After a couple brutal weeks in the bond market.
INFLATION IMPROVES!
After a couple brutal weeks in the bond market, rates peaking again, and buyers feeling discouraged, we are seeing green! The bond market is up 70 points as we speak. Finally, a much needed break in mortgage rates.
I expect demand to pick up, again. The MBA released their Mortgage Application data for last week showing purchases rose by 2%. Demand picked up 4 out of the last 5 weeks. With today’s news, I expect this trend to continue. Despite affordability concerns, buyers know these circumstances won’t last. Prices will increase with strong demand and low inventory conditions. If you’re in the market to buy, keep your finger on the pulse and stay active.
The June CPI report showed overall inflation increased by 0.2%, lower than expectations. Year over year, inflation declined from 4 to 3%. We’ve come a long way from the 9.1% peak. The 2% goal feels much closer now.
If the Fed sticks to their recent statement, another rate hike is on the horizon this month. Rapid rate hikes lead to an economic downturn. With tight monetary policy and unprecedented rate hikes, the housing market remains strong and unemployment resilient.
AFFORDABILITY IS THE ISSUE |
“In California, the median house payment is now 61.2% of the median income. This number has nearly doubled since 2020 and is now back at 2006 levels. On average, Californians now keep 39% of their pre-tax income after making their house payments.”
What percentage of your household income should be used for a mortgage payment?
Debt Ratio Limits:
FHA 56.99%
Freddie Mac 50.5%
Fannie Mae 50%
Non-QM 50-55% V
A 60% or more works based on the overall risk profile.
VA loans will allow you to exclude deferred student loans form the debt ratio calculation.
People criticize homebuyers for maximizing their debt ratio. 90% of the time, there are other people in the household earning income and contributing the expenses. They aren’t added to the loan application for various reasons. When calculating affordability, take into consideration all sources of income.
The Housing Affordability Index measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data. Housing Affordability Index data are provided by NAR solely for use as a reference.
WHAT’S NEXT THIS WEEK? |
The minutes from the Fed’s June meeting showed that the Fed is planning additional hikes to their benchmark Fed Funds Rate this year. This is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. When the Fed hikes the Fed Funds Rate, they are trying to slow the economy and curb inflation. The minutes also show that members decided against a hike at their meeting in June. They cited concerns over economic growth, so they could have more time to assess incoming data. However, some participants indicated that they favored a 25-basis point hike last month. Interestingly, the Fed wants to continue hiking even though inflation is coming down and their base case is still for a mild recession later this year. If they believe we are going to enter a recession, do they really need to continue hiking the Fed Funds Rate? Look for the Producer Price Index on Thursday, which will give us news on wholesale inflation. The latest Jobless Claims will be reported as usual on Thursday as well. Good news for unemployment could cost us in the bond market. If you’re in contract now, lock your rate today. |