A WEEKLY GLIMPSE OF REAL ESTATE FINANCE NEWS
12/16/24
Built-In FED Rate Reduction: The slight mortgage rate reductions last week were indicative of the market’s expectation that the FED, at their meeting the next two days, will lower the Federal Funds Rate by a quarter percent. The message to consumers seems to be to not expect long-term rates to reduce when the FED makes the expected announcement. Mixed competing market predictions for the new year suggest consumer confusion in planning their home purchasing efforts. Many anticipate rates to remain mostly in the 6.5% range while others predict up to three more FED rate adjustments in 2025. The confusion is exacerbated by the lack of any clarity regarding housing plans from the new Administration. So, expect a .25% FED rate reduction by Wednesday but don’t expect mortgage rates to adjust accordingly. Waiting for more information seems to be the plan for many prospective home buyers.
Adjusting to What Might Be the Norm: The expectation of a refinance wave late this year never actually occurred. There was a slight uptick in refinances last September when the first FED rate reduction began and rates quickly descended from the mid 7% range to the low 6% area. Some who had recently purchased above 7% took advantage of what was a very temporarily low 6.25% rate to refinance. Rates quickly rose again before any sustained refinance business could take hold. Although some worry that a 6.5% rate will become the new norm through 2025 before we see any significant rate drop, If the FED is left alone by the new Administration, I believe rates will adjust to the mid 5% range by mid-2025.
If you ask me why, I think the new Administration will experience an enthusiasm bump as they focus on “getting things done” early on while leaving the FED to continue its slow management glide (some call it a soft landing) obtaining both their inflation and labor goals. It is difficult to gauge the rate level at which buyers and those planning to refinance will feel confident enough to enter the market. My personal opinion is that if we get into the 5.5% (maybe slightly above) area that it is likely as good as we will see in 2025.
Now, the caveat. This is my personal opinion and you rely upon it at your own risk.
Decisions, Decisions: Understandably both buyers and sellers are reluctant to make housing decisions in this uncertain economic environment. Although my crystal ball is also hazy in regards to predictability, here are a few thoughts as you forge into the future:
- Identifying future interest rates remains mostly guesswork. The expectation of lower rates continues for many but there are signs that 6% is the level at which more would-be home buyers intend to initiate a home purchase.
- There is some evidence that home values are moderating. Comparing the value of waiting for a lower rate vs future home value is likely to become an increasingly more important decision.
- The benefits accompanying home ownership, especially the appreciation in value, remain significant. The idea that the sooner one purchases the quicker the benefits begin suggests that one should purchase when the right home, at the right price and with affordable financing is available. This may be sooner than initially expected.
- Recognizing that a home purchase is a long term investment, pay attention to the “comfort” level of the mortgage payment. Do not rely upon the promise of refinancing to alleviate an uncomfortably high monthly payment.
- Factor into your thinking that there are homeowner expenses that vary over time, including insurance, taxes and maintenance that have to be accommodated.
In summary, attention to buying when you can afford it, planning for long-term ownership and being disciplined regarding your decision making, especially regarding your ability to pay the monthly debt is the route to enjoyable home ownership.
Trigger Lead Legislation Excised: The term ‘trigger lead’ refers to the selling of borrowers’ information when applying for a home loan. A credit report is required when preparing a file for submission for a loan approval. The credit repositories regularly sell this prospective borrower’s information resulting in numerous unexpected and often annoying contacts from lending entities.
The Homebuyers Privacy Protection Act, with a sizeable number of Congressional advocates, was attached to the Senate’s Fiscal year 2025 National Defense Authorization Act (NDAA). . (Yes, you are accurate. The trigger lead regulation, while having nothing to do with military funding, was tacked onto this particular piece of legislation. Right again, it doesn’t make sense but this happens a lot in Washington, maybe in an attempt to pass laws that are either unpopular or considered minor in impact).
This legislation would have made it mandatory that vendors obtain consumer approval before being able to share personal information. After aggressive lobbying by the credit agencies
trigger lead law was removed from the pending NDAA prior to consideration of the legislation in the House of Representatives. Although many in the mortgage arena were enthusiastic about this consumer protection legislation, we will have to wait. Unfortunately, consumers will continue to receive unwanted solicitations. Check with your lender regarding how you might limit the annoying contacts.
Homeowner Insurance update: There are rumblings that major homeowner insurance carriers are poised to return to California. Although that sounds like good news, the terms under which the companies agree to return are still a bit murky. It is difficult to decipher what this will mean for borrowers’ ability to acquire insurance and at what price. I will try to provide more information next week.
