2nd Fed Rate Hike of 2017: What It Means for Mortgage RatesThe Federal Reserve raised short-term interest rates another quarter percentage point today. No surprise there. If only you could talk the central bank into a game of high-stakes, no-limit hold ’em. The Fed doesn’t have a poker face — and that’s the way it’s supposed to be.
Chair Janet Yellen and her Federal Open Market Committee counterparts go out of their way to make sure short-term interest rate moves are anything but a surprise to world markets. But even an expected interest rate increase can have some very real consequences. Here’s what this latest move means for mortgage rates.
The Fed hikes, mortgage rates head-fakeBefore this third short-term rate hike in just six months, fixed-rate mortgages were barely off 2017 lows. The experts have been predicting a gradual rise in home loan interest rates for months, but rates have head-faked their way lower since the Fed’s last rate increase in March.
Why is that happening?
“Even though the U.S. economy is really looking pretty strong right now, particularly in the job market, the rest of the world is lagging behind,” says Mike Fratantoni, chief economist for the Mortgage Bankers Association. “So central banks elsewhere are still aggressively stimulating their economies and keeping their rates low, and that’s acting as a bit of an anchor on longer-term rates.”
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With this foreign demand for safe assets, the MBA expects U.S. mortgage rates “are going to be held back by the lower rates abroad over the next couple of years.”
Where mortgage rates will end 2017The three economists we interviewed say they expect the Fed to raise rates by another quarter-point before the end of the year. That will make for a full percentage point increase within one year.
“This move by the Fed to increase short-term rates was expected, and we expect to see another increase from them before the end of the year,” says Sean Becketti, chief economist for Freddie Mac. He notes that 30-year fixed mortgage rates are still close to a seven-month low, “which is very good news for those potential homebuyers in the market and even those who may be looking to refinance.”
However, Freddie Mac expects mortgage rates to “start rising slowly as the year progresses, yet still remaining right around 4%,” Becketti adds.
Frank Nothaft, chief economist at CoreLogic, says, “Fixed-rate mortgage rates are likely to gradually edge higher over the next six to 12 months. Rates are likely to rise to 4.25% to 4.50% by the end of 2017.”
Fratantoni also expects 30-year rates to be near 4.5% by the end of the year — and above 5% by the end of 2018.
“We think [the Fed will] hike once more in September and then probably three or four times in each of the next couple of years,” Fratantoni says.
The Fed is not only raising interest ratesThe Fed is planning another action that could affect mortgage rates: selling off its portfolio of mortgage-backed securities.
During the financial crisis, the Fed lowered short-term rates to zero. In an effort to further stimulate the economy by lowering long-term interest rates, such as mortgage rates, it began buying mortgage-backed securities. Higher demand raises bond prices, resulting in lower yields.
The Fed now holds more than $1.7 trillion in mortgage-backed securities, about one-third of all those outstanding. Now the central bank is looking to get back to a “more normal operating environment,” Fratantoni says, with a smaller portfolio — and holdings only in U.S. Treasurys.
“They’re not going to get there all at once,” he says. “Our expectation is that … [the Fed] will begin to lay out a schedule for how they’ll treat that balance sheet over time. This will be another factor putting some upward pressure on mortgage rates.”
A ‘double whammy’ for home buyersEvery time rates sneak up a half percentage point or so, experts declare it will be the death of refinancing. It never really is.
Sure, the share of mortgage refinance lending has dropped significantly during the past year. In 2016, refis accounted for 48% of all loans, and that’s expected to drop to between 21% and 31% by the end of 2017, according to the Urban Institute. But homeowners still have ample opportunities to refinance their loans.
Yet, even gradually increasing interest rates affect the housing industry. Nothaft says the “double whammy” of rising mortgage rates and higher home prices are thwarting potential home buyers.
“For example, with fixed-rate loan rates up by 0.5 [percentage point] since last summer, and house prices in national indexes up at least 5%, the monthly principal and interest payment is more than 10% higher than it was last summer, adding to affordability challenges for first-time buyers,” Nothaft says.
The article Second Fed Rate Hike of 2017: What It Means for Mortgage Rates originally appeared on NerdWallet.
March 2017 RE/MAX National Housing Report
Home Prices at New High in February Amid Record Low Inventory
March 17, 2017
DENVER – February home prices reached a new high as steady demand combined with record low inventory drove prices up, according to this month’s RE/MAX National Housing Report that surveys 53 metro areas.
