those three things aren’t very interesting.


AravindKCRealtor – Cooler Inflation Prompts Big Shift in Rate Outlook

The Consumer Price Index (CPI) is one of two big, monthly economic reports that have the strongest track records of causing volatility for rates.  This makes sense considering inflation is the primary reason rates are as high as they are.

Other economic data matters too.  The other big report is the Employment Situation, typically referred to as “the jobs report.”  It was responsible for continuing what had already been a big drop in rates 2 weeks ago.  But after that, there wasn’t anything major on the calendar until this week’s CPI.  As such, that left a lot of room for anticipation.


AravindKCRealtor – Interest Rate Buydowns

Interest Rate Buydowns

The buydown can be a tough concept to grasp for sellers and buyers but as interest rates rise, it is becoming an increasingly relevant option. Take the example below – For example if home was initially listed at $425,000. They have reduced their price now to $410,000. The chart shows what the numbers would have been if they decided to offer a buydown instead. This buydown scenario would cost the seller LESS THAN $10K, but would create monthly savings for the buyer that are enough to make someone look twice.

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AravindKCRealtor – How Will The Government Shutdown Affect The Mortgage and Housing Markets?

It’s nearly impossible to consume any news these days without coming across the government shutdown. As of Friday afternoon, the shutdown looks like it will be a thing.  Even if it’s miraculously avoided in the 11th hour, we can still discuss some objective questions and conclusions about shutdowns in general.  As always, we’re not interested in the politics of the matter–just the question of whether or not the housing and mortgage market should care.


AravindKCRealtor – If The Fed Didn’t Hike, Why Did Mortgage Rates Hit Long Term Highs?

This week’s main event was the scheduled policy announcement from the Fed. As was the case two meetings ago, the Fed opted to hold its policy rate unchanged, but almost every other interest rate in the US moved sharply higher.

This counterintuitive movement is fairly common when it comes to the 8 Fed meetings each year.  Rates have fallen on several occasions when the Fed hiked throughout this rate hike cycle.  There are several reasons this can happen.  Some are complicated, but two of the simplest reasons are all we need this time around.


AravindKCRealtor – Fed Won’t Move Its Rate, But Rates Could Still Move

In and of itself, this week wasn’t too bad for mortgage rates. Things got a bit worse overall, but the change from last week was minimal with the average lender moving up 0.07% from last Friday.   There’s a decent cushion between current levels and the long-term highs last month. Even the late 2022 highs were a bit higher.  That said, when you put it all on a long-term chart, things don’t look great.


AravindKCRealtor – It’s Complicated, But Also Simple

Depending on the company you keep over this Labor Day weekend, you might hear that rates are high, housing in the verge of collapse, and the economy is headed for a hard, recessionary landing. Or you might hear that rates are coming down, housing has turned a corner, and the economy remains surprisingly resilient. No one is wrong, yet, and it’ll be a while before we find out who’s right.


AravindKCRealtor – Markets Were Anxious Over Powell, But Next Week Deserves More Attention

As the week began, the bond market continued heading toward higher rates at the same pace seen in the previous week.  This made for the highest mortgage rates in more than 2 decades on both Monday and Tuesday (albeit not much higher than those seen in late 2022).  Things calmed down on Wednesday as multiple European countries logged slower economic growth in a closely watched series of data.  The US version of the same data was also weaker than expected, thus helping rates have their best day in several weeks and one of the best days in several months.

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In general, weaker economic data coincides with falling rates.  This is econ 101, but it’s also a concept that the Fed has been driving home increasingly in the current environment.  Rather than worry about weaker data, the Fed sees stronger data as a bigger risk. The economy has been more resilient than expected in the face of significantly higher rates, and the Fed has been clear in saying that it has little incentive to cut rates until the data suggests a bigger negative impact.

