Thanks to a tight labor market and rising inflation rates, mortgage rates moved higher last week amidst market volatility. According to the latest survey put out by Freddie Mac, average mortgage rates trended up to levels not seen since May 2020. We have yet to see any effect on demand for homes given the growth in first-time homebuyers but we’ll have to wait and see how rising rates will spill over into demand for homes.
The release mid-week of the Fed’s Meeting Minutes also contributed to volatility as we saw that the members are considering hiking the Fed Funds Rates to curb inflation and begin to shed mortgage backed securities off their balance sheet. The last time they attempted this combo of initiatives in 2018 it was not good for markets. So, we’ll have to wait and see what they ultimately decide to do, but the suggestion of it caused bond prices to fall and mortgage rates to rise.
We also got word this week that upfront fees for high balance and second home loans will be going up pretty dramatically starting in April. So, what this means for you is that if you are considering buying a second home or want to refi a high balance loan, I highly recommend you get that done sooner rather than later to save money on paying closing fees. The rumor is, upfront fees for high balance loans will increase between 0.25 percent and 0.75 percent, tiered by loan-to-value ratio. For second home loans, upfront fees will increase between 1.125 percent and 3.875 percent, tiered by loan-to-value ratio.
The News I’m Watching This Week…
With the markets spooked and volatile over rising inflation, Wednesday’s report on Consumer Prices could be a shocker. Consensus estimates put the inflation rate over 7 percent year-over-year! And it doesn’t look to be transitory like the Fed once thought.
Remember that as inflation rises, so does the price of homes and the price of mortgages – mortgage rates. We are expecting the trend of increasing rates to continue, especially as inflation continues to move higher.
Hot on the heels of the consumer inflation data comes the wholesale report. Producer Prices Producer prices have been accelerating, whether on a monthly or yearly basis. Yet oil prices steadied in December which is holding down forecasts for the monthly rate, at a consensus increase of 0.4 percent. Excluding energy as well as food, the consensus is an increase of 0.5 percent. These rates increased 0.8 and 0.7 percent respectively in November, both much higher than expected. Annual increases for December are expected at 9.8 and 8.0 percent.
Finally, Friday brings news of Retail Sales figures for December. Sales slowed substantially in November to modest 0.3 percent monthly gains overall and also when excluding vehicles. December’s expectations are limited, no change overall reflecting another weak month for vehicles, up 0.3 percent excluding vehicles and up 0.2 percent when excluding both vehicles and gasoline.