Last month saw a negligible decline (-0.02%) in home sales from February 2016, which posted the most sales in the nine-year history of the report. Less than half of the markets experienced an increase in sales year-over-year.
Meanwhile, active inventory reached a record low for February, dropping 17.9% year-over-year. This marks the 100th consecutive month of year-over-year declines dating back to October 2008.
As a result, the Median Sales Price of $212,000 – another February record – was up 6% year-over-year. This is the 11th consecutive month of year-over-year price increases.
Homes sold faster last month, with average Days on Market dropping from 75 in February 2016 to 68 last month.
“Inventory, not the rise in interest rates, remains the principal constraint on home sales,” said Dave Liniger, RE/MAX CEO, Chairman of the Board and Co-Founder. “The resale market is driven dramatically by the availability of new homes. Most U.S. markets have a high demand for new home construction, and although it’s good to see housing starts trending upward, we still need more.”
Of the 53 metro areas surveyed in February 2017, the overall average number of home sales decreased 0.02% compared to February 2016. Of the 53 metro areas, 23 experienced an increase in sales year-over-year, with nine experiencing double-digit increases. The markets with the largest increase in sales included Trenton, NJ +26.2%, Nashville, TN +19.4%, Las Vegas, NV +18.2%, Wichita, KS +14.6% and Birmingham, AL +13.3%.
Median Sales Price – Median of 53 metro median prices
In February 2017, the median of all 53 metro Median Sales Prices was $212,000, up 1.4% from January 2017 and up 6.0% from February 2016. Only six metro areas saw year-over-year decreases or remained unchanged, with 16 rising by double-digit percentages. The largest double-digit increases were seen in Fargo, ND +19.9%, Burlington, VT +18.4%, Tampa, FL +15.9%, Indianapolis +14.3% and Dallas/Ft. Worth, TX +13.9%.
Days on Market – Average of 53 metro areas
The average Days on Market for homes sold in February 2017 was 68, up two days from the average in January 2017, but down seven days from the February 2016 average. The three metro areas with the lowest Days on Market were San Francisco, CA at 32, Omaha, NE at 34 and Denver, CO at 38. The highest Days on Market averages were in Augusta, ME at 147 and Chicago, IL at 109. Days on Market is the number of days between when a home is first listed in an MLS and a sales contract is signed.
Months Supply of Inventory – Average of 53 metro areas
The number of homes for sale in February 2017 was down 2.2% from January 2017, and down 17.9% from February 2016. Based on the rate of home sales in February, the Months Supply of Inventory was 3.6, compared to January 2017 at 3.8 and February 2016 at 4.0. A 6.0-month supply indicates a market balanced equally between buyers and sellers. In February 2017, 45 of the 53 metro areas surveyed reported a months supply of less than 6.0, which is typically considered a seller’s market. The remaining eight saw a months supply above 6.0, which is typically considered a buyer’s market. The markets with the lowest Months Supply of Inventory continued to be in the west, with both Denver, CO and Seattle, WA at 1.0 and San Francisco, CA at 1.1.
For specific data in this report or to request an interview, please contact firstname.lastname@example.org.
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The RE/MAX National Housing Report is distributed each month on or about the 15th. The first Report was distributed in August 2008. The Report is based on MLS data in approximately 53 metropolitan areas, includes all residential property types, and is not annualized. For maximum representation, many of the largest metro areas in the country are represented, and an attempt is made to include at least one metro from each state. Metro area definitions include the specific counties established by the U.S. Government’s Office of Management and Budget, with some exceptions.
Transactions are the total number of closed residential transactions during the given month. Months Supply of Inventory is the total number of residential properties listed for sale at the end of the month (current inventory) divided by the number of sales contracts signed (pended) during the month. Where “pended” data is unavailable, this calculation is made using closed transactions. Days on Market is the number of days that pass from the time a property is listed until the property goes under contract for all residential properties sold during the month. Median Sales Price is the median of the median sales prices in each of the metro areas included in the survey.
MLS data is provided by contracted data aggregators, RE/MAX brokerages and regional offices. While MLS data is believed to be accurate, it cannot be guaranteed. MLS data is constantly being updated, making any analysis a snapshot at a particular time. Every month the RE/MAX National Housing Report re-calculates the previous period’s data to ensure accuracy over time. All raw data remains the intellectual property of each local MLS organization.