Markets overall responded favorably to comments by Fed Chairman Powell on Wednesday, gaining 50 basis points by close of market Friday offering as much as a .25% improvement in rate on some mortgage products.
Inflation and employment data came in higher than expected for January and February which the Fed deemed “the bumpy path to recovery but no cause for policy action.” That’s refreshing.
“We are not going to overreact to the data” combined with the statements on future policy actions recapped below, have us moving in the right direction.
Rate Cuts
The Fed comments left rates cuts on table, but made no indications on timing or number, again referencing it will be a data driven decision. The data points referred to are Personal Consumption Expenditure (PCE), a measure of inflation, and Employment Data, but also include big picture factors including international markets.
Rate actions will require a “sustained improvement in the data,” is the best foreshadowing we have. The need to balance timing of any rate actions to prevent a recession with cutting too soon and reigniting inflation was clearly top of mind.
More Good News
“Slowing the pace in the runoff of the balance sheet in the near future” was on the agenda AND discussed. Limiting the runoff in MBS holdings brings hope for some mortgage rate improvement even ahead of Fed rate actions.
Without taking the deep dive into fiscal policy and quantitative tightening (QT), the announcement will ease the pressure on the secondary markets that began in early 2022 and serve to improve the supply and demand balance that supports lower mortgage rates.
Mortgage Rate Forecast
Mortgage rates move in anticipation of Fed actions as they are not dictated by the Federal Funds rate but are impacted by monetary policy. If we get enough signals of potential Fed actions, mortgage rates will begin a downward trend. When will that be? Best guesses are not before June but it’s all a wait and see.
A recap of the Federal Open Market Committee member votes forecasts an overall rate cut of .75% likely in .25% increments sometime in 2024. Thirty-year fixed rates typically move the same amount, BUT may exceed the .75% with a slowing of QT. This is all based on how things have worked in past. It is definitely a wait and see.
Confidence Builds
We’ve come a long way from a year ago when even the slightest uptick in inflation and employment indicators drove rate actions from the Fed and rippled fear through the secondary markets hiking mortgage rates.
Market confidence is building; the element that was missing from all last year. This will remove some volatility in rates for small shifts in data.
Housing Market Data
I’ve had clients asking what’s happening with home prices, is now a good time to buy and alluding to the fact home prices are or should be dropping.
Here’s the national stats on existing home sales showing activity picking up, offers over list still happening and that a supply shortfall persists. No, home prices are not going down, yes there are opportunities, even for first-time home buyers, but get your team aligned as it’s competitive. That’s my consumer message.
The Recent NAR Settlement
I’ve watched the banter, the opportunists, and a few misguided comments surrounding the NAR settlement and the value of buyer’s agents.
Most commentary is speculation and fraught with regulatory challenges in how buyer’s agent fees could be accommodated moving forward.
The option to negotiate fees currently exists, it just isn’t industry standard. It is likely to be brought to the forefront with recent actions.
I see my mission as one to keep enabling home ownership through strategic financing solutions and comprehensive offer strategies responsive to our changing market. Partnering with my trusted agent community to structure offers based on the financing program and needs of all parties has created a win/win for buyers and sellers in the past and will continue to do so in the future.
I welcome a dialog with any buyer or seller who may have questions on specifics like seller contributions and premium pricing or any other avenue to manage through the murky waters as this all shakes out. In the meantime, I encourage comments to remain constructive and move us forward.
