Friday Fun Facts – Does the Federal Reserve affect Mortgage Rates?

The federal funds rate and mortgage rates are both types of interest rates, but they operate differently. The Fed directly controls the federal funds rate, which primarily influences short-term interest rates, while mortgage rates are determined by lenders based on long-term bond yields and various economic factors like inflation and market demand. This means that while both rates can move in the same direction, they don’t always do so. For instance, when inflation rises, mortgage lenders may increase rates to protect their returns, even if the Fed lowers its rate. This nuanced relationship reflects differing priorities: the Fed balances inflation with job market stability, while lenders focus on the erosion of their future payments. Historical data supports this divergence, illustrating that Fed rate changes don’t consistently correlate with mortgage rate adjustments.

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From Renting To Owning

According to a report by Fannie Mae, 74% of consumers plan to buy a home the next time they move. This included 43% of consumers that are currently renting. 

The interesting fact is that 9 out of 10 consumers overstated or didn’t know the minimum down payment required for most mortgage programs. The great news is that of those surveyed, 70% of the respondents said they were saving specifically for a down payment. 

Speaking with a lender is the first step to understanding the current mortgage requirements. Reach out to your Windermere agent for great lender recommendations.

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Foregone Conclusion

For anyone worried that mortgage forbearance would eventually cause a flood of distressed properties to hit the market, there is good news this week.

 

The number of mortgages in forbearance continues to drop and hit its lowest point since April of 2020.

 

Loans in forbearance dropped 12% compared to one month ago.

 

It appears the growing economy is helping homeowners to exit forbearance and keep the market free of distressed properties.

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New Rate Prediction

Windermere’s Chief Economist, Matthew Gardner has made his new mortgage interest rate prediction for 2021.

 

You can see his breakdown of interest rates and other economic factors by clicking on the image below and watching his newest video.

 

By the end of the year he predicts rates will rise to 3.63%.  By the end of the 3rd quarter, he sees rates at 3.48%.

 

This would be a 0.5% increase by year-end compared to today.

 

What this would mean for home buyers is a 5% higher monthly payment compared to today.

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New Rate Prediction

Windermere’s Chief Economist, Matthew Gardner has made his new mortgage interest rate prediction for 2021.

 

You can see his breakdown of interest rates and other economic factors by clicking on the image below and watching his newest video.

 

By the end of the year he predicts rates will rise to 3.63%.  By the end of the 3rd quarter, he sees rates at 3.48%.

 

This would be a 0.5% increase by year-end compared to today.

 

What this would mean for home buyers is a 5% higher monthly payment compared to today.

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96 Weeks

Mortgage rates have been below 4% for 96 weeks in a row.

 

Today, the average 30-year fixed mortgage rate sits at 3.17%.

 

This is 0.5% lower than January and exactly 1.0% lower than March 2020.

 

Rates recently ended a 31-week streak of being under 3%.

 

Over the last 5 years, rates have averaged 3.8%.

 

Most experts believe that rates will continue to creep higher as the year goes on.

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Enormous Equity

Hot off the press is the Core Logic Homeowner Equity Report.  This is their quarterly look at what is happening with homeowners’ equity across the country.

Here are the staggering numbers coming out of their research:

  • Collectively, U.S. homeowners with mortgages have realized a $1.5 Trillion gain in equity over the last 12 months.
  • Only 2.8% of all mortgaged properties have negative equity meaning the home is worth less than the loan amount.
  • In Colorado, just 2.5% of homeowners have negative equity.  For comparison, the percentage in Louisiana is 10.7%.

This research is one of many reasons why we don’t see any sort of impending housing crisis like we experienced in 2009.  In the fourth quarter of 2009 for instance, 26% of all homeowners had negative equity.

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The Importance of Pre-Approval

To set yourself up for a smooth and successful home purchase, getting pre-approved is perhaps the most productive first step you can take. It strengthens your buying credibility, informs your home search, and speeds up the closing process.

The Pre-Approval Process 

There is an important distinction to made between two important steps of your mortgage application process: pre-qualification and pre-approval. They are similar in that they both help to inform your financial standing, but there are key differences between the two.

Pre-qualification

Pre-qualification is the first step in your mortgage application process. It will help you to understand the approximate loan amount you can expect to qualify for. You’ll begin by sharing your financial information—debt, income, assets, etc.—with you bank or lender. After reviewing the information, the bank or lender will give a loan estimate. The process is relatively simple, only taking a few business days to process.

Pre-approval

The pre-approval process is more involved than pre-qualification. After submitting a mortgage application, your lender will require all the necessary info to conduct a thorough credit history check and review of your financial health. Getting pre-approved will give you a better idea of how much you can borrow, estimated monthly costs, and what interest rates you can expect on your loans. Mortgage pre-approvals are typically valid for 60 to 90 days.

 

Benefits of Pre-Approval

Credibility

The truth is, each home on the market can only go to one buyer. To maximize the chance that your offer is accepted, sellers need to know that your offer is serious. Getting pre-approved shows that you are financially prepared and, in the event that your offer is accepted, there will be no hold ups in obtaining your mortgage. This assurance is what sellers want to know about their potential buyers, especially in a seller’s market.

Home search

Not only does pre-approval help to bolster your case as a buyer, but it also Indicates your affordable price range. By knowing your budget, you will be able to hone your home search and start preparing offers, eliminating any potential wasted time looking at houses you can’t afford.

Closing process

Once your offer is accepted, you’ll be counting down the days to move-in. Unfortunately, the closing process can often drag on, leaving buyers feeling like they’re in post-purchase limbo. Pre-approval will speed up the closing process, since the mortgage approvals have already been taken care of, allowing you to focus on next steps like appraisals and inspections.

 

When to Get Pre-Approved

Being financially prepared for a home purchase is a solid indicator that you’re ready to go about getting pre-approved, but what does that look like? Buying a house means taking on serious debt, so it’s important to either have your remaining debt paid off or have a clear path to becoming debt-free before getting pre-approved. Having adequate savings for a down payment is a sign that you’re ready to make your offer. For any questions about the pre-approval process and to get connected to a mortgage professional, contact your Windermere agent.

Writing

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Forbearance Falls

The number of loans in forbearance just fell to their lowest level since mid-April.

 

This is good news for the real estate market.

 

Less and less people are seeking payment relief on their mortgages.

 

The number of loans currently in forbearance stands at 7.16%.

 

This news coincides with the U.S. Unemployment Rate falling to it’s lowest level in 5 months as more people are getting their jobs back.

 

The economy has added back roughly half of the 22.2 million jobs that were lost in March and April of this year.

waterfall

At Windermere Real Estate we are taking Safer at Home and Social Distancing very seriously.  Our people are following our Safe Showings protocol, staying connected to their clients, and providing help wherever needed.

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On Sale

Money is on sale (again).

30-year mortgage rates now sit at 3.3%.

This is less than half of the long-term, 40-year average.

This is also almost a full percentage point lower than they were one year ago (which was still very low).

Let’s put this in real numbers.

A $300,000 loan at today’s rates has a $1,313 monthly principal and interest payment.

One year ago, that same loan would be $1,432 per month.

That’s a 8.3% difference in monthly payment.

The fact that money is on sale is one of many reasons that the housing market remains very strong right now.

At Windermere Real Estate we are taking Safer at Home and Social Distancing very seriously.  Our people are following our Safe Showings protocol, staying connected to their clients, and providing help wherever needed.

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