The Coincidence of Wall Street and Inflation: What Happens When the Fed Is Going Faster than It Had Expected
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Markets plunged on Thursday morning after red-hot inflation data raised fears on Wall Street that the Federal Reserve would continue hiking interest rates aggressively. Then, something strange happened.
There was a massive comeback by stocks. The S&P 500 swung between a rise and a fall, and ended the day with a gain of 2%.
“The economy is showing signs of resilience, mainly due to consumer spending, and rates are increasing,” said Khater. Overall housing costs are going up, that is impacting inflation.
Tucker said that inflation expectations play into mortgage rates. “The Fed wants to wait and see inflation coming down before they take their foot off the brake on raising rates. There is growing consensus that there will be another step down in the rate of tightening.
So what explains the sharp divergence between markets and seemingly terrible inflation data? Investors could be betting that the stronger-than-expected inflation report means price increases are near their peak. The rollercoaster market illustrates how investors are desperately grasping for clues about what the Fed will do next.
Household Wealth is on Track to Recover from the 2008 Financial Crisis: Allianz Announces a “Technical Shift”
Household wealth is on track for the first reduction since the financial crisis of 2008, according to a new report.
Global assets are set to decline by more than 2% in 2022, Allianz reports. That means households, on average, will lose about a tenth of their wealth this year.
The report paints a bad picture. The 2008 financial crisis was marked by a relatively quick turnaround, but the current outlook shows stagnant growth in the future. The average growth of financial assets is expected to be around 4.6% until 2025, compared with 10.4% over the last three years.
If 2022, taught investors anything, it’s that you can’t beat the Fed. So expect more good-is-bad economic news, since a strong monthly jobs report will likely continue to correlate to a weak market.
Household debt has been on the rise. The cost of living and rising interest rates could pose a risk to the household balance sheets.
The takeaway: Allianz calls these changes a “tectonic shift” in global wealth that will take years to recover from. Today’s release of US retail sales for September will likely shed more light on the state of the consumer, as will earnings reports from some of the country’s largest lenders — JPMorgan
(JPM), Citigroup (C), Wells Fargo (WFG) and Morgan Stanley (MS) all report this morning.
The Two Economy Story of Mortgage Rate Growth and Homebuying: Freddie Mac’s Unexpectedly High Rates of Interest Rates and Mortgage Payments
Freddie Mac’s data showed that the 30-year mortgage averaged 6.12% in the week ending February 9, up from 6.01% the week before. A year ago, the 30-year fixed-rate was 3.69%.
Mortgage rates rose throughout most of the next decade because the Federal Reserve raised interest rates to tame inflation. But mortgage rates dropped in November and December, following data that showed inflation may have finally reached its peak, reports my colleague Anna Bahney.
Freddie Mac’s chief economist said that there was a tale of two economies in the data. There are positive balance sheets for consumers because of strong job and wage growth, while housing affordability is causing a decline in demand.
Doing the math: A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.05% had a monthly mortgage payment of $1,324, according to calculations from Freddie Mac.
What’s next: The next several months will undoubtedly be important for the economy and the housing market, said Khater. Already, home sales are dropping, and prices are cooling.
The new option will come with a lot of what’s already available but it will also include a lot of commercials. The ads will be 15 to 30 seconds in length and will play during the movies and TV shows.
Predictions for the Future of the e-Movies: How Mortgage Applications and Borrowing Activity Have Improved Over the Last 25 Years
The company lost billions in market cap after that news. Hundreds of employees were laid off, and doubts ran rampant about the platform’s future, raising questions about the viability of the entire streaming marketplace.
▸ Third quarter earnings from Bank of America
(BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), United Airlines (UAL), American Airlines (AAL), Tesla (TSLA), AT&T (T), Verizon (VZ) and Netflix (NFLX).
George Ratiu, a manager of economic research at www.realtor.com, said that mortgage rates ended at a fairly steady level as markets reacted to economic uncertainty. On one hand, he said, there are mounting expectations of a recession. The incoming economic data shows resilience.
The unemployment rate will rise to 4.6% this year according to the projections released by the central bank in December. The central bank will likely continue to put pressure on the economy by instituting painful rate hikes until we get there.
Would-be buyers have little appetite to get into the market now. That’s partly because there are few homes available to buy, since most sellers aren’t interested in parting with the ultra-low mortgage rates that were available for the past few years.
