Challenge for the Fed: Majority of U.S. Mortgage Rates Were Fixed During Pandemic Lows

According to Black Knight, a company that provides mortgage technology and analytics, over one-fourth of all mortgages are from 2021. Another 18% of mortgages are from the year before the epidemic. That year, a 30-year fixed-rate loan’s average cost fell as low as 2.8%.

This is fantastic news for all the homeowners who secured low-interest loans, but it may not be so good for the Federal Reserve since it plans to raise interest rates to slow the economy down.

As borrowing becomes more expensive, monetary tightening has the effect of reducing consumer demand. Because new buyers must pay 7% or more, this is currently affecting the housing markets. But most American homeowners have fixed-rate mortgages, which are considerably less expensive than the market rate. For potentially several decades, those who remortgage during the pandemic have secured increased purchasing power.

Fed Chair Powell: Interest Rates Are “Likely To Be Higher” Than Previously Predicted

On Tuesday, Federal Reserve Chairman Jerome Powell warned that higher interest rates than anticipated are likely to develop. Citing statistics from earlier this year suggesting that inflation had reversed the decline, it showed in late 2022, raised concern about stricter monetary policy coming soon to slow a booming economy.

The Fed increased its benchmark fund rate eight times throughout the previous year, bringing it to its target range of 4.5%–4.75%. The funds rate, on the surface, determines how much banks charge one another for overnight lending. Yet it also feeds into many other consumer debt products, including credit cards, mortgages, and auto loans.

“Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time,” Powell said. “The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”

CoreLogic: Annual Home Price Growth Continues /Single-Digit Slowdown

According to CoreLogic, U.S. home prices maintained their slow decline in January, with the 5.5% annual growth declining for the ninth consecutive month and reaching its lowest since June 2020.

Based on the firm’s monthly House Price Index and HPI Forecast, the Western U.S. and other states and metro regions that experienced significant appreciation over the previous several years were notably affected by the downturn. The migration patterns that started during the pandemic changed, slowing demand and causing price decreases. As a result, three Northwestern states (along with Washington, D.C.) reported at least slight annual declines.

Home prices dropped 0.2% month over month compared to December. The annual growth rate of attached homes (6.5%) was 1.3 percentage points greater than that of detached homes (5.2%). According to CoreLogic’s predictions, yearly home price growth in the United States will decelerate to 3.1% by January 2024.

The study further reports that Miami saw the highest monthly increase in property prices among the 20 major metro areas in the nation in January, at 17.3%, followed by Tampa, Florida, with 11.7%. The states with the most significant yearly home price increases were Florida (13.4%) and Maine (11.5%), and South Carolina (10.7%). Price reductions over the past year were reported in Washington (-2.2%), Idaho (-2.3%), Montana (-0.6%), and Washington, D.C. (-0.1%).

 

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.