Additionally, while many on the Fed have mentioned the possibility that rate hikes are done for now, just as many have expressed uncertainty as to whether additional hikes would be needed.  The key determining factor would be inflation, but the Fed’s concern is that economic strength could translate to unexpected resilience in inflation.

The market was looking forward (perhaps a bit too forward) to getting some greater clarity on these and other topics from Fed Chair Powell at Friday’s annual Jackson Hole Symposium.

Hosted by the Kansas City Federal Reserve Bank, Jackson Hole draws central bankers and economists from around the world and has occasionally served as a venue that offers a sneak peek at potential shifts in policy or the economy itself.

More frequently, Jackson Hole is notable only for its great expectations and underwhelming reality.  This year’s example mostly falls into this category.

Powell was slated for the opening remarks.  Market watchers were waiting for him to say something about the “neutral rate of return” (also R* or “R-Star”)–a hypothetical policy rate resulting in stable economic growth and stable, on-target inflation.  The recent obsession over R-Star is due to the fear that the low baseline for interest rates has moved up permanently for a variety of reasons that can’t possibly be determined or calculated any time soon.

As such, it wasn’t too surprising to hear Powell say “we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint.”  Translation: he has no idea if R-Star is changing or will change.

The other even crazier anticipation surrounded the Fed’s 2% inflation target with some market watchers wondering if the Fed was considering increasing the target due to the same sort of underlying structural issues that would underpin a higher R-star.  Powell was even more clear on that topic: “Two percent is and will remain our inflation target.”

In addition, the Fed Chair was extremely consistent with the press conference from July with respect to the delicate dance of fighting inflation without crippling the economy.  On both occasions, by his own admission, they are flying blind to some extent. In his words, the Fed is “navigating by the stars under cloudy skies,” and that “we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

The market was apparently hoping for something a bit more rate-friendly.  The reaction largely consisted of the futures market shifting bets on the level of the Fed Funds Rate at various points in the future.  It’s not so much that traders thought Powell was saying the Fed was more inclined to hike, but instead, simply less inclined to cut as quickly.  In other words, markets were pricing in almost 2 rate cuts of 0.25% in by the middle of next year, but after this week, it’s closer to only 1 rate cut.

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All of the above kept some pressure on longer term bonds on Friday morning, resulting in the average mortgage lender offering higher rates out of the gate.  As the day progressed and bonds stabilized, several lenders offered mid-day improvements.  The net effect was slightly higher rates for the average lender, but not as high as those seen at the beginning of the week.

When it comes to events that inspire volatility, next week is a higher probability than Jackson Hole.  There are multiple economic reports with strong, recent track records of influencing the bond market and, thus, interest rates.  Starting on Tuesday, there is an important report every single day of the week.  Several days have more than one, and Friday will bring the release of the jobs report for August–arguably the most important report of any given month.

AravindKCRealtor – How Multi-Decade Highs Are Changing The Way Mortgage Rates Are Quoted

At this point “high rates” are old news. We were already close to hitting the highest levels in more than 20 years last week, so it wasn’t a huge surprise to achieve that dubious distinction this Thursday. Some sources see the record-breaking rate at 7.09% for a 30yr fixed while others are over 7.5%. Both are accurate and we’ll explain why.

To understand why, we first need to remember that a mortgage rate quote is not as simple as the rate itself.  The rate that almost everyone refers to (officially the “note rate”) is only part of the equation.  While the note rate dictates the amount of interest paid with each mortgage payment, it doesn’t account for all the interest the average borrower pays.


AravindKCRealtor – Mortgage Rates and Housing Didn’t Care About This Week’s Fed Rate Hike

It’s no mystery that the housing and mortgage markets are facing their fair share of headwinds in 2023, but some blow harder than others.  One of the most complicated headwinds is that of Federal Reserve.

At first glance, the Fed’s decisions to hike or cut rates are extremely important.  In addition to being prominent in the news, few other financial topics are as likely to make it into everyday conversation as the latest Fed rate change.


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