Freddie Mac said mortgage application activity was the lowest in 25 years this week as high mortgage rates weaken the housing market. Inflationary pressures are easing and should lead to lower mortgage rates in the years to come.
Origination volumes have declined, revenues have dropped, and expenses have risen. “Lenders have started to shrink excess capacity by reducing staffing levels, exiting less profitable channels or exiting the business entirely.”
The decrease in production volume will necessitate a 25% to 30% decrease in mortgage industry employment from peak to trough.
Rate hikes in the Fed: Implications for the economy and for the first 10 years of the slow-inflaton-driven inflationary crisis
The central bank remains committed to rate hikes until the pace of inflation slows down, even though prices are still rising, according to Ratiu.
“Interest rates have increased at the fastest pace in 40 years,” said Greg McBride, chief financial analyst at Bankrate.com. “Mortgage rates have rocketed to 20-year highs, home equity lines of credit are the highest in 14 years, and car loan rates are at 11-year highs. If you are willing to shop around, you will see the best yields since 2008.
Higher borrowing costs have already put a big dent in the housing market. And other parts of the economy are beginning to slow. But consumers, still flush with cash saved up early in the pandemic, continue to spend money. The Fed may need to tap the brakes harder for longer than it otherwise would.
Esther George, the president of the Federal Reserve Bank of Kansas City, said that households might still need a bit of a savings buffer to continue to spend. “That suggests we may have to keep at this for a while.”
George is one of the members of the rate-setting committee who want to control inflation. She warned against raising rates too quickly at a time of economic uncertainty.
George said last month that he was in the camp of steadier and slower rate increases, to begin to see how those effects would unfold. It’s my fear that a succession of super-sized rate hikes could cause you to overdrive, and not be able to see the turning points.
The senators wrote to the Fed chairman that they were worried about the effect of the interest rate hikes on the economy.
The Spread Between Treasuries and Mortgage-backed Securities in the U.S. Revealed by the Kansas City Home Builder Shawn Woods
Kansas City homebuilder Shawn Woods said his company has gone from selling a dozen houses a month before the Fed started raising rates to fewer than five.
“Never in my wildest dreams would I have thought we’d go from 3% [mortgage rates] to 7% within six months,” said Woods, president of Ashlar Homes and the Home Builders Association of Kansas City.
Mortgages. The yield on the 10-year Treasury bond is influenced by inflation and how the Fed responds, so it is important to keep an eye on the rate on the mortgage. Rates on 30-year fixed-rate mortgages climbed above 6 percent for the first time since 2008 according to Freddie Mac.
The base rate is usually tied to the 10-year yield on the Treasury note and is used by people to find a better deal on a mortgage. A second rate is tied to the difference between the yield on those notes and mortgage-backed securities, or M.B.S., which are essentially interest-paying bonds backed by mortgages. This difference is also known as the spread.
The extra interest is charged to reflect the profits that players in the mortgage chain make.
Many banks and other lenders don’t hold on to the mortgages they originate. Instead, they package them into bonds that they sell to investors. Homeowners make interest and prepayments and then send the money to investors. And the money raised from selling the bonds — a vital source of financing for mortgage lenders — allows lenders to make more mortgage loans.
In normal times, the spread between Treasuries and mortgage-backed securities can be a bit different. Interest rates rise as quickly as they do now.
Therefore, the spread — or the amount bond investors now expect to be paid compared with a Treasury note — widens. The spread has more than doubled this year to 1.7 percent. The wider the spread, the more consumers pay because lenders pass on to them the cost of those increased rates.
Inflationary Savings: Predictive Models of Economic Growth and Investment Opportunities in the Near-Three-Year Aftermath
While there may be plenty of downside in the form of higher borrowing costs for consumers, one positive outcome is that your savings may actually start earning a little money after years of barely-there interest.
If you’ve been stashing cash at big banks that have been paying next to nothing in interest for savings accounts and certificates of deposit, don’t expect that to change much, McBride said.
Thanks to the big players’ paltry rates, the national average savings rate is still just 0.16%, up from 0.06% in January, according to Bankrate.com’s October 26 weekly survey of large institutions.
The impact of Fed rate hikes at credit unions is starting to be more pronounced, according to Greg McBride. They’re offering far higher rates – with some topping 3% currently – and have been increasing them as benchmark rates go higher.
The return for certificates of deposit has gone up. The average rate on a one-year credit union CDs has risen from 0.14 to 1.05% since the beginning of the year. A single-year CD now offers as much as 4%.
