This Market Update is written by our Capital Market specialists each week to bring you insight into what's happening in the market and how it may affect mortgage rates and real estate trends.
For the week of July 28th – Aug 3rd, 30-year and 15-year interest rates increased to the highest level in a month. Mortgage rates moved higher again this week, as the underlying bond market digested stronger economic data and details of the U.S. Treasury's increased borrowing needs.
Between the Fed rate increases on May 3rd and July 26th, mortgage rates went up. Rates had their ups and downs from week to week, but the bottom line is that they rose between the beginning of May and the end of July. The 30-year fixed climbed 36 basis points between meetings, the 15-year fixed went up 35 basis points, and the 5-year ARM rose 51 basis points.
The rise in mortgage rates can be attributed to several factors, including a growing economy and persistent inflation – not just the Fed hike of a quarter of a percentage point. Real estate experts, however, don't expect mortgage rates to remain this high forever. By year's end, Realtor.com® expects rates to be around 6.1%. David Stevens, CEO of Mountain Lake Consulting, believes rates will be back in the mid-5% to 6% range by the first few months of next year.
The Federal Reserve is walking a tightrope, aiming to cool down the economy without causing additional bank failures or pushing the nation into a recession. Once the Fed brings inflation down to its target, it is likely to halt further rate hikes, which may bring mortgage rates down as well.
"Rates will never go back to where they were to the peak of the COVID pandemic, which was in the 2% to 3% range," says Stevens. "But they will normalize."
Warren Buffett shrugged off Fitch's U.S. credit rating downgrade, noting it doesn't change what his conglomerate, Berkshire Hathaway, is doing at the moment. "There are some things people shouldn't worry about," he said. "This is one."
Fed Watch: Looking ahead, all eyes are on the upcoming September 20th Federal Open Market Committee (FOMC) meeting. According to the CME Group, 17.5% of forecasters predict an increase in interest rates, while 82.5% predict rates will remain the same. None of the forecasters expect rates to decrease.
Did You Know?
Points Can Really Pay Off!
As interest rates rise, some borrowers consider paying discount "points" to reduce their interest rate. In fact, a recent analysis by Zillow found nearly 45% of borrowers purchased discount points in 2022 to reduce their monthly payments. That number is likely to remain consistent or rise in 2023 based on where rates are today. Ultimately it is up to each borrower to determine if points are right for them; but factors such as time in home, monthly cash flow, upfront cost, tax implications and alternative investments should all be considered. Your Mortgage Consultant will lay out options for each client and help them make the best decision for their situation.
Market Review:
- Per Black Knight's Production Metrics, the breakdown of mortgage production volume is as follows: 86.46% for purchase transactions, 11.00% for cash-out refinances, and 2.54% for rate and term refinances.
News You Can Use
- Warren Buffett says he's not worried about Fitch's U.S. downgrade
- Is the Housing Market Heading Toward a Soft Landing? Here's What the Latest Statistics Say
- Weekly Initial Unemployment Claims Increase to 227,000
- Manufacturing PMI® at 46.4%; July 2023 Manufacturing ISM® Report On Business®
- June 2023 CPI report: Inflation comes in at just 3%
- 45% of US Homebuyers Are Purchasing Mortgage Points
