The rollercoaster ride is not over for the mortgage industry.
For the week ending June in 15, rates hit a hard reverse. After two consecutive weeks of overall declines, rates rose this week to their second highest position overall in 2018.
Since March 2018, reports warned of potential for the Federal Reserve to raise rates in June. These projections were spot on. By the end of their meeting on June 13, the Fed approved increasing benchmark rates by 25 basis points to 2 percent.
Here are the big stories in the mortgage market for the week ending June 15.
Published by Housing Wire on June 7, 2018
- Increased origination costs and falling loan volume drove profits down for originators across the country, resulting in a net loss of $118 per loan among independent mortgage banks and mortgage subsidiaries of chartered banks.
- Average loan production expenses were up and profits were down in Q1 2018, according to the Mortgage Bankers Association (MBA) Quarterly Mortgage Bankers Performance report.
- Many originators are hopeful digital mortgages will lower the overall “cost of doing business” in the near future, said reporter Kelsey Ramirez.
- The average 30-year fixed-rate mortgage, for the week of June 7, was down 2 basis points to 4.54%. The 15-year fixed-rate mortgage averaged 4.01%, down from 4.06% the week prior.
- More consumers feel it’s a good time to sell than to buy, according to Fannie Mae’s May housing sentiment index.
- “This slowdown indicates that buyers are having difficulty stretching to keep up with the pace of home-price growth,” noted Freddie Mac’s chief economist, Sam Khater, in regards to the growth rate of purchase loans for 2018.
- During the May-June period, rates have both hovered near current levels and exceeded their highest levels in seven years.
- During the second half of the week ending June 7, rates were edging near record highs once again with anxiety surrounding the potential for rate increases at the upcoming Fed meeting.
- Reporter Matthew Graham noted a broad trend of rate increases will likely continue throughout 2018 and recommended originators continue urging clients to lock rates early to avoid potential costs from rate changes.
- Graham predicted rates for the 30-year fixed rate mortgage will not surpass 5% or fall below 4% this year.
- Increased competition in the market, rising interest rates, limited housing supply and growing list prices are restraining mortgage origination volumes.
- Lenders reported negative gains for the seventh consecutive quarter, according to Fannie Mae's Q2 2018 Mortgage Lender Sentiment Survey.
- Due to rising interest rates, lenders reported refinance volume declines and low expectations for demand to pick up in the next quarter. Meanwhile, the share of lenders reporting growth dropped to the lowest reading for any second quarter period within the past three years.
- “Though it is less negative than the outlook seen last quarter (Q1 2018), it is worse than the one seen one year ago (Q2 2017),” reported Fannie Mae.
- “We expect this will prompt businesses to turn to cost-cutting as a means of managing their bottom lines, with payroll reduction likely to assume a more prominent role in future belt-tightening efforts," remarked Doug Duncan, senior vice president of Fannie Mae.
Published by CNBC on June 13, 2018
- Application volume was down 1.5% from the previous week and down 15.4% compared to the same week last year, likely due to rising interest rates.
- With a 34% year-over-year decrease, refinance volume has suffered the most.
- Low down payment programs seem to be attracting the most buyers, as shown by the application volume increase seen by the Federal Housing Administration (FHA) 3.5% down payment option for first-time home buyers.
- Purchase applications are up year over year, but housing supply shortages could lead to a decline, according to reporter Diana Olick.
- The average rate for a 30-year fixed rate mortgage is 4.54% ― up from 3.89% this time last year.
- Although rates are surging, economists and real estate professionals note they are still low compared to historical standards.
- On June 13, the Fed increased the benchmark interest rate by 0.25%, matching prior speculations.
- First-time home buyers will be the most impacted by the rate increase, according to reporter. Jonnelle Marte, but limited housing supply is the largest threat facing the real estate market.
- If buyer demand and home purchase volume sustains May’s trend, housing supply will hit severe lows in fewer than 4.5 months, according to data from a real estate analytics company.
- In May, new home sales hit their lowest levels since December 2017, sinking 4.8% to 60,000 new homes from 63,000 new homes the prior month.
- Facing woes of lumber fees and urges to increase worker wages, the cost of business is hindering expansion in home construction, and contractors cannot keep up with buyer demand.
What Do Recent Mortgage Reports Mean?
Few industry professionals were surprised by this week’s Fed actions, but borrowers are not as prepared to deal with conflicting issues of rising rates and an inventory draught. Many prospective borrowers who stalled purchase plans may be shocked.
After the Fed’s rate increase on Wednesday, Chief Economist Lawrence Yun of the National Association of Realtors (NAR) issued an immediate reaction: “If housing supply can be increased through more home building, then the negative impact of rising interest rates can be mitigated.”
What Should Mortgage Marketers Do Next?
Evaluate your clients’ housing needs, and educate them about niche products that may assist with affordability. Help them consider construction loans, such as the 203K, or FHA and VA programs when applicable.
In your marketing messages, especially email and social media, use affordability-related messages. Offer insight on niche loan offerings, and let your clients know you can help them find the smartest, lowest-cost options.
Contact the expert team at Best Rate Referrals to gain insight on how to best tackle current market conditions and win.