Given today’s high rates of inflation, Series I savings bonds may be attractive because they’re designed to preserve the buying power of your money. They’re currently paying 6.89%.
But that rate will only be in effect for six months and only if you buy an I Bond by the end of April 2023, after which the rate is scheduled to adjust. The rate on the I Bond is going to fall if inflation goes down.
There are some limitations. You have to invest $10,000 a year. You can’t get it in the first year. If you cash out between years two and five you will have to give back three months of interest.
Nevertheless, they preserve the buying power of your $10,000 if you don’t need to touch it for at least five years, and that’s not nothing. They also may be of particular benefit to people planning to retire in the next 5 to 10 years since they will serve as a safe annual investment they can tap if needed in their first few years of retirement.
If inflation proves sticky despite higher interest rates, you might also consider putting some money into Treasury Inflation-Protected Securities (TIPS), said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. Series I Bonds can’t be sold before their term, but TIPS can. They pay a fixed amount of interest every six months based on your adjusted principal. And that rate is fixed at auction but never falls below 0.125%. The 5-year TIPS had an interest rate of 1.625% at the most recent auction.
What-Rising-Interest-Rate-Mean-Credgage-Mortgage Loans: An Advice for Consumers with Small Credit Card Balances
The increase in interest rates will most impact consumers who don’t pay off their credit card balances in full through higher minimum payments.
Transferring balances from your credit cards with high rates to a zero-rate balance transfer card can lock in a low interest rate for up to 21 months.
Take the time to find out what fees you have to pay and if you will have to pay penalties for late payments or missed payments during the zero rate period. The best strategy is always to pay off as much of your existing balance as possible – on time every month – before the zero-rate period ends. Otherwise, any remaining balance will be subject to a new interest rate that could be higher than you had before if rates continue to rise.
If you don’t transfer to a credit card that has a zero-rate, you could possibly get a low fixed-rate personal loan. Currently rates on such loans range from 3% to 36%, with the average at 11.27%, according to Bankrate.com. The best rate you can get is dependent on your income, credit score, and debt-to-income ratio. Bankrate’s advice: To get the best deal, ask a few lenders for quotes before filling out a loan application.
What is the cost of services? The answer to concerns about what interest rates are going to happen in financial services and credit-mortgage
That said, “don’t jump into a large purchase that isn’t right for you just because interest rates might go up. Rushing into the purchase of a big-ticket item like a house or car that doesn’t fit in your budget is a recipe for trouble, regardless of what interest rates do in the future,” said Texas-based certified financial planner Lacy Rogers.
If you used part of the line of credit for a home improvement project, you should ask your lender if they are able to fix the interest rate on your outstanding balance, so you can use the money for a home equity loan.
The cost of services, which makes up a big part of the Consumer Price Index, is something to watch in terms of inflation. Is the services side of inflation going to be sticky? While wage pressure has likely peaked, the job market still looks quite strong and that could keep wage growth elevated and filter through to service inflation for some time to come,” Ma said.
As for geopolitics, he said that the market seems to have put those concerns on the back burner, but with winter around the corner there is a risk that energy warfare could resume.
Financial service companies can do well in a rising rate environment because, among other things, they can make more money on loans. But if there’s an economic slowdown, a bank’s overall loan volume could go down.
He still likes small cap value stocks, which have been performing better than others this year. “We expect that outperformance to persist going forward on a multi-year basis,” he said.
Ma suggests that you make sure your overall portfolio is diversified. Some areas will come out ahead, but not every one will, that’s the idea.
That said, if you’re planning to invest in a specific stock, consider the company’s pricing power and how consistent the demand is likely to be for their product. Technology companies usually do not benefit from rising rates. But since cloud and software service providers issue subscription pricing to clients, those may rise with inflation, said certified financial planner Doug Flynn, co-founder of Flynn Zito Capital Management.
Optimal Investments in the Emerging Market: A Commentary on a Topic of Interest Rates, Bonds, ETFs, and the Conference Board
Flynn believes that there is a good opportunity for short-term bonds. There’s an opportunity for those in higher tax brackets in tax-free municipal bonds.
Other assets that may do well are floating rate instruments that the companies use to raise cash. Whenever the Fed hikes rates the floating rate will go up, because it is tied to a short-term benchmark rate.