Until next week, be good to yourself and kind to others.
12/9/24
New Administration Housing Plans & The FED: There have been no solid housing plans identified by the incoming administration. Critics have suggested that ideas regarding tariffs and deportations are inflationary, which could lead to higher interest rates. In response to this speculation, it was suggested that the FED might pre-emptily react to this rhetoric and raise interest rates at their up-coming meeting. Breaking their recent silence about strategy, some FED governors have indicated that “the Fed adjusts policy based upon actual economic occurrences and pays little or no attention to conjecture or political positions”.
Fed decisions are then likely to depend upon economic information gathered. Last Friday’s jobs report was in line with expectations. The 227,000 new jobs were more status quo than the super weak October employment numbers. The latter are now clearly seen as the result of external factors including weather related crises and the striking Boeing employees. What is unknown is what percentage of these job creation numbers are representative of part-time holiday employees?
With employment perceived as stable and the inflation factor stuck at slightly over the
FED’s preferred 2% a year level, the Fed appears on target for another quarter percent rate reduction at their December 17-18 meeting. Next week’s Consumer information could derail this projection but it is unlikely.
How Long-Term Rates Relate to FED Decisions: It can be confusing when the media announces that the FED lowered the interest rate and mortgage rates do not adjust, or worse, increase. Although FED rate adjustments can influence mortgage rates, they more immediately affect short term financing including auto and equity line loans and credit cards. Whereas banks weigh in more heavily on determining the short-term rates, financial investors are more influential in setting long-term rates. Thus, there is a disconnect between the groups and how they view economic behavior and therefore how they view rate adjustments. While the banks welcomed the last rate reduction as good for short term bank loans, investors viewed the economy as not yet taming inflation and so long-term rates increased. With an uncertain economic landscape, we have no way to determine how the expected quarter precent rate reduction in nine days will affect mortgage rates. We will let you know!
Standard Tax Deduction Increases Announced: The standard deduction is the specific dollar amount that reduces the amount of income on which you’re taxed. Since 2018 when the standard deduction doubled to $24,000 (for a married couple filing jointly), it has increased annually and for 2025 is $30,000 for married couples, $15,000 for singles and $22,500 for heads of household. Prior to the significant increase in the standard deduction, mortgage interest was often the largest deduction and the tax saving was an additional incentive to purchase a home.
Although there remain many good reasons to buy a home, the mortgage interest tax benefit has been slightly diluted with the standard deduction increase. The amount of interest is obviously dependent upon the mortgage amount and the interest percentage. While the deduction for homeowner taxes remains, the breakpoint after which mortgage interest will exceed the $30,000 threshold is a $445,000 mortgage at today’s 6.75% interest rate.
We have previously noted that there are numerous other benefits to home ownership beyond the interest deduction – the most obvious being the appreciation obtained as home values continue to increase.
Is Credit Counseling in Your Future: Recent reports suggest that consumer debt, especially the use of credit cards, is at an all-time high. As consumers wrestle with debt, anticipation is that offers for consumer counseling services will flourish in the new year. While such counseling can be useful, the ability to acquire a home loan can be affected, depending upon one’s participation in a debt consolidation or reduction plan.
Credit “repair” promotions are generally different. These are promises to extinguish credit blemishes as a way to increase credit score. In some cases, the blemished credit account may be extinguished for a limited time frame, giving the illusion of having been “fixed”. The bottom line is that if a blemish is accurate (you actually were delinquent in paying), the only way to remove or correct the account is to work directly with the specific account holder. Be careful when entering agreements to cure or repair your credit issues.Your mortgage lender should be able to provide some guidance.
There is a tip sheet entitled “Credit Counseling Services – Good or Bad” on our website. You can reach it at www.humboldthomeloans.com, Go to tipsheets and scroll down to the appropriate credit tipsheet. You will find other informative tip sheets at this same site.
The Gift That Does Not Need to be Wrapped: As we wrap up one year and prepare to start anew, it is the perfect time to give the gift of kindness. It costs nothing, need not be wrapped and can be given freely to many. Kindness can be a simple smile, a “may I help you”, or a brief friendly conversation. We all need CONNECTION. There are many lonely individuals, especially at Christmas. Be aware and reach out! Extending kindness to someone will be the best gift given or received this season.
Until next week, be good to yourself and kind to others.
We at Humboldt Home Loans are always available to answer any of your real estate finance questions.
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