But if you’re not a bond expert, you’d be better off investing in a fund that specializes in making the most of a rising rate environment through floating rate instruments and other bond income strategies. Flynn recommends looking for a strategic income or flexible income mutual fund or ETF, which will hold an array of different types of bonds.
The Conference Board has a principal economist named Eric Lundh. The opinions expressed in this commentary are his own. CNN has more opinion.
What have we learned from the Great Recession about the American Homebuilding Industry? The New Regulations and Regulations that Underly the Real Estate Market
Additionally, years of rampant demand spurred builders to overbuild in the early 2000s, flooding the country with a home surplus. As a result, following the Great Recession, it took years for demand to work through the vast housing stock that had been amassed. Chronic underbuilding was caused by this, and it crushed the homebuilding industry.
Additionally, in the years that followed the 2008 financial crisis, new regulations were introduced. Banks are now required to be better capitalized; lending standards are much more rigorous, leading to higher-quality loans; most mortgages are fixed-rate; and financial derivatives, such as asset-backed securities, are better regulated. This all buttresses the financial system from another housing downturn.
Other helpful trends include the spike in refinancing activity over the last few years associated with ultra-low interest rates. Making servicing of their mortgage easier, was one of the benefits of this pushed down monthly payments.
Americans have more equity than they did in their homes before the last financial crisis. The loan-to-value ratios are a measure of how much a mortgage costs relative to the value of a home. This creates more of a “cushion” for prices to decline before home values fall below the loans that underpin them. Homeowners are likely to be hit by a home being sold at a loss.
Fed Federal Reserve Interest Rates Decay Benchmark: Implications for Inflation, Demand, and Predictions for Consumer Prices
The latest government reading shows that inflation is at its lowest annual rate in more than a year.
“It’s good to see progress, but let’s just realize we have a long ways to go to get back to price stability” Fed Chairman Powell said at a press conference after the board announced its latest, smaller rate increase.
The effects of increased interest on credit cards, mortgages and car loans is felt by many Americans already grappling with higher prices in almost every part of their lives. Currently, used car buyers are charged an average interest rate of 9.34%, compared to 8.12% last year, and they’re making the largest monthly payments on record, according to credit reporting firm Experian.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the central bank said in a statement on Wednesday.
The stock market fell after the announcement of another increase, mostly as Wall Street digested the Fed’s warning that there are more rate hikes to come. The major indices were flat by the end of the day.
Inflation hit a fourdecade high of 9% in June, but has shown some signs of easing. Gasoline prices have fallen sharply, and so have the prices of certain goods such as used cars and televisions.
Fed officials believe shelter inflation may be coming to an end. Increases in market rents have slowed since spring.
The price of haircuts rose 6.8% in the last twelve months, while the price of dry cleaning jumped 7.9%. Services other than housing and energy account for nearly a quarter of all consumer spending.
Housing and Mortgage Applications in the U.S. During the December 11 Pandemic: A Survey of Mortgage Processing Rates and Homebuying Activity
Powell said that they see goods prices coming down. “We understand what will happen with housing services. But the big story will really be the the rest of it, and there’s not much progress there. It’s going to take some time.
Powell has described the job market as out of balance, with more job openings than there are available workers to fill them. While the U.S. economy has now replaced all of the jobs that were lost during the pandemic, the share of adults who are working or looking for work has not fully recovered.
Many older workers who retired in the last two years may not return to the job market. The Fed is trying to restore balance by limiting the amount of people that they hire.
Inflation, as measured by the Consumer Price Index, cooled considerably in November and was at its lowest level in nearly a year, according to the Bureau of Labor Statistics’ closely watched index, released on Tuesday.
Freddie Mac processes thousands of mortgage applications every day, giving it the average mortgage rate. The borrowers who put 20% down are included in the survey. Many buyers who put down less money upfront or have less-than-perfect credit will pay more than the average rate.
Ratiu believes that cooling inflation measures will ease the upward pressure on mortgage rates.
Some buyers are running the math to see if the slide in rates is a good fit with their budget, because of the increase in homes for sale and price cuts.
Already, rates have been climbing in recent weeks, leading to a drop in mortgage applications. Last week, applications fell 7.7% from one week earlier, according to the Mortgage Bankers Association.
Despite lower rates, application activity declined last week, which is an indicator of the still volatile time of the year for housing activity. The spring homebuying season is expected to get off to a good start with lower rates and moderate home-price growth. Some buyers will regain purchasing power from the two trends.
January’s housing market data showed a growing number of homes for sale, properties lingering longer on the market, and prices down 11% from their 2022 peak, according to Realtor.com.
There are some hopeful signs that the worst may be over. Shares of Lennar
(LEN), one of the largest homebuilders in the US, rallied after reporting earnings last week. The company's revenue was higher than expected and its guidance for the number of homes it expects to deliver was also higher than analysts' estimates.
Kenneth Leon believes that investors may be looking ahead to the year 2023, crossing the valley from recession to a potential recovery.
The recent slide in prices is important for the investment firm that buys single- family homes to rent out.
It’s also worth noting that the job market is still strong and wages are growing. What’s more, many consumers still have decent levels of excess savings thanks to pandemic era government stimulus.
Others point out that even though housing sales may remain weak due to high home prices and still elevated mortgage rates, the good news is that most existing homeowners are still paying their monthly mortgage on time.
In 2008, many borrowers with poor credit histories were unable to keep up their mortgage payments and that is a stark difference from today.
“Housing is not bringing down the economy. Yes, the housing market has been impacted. Gene Goldman said that mortgage delinquencies are still low.
There aren’t a ton of companies reporting their latest earnings this week. But the few that are could give more clues about the financial health of consumers and the state of corporate spending.
General Mills will release earnings on Tuesday. Analysts are expecting a slight increase in both sales and profit. Consumers are concerned about inflation but are still eating wheaties. This year, shares of General Mills have grown in value.
Analysts are less optimistic about the outlooks for sneaker king and Dow component Nike
(NKE), used car retailer CarMax (KMX) and memory chip maker Micron (MU), whose semiconductors are used in devices ranging from cell phones and computers to cars.
S&P 500 companies are expected to have lower fourth-quarter earnings than they did a year ago. Analysts have been busy cutting their forecasts too. FactSet senior earnings analyst, John Butters, stated in a report that fourth-quarter profits were expected to rise 3% as recently as September 30.
The chances of a recession are pretty high, according to vincent ritten’s chief economist. It will have an effect on corporate earnings. Higher rates and weaker earnings suggest more pain for stocks.”
Wednesday: US existing home sales; Germany consumer confidence; earnings from Rite Aid
(RAD), Carnival (CCL), Cintas (CTAS), Toro (TTC) and Micron
The Pauls’ Cold War: Real Estate Statistics in the 2022 Census and Forecast for the Next Ten Years, Sales Activity in the Urban Real Estate Market
“We just kind of got to that place in our lives where we were financially very stable, we wanted to start having kids and we wanted to just kind of settle down,” says Paul, 34.
The Fed continued to raise its interest rates. After a few months, with mortgage rates climbing, the Pauls could no longer afford the homes they’d been looking at.
“There’d be, you know, two dozen other offers and they’d all be $100,000 over asking,” says Paul. When we tried to wait til the weekend to open house, it was gone before we could even look at it.
The market is frozen, one in which sales activity has declined for 10 months straight. Since the late 1990s, the group has tracked sales.
Home values were still up compared to last year in almost all of the top 150 largest metropolitan areas during November, even though prices had dropped 10% from the summer peak.
An open house for a starter home in Hollywood did not draw as many people as one did last year, according to an agent.
According to John Burns Real Estate Consulting, some economists are expecting prices to go up as much as 22% from their peak in 2022, while others are expecting them to go down 22% from their peak.
He said more inventory would then become available from the locked-in homeowners clinging to their ultra-low mortgage rates from the past couple of years.
Half of the country will see small price gains, while the other half will see slight price drops, according to the chief economist for the National Association of Retail Merchants. “However, markets in California may be the exception, with San Francisco, for example, likely to register price drops of 10%-15%.”
“Markets like Manchester, New Hampshire; Columbus, Ohio; Fort Wayne, Indiana; Hartford, Connecticut; Lancaster, Pennsylvania; or Topeka, Kansas are still seeing homes change hands as buyers from more expensive locations are lured by solid local economies and median prices, which in some cases are still below $300,000,” Ratiu said.
The median monthly mortgage payment declined in November from October as mortgage rates started a six-week tumble.
After the 30-year fixed mortgage rate eclipsed 7% in late 2022, Yun said he expects that to settle at 5.7%, as the Fed slows the pace of rate hikes in response to slowing inflation.
Looking for an Inflationary First Half of the 2022 Recession and Implications for Buyers in the New York Real Estate Market
In 2023, we may see a mirror image of 2022 — a somewhat trying first half that gives way to a surprisingly strong back half of the year for buyers, said Leonard Steinberg, corporate broker at Compass in New York.
The would-be buyers who stepped back from the market in late 2022, especially the first-timers looking to get into the market, can’t stay away forever because of the demand from retirees and first-time buyers.
Builders are struggling to balance a decline in demand with the long-term need for more housing as chronic under-building of new homes is also likely to remain a challenge.
It’s likely that buyers will pay more during the spring selling season when homes tend to sell for a seasonal premium and most buyers are trying to get it done.
This year is even more quiet than usual due to higher rates and still-elevated prices and this has made it difficult for many people to find a home.
“With more than 10 million open jobs and still not enough applicants to fill them, the labor market would have to experience a sharp and significant drop to move the needle on spending,” he said. The scenario is more likely if executives cut payrolls before the recession hits and create a downward spiral.
This year, the traditional seasonal norms are expected to kick in come March as more inventory becomes available and more buyers begin to look at what’s available, as long as buyers can stomach the current rates and sellers agree to give up ultra-low rates they enjoyed in the past.
He said they may have to wait until the beginning of the spring shopping season for more clarity on the direction of housing markets this year.
Premarket stock markets: Are wages in the U.S. enough to keep the Fed in the New Year? An investor’s frustrations with central bank policymakers
We’re in the salad days of the New Year — that period where many feel refreshed and motivated and perhaps even optimistic about the year to come. The time in January is when there’s clarity.
Jobs has been the word of the week as investors eye a slew of data highlighting a strong labor market that is confoundingly resistant to the Fed’s attempts to cool the economy.
In an interview, the second in command at the International Monetary Fund encouraged the Fed to continue with rate increases this year due to labor market resilience.
So will wages moderate this year? Analysts at Goldman predicted they would do that. They believe that unemployment will grow and wage growth will slow from above 5% in 2022 to about 4% by the end of this year.
“This would still be a bit too hot, but any sizeable drop would provide Fed officials with a proof of concept for the idea that gradual labor market rebalancing can dampen wage and eventually price pressures without a recession,” they write.
Brian Moynihan, the chief executive of Bank of America told CNN around the holidays that the strength of the US consumer is enough to keep the recession at bay.
Markets were hit by a weaker-than- expected retail sales in November and that raised the odds of the Fed hiking rates again.
This is the main question on every investor’s mind — and the answer will not only help determine what happens to markets this year, but also whether the economy will fall into recession.
In the minutes from the December Fed meeting, central bank officials spelled it out for interested parties: No policy makers anticipated that rate cuts would be appropriate in 2023. The minutes warned that “an unwarranted easing in financial conditions … would complicate the Committee’s effort to restore price stability.”
Officials welcomed softer inflation reports in recent months but said it was still unacceptable and that more evidence of progress was needed.
Freddie Mac Mortgage Rates and the End of Homebuying: Saunders, Khater, and Ratiu in a Wake Up Call
The home goods chain stated in a regulatory filing that it was not certain of its ability to continue.
“Bed Bath & Beyond is too far gone to be saved in its present form,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients Thursday. The most probable outcome is a Chapter 13 bankruptcy.
“This one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price,” said Sam Khater, Freddie Mac’s chief economist.
He said that he expects mortgage rates to stay around the 6% mark for the next few weeks due to the effect of the Fed’s actions.
The next report on inflation, set for February 14, is expected to show if prices continue to increase at a slower rate.
“For today’s buyer of a median-priced home, the down payment amount is lower than it would have been last summer,” said Ratiu. “While that is positive news, affordability remains a primary challenge, especially for first-time buyers.”
Mortgage rates rose this week after four weeks of declines, as a stronger-than-expected jobs report suggested the Federal Reserve would continue hiking its benchmark lending rate in its battle against inflation.
The resilient economy makes the Federal Reserve chairman think the central bank could have done more and raised rates more than it is priced in.
George Ratiu, the manager of economic research at a real estate website, said the tension between expectations and economic data would continue for several more months.
Mortgage Rates Are Down, and Mortgage Applications are Down 58% Compared to Decay 3/8 in the 2000-2001 Season, Revisited
Even with rates trending down since November, they are nearly double what they were a year ago and mortgage applications are down 58% since then, according to the Mortgage Bankers Association.
Bob Broeksmit, president and CEO of the MBA, saidAffordability is a challenge, but expects purchase demand to recover heading into the spring.