April 12, 2022 – War and Peace. It seems that the news we are seeing today is all about the battles being fought.

Economic Commentary

War and Peace. It seems that the news we are seeing today is all about the battles being fought. Of course, the war in Ukraine is first on everyone’s mind, but it is not the only war. For example, we are still fighting the war on COVID. Every time we think we have this war won, it seems like another variant pops up. However, because of the availability of vaccines, the battleground has quieted somewhat.

The Federal Reserve is fighting a war against inflation. Long-term interest rates have risen significantly because of the existence of elevated levels of inflation. And the Fed is now pushing short-term rates up as well. Soon to come will be a war against the Federal Budget deficits, as COVID stimulus spending coupled with the COVID recession resulted in a deficit which has increased 33% to over 23 trillion dollars in the past two years. The annual deficits will fall going forward, but this heavy debt loan will cause the Treasury to hit the open markets to raise a tremendous amount of cash at the same time that the Fed has eliminated the purchases of bonds.

Back to the “real war” — the markets continue to react strongly to the news coming from Ukraine. Rumors of progress in peace talks typically causes stocks to rise, while oil prices and interest rates fall. Heavy fighting causes the markets to react in the opposite direction. This has caused major volatility to say the least. Of course, as oil prices rise in reaction to the sanctions levied on Russia, the war on inflation becomes even more difficult to win. Here is our wish for the spring – peace in Ukraine, death to COVID and lower prices everywhere.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to march upward in the past week. For the week ending April 7, 30-year rates rose to 4.72% from 4.67% the week before. In addition, 15-year loans increased to 3.91% and the average for five-year ARMs also climbed to 3.56%. A year ago, 30-year fixed rates averaged 3.13%, more than 1.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates have increased 1.5 percentage points over the last three months alone, the fastest three-month rise since May of 1994. The increase in mortgage rates has softened purchase activity, as the monthly payment for those looking to buy a home has risen by at least 20 percent from a year ago.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

According to a report from Redfin, prospective homebuyers who offered cash payments were more than four times as likely to win a bidding war as those who didn’t in 2021, currently making all-cash offers the most effective strategy to secure a home with multiple offers. Waiving the financing contingency and conducting a pre-inspection, both of which help a deal close faster, are also effective strategies. Homebuyers who used those strategies were 31% and 25% more likely to win than those who didn’t—although some experts say escalation clauses and waiving the inspection contingency won’t increase potential homebuyers’ chances of winning a bidding war. Effective bidding-war strategies are essential for homebuyers in today’s unprecedented market, with a limited number of homes for sale making each one highly valued. More than half of Redfin offers faced competition each month of 2021, and competition has intensified, with January marking the most competitive month on record. Agents have also reported that it’s common to put in offers above the asking price, encouraging buyers to start their home search listed below their price range. Many buyers are also waiving the appraisal contingency, meaning the buyer commits to paying the agreed-upon price, even if the appraisal comes in lower. While Redfin’s data doesn’t track this strategy, it has become increasingly common in recent years, according to Redfin agents. Source: DS News

Hispanic Americans have historically been underrepresented as homeowners, but that could soon change. If predictions hold true, longstanding homeownership gaps may be closing. Fifty-eight percent of Hispanic home shoppers are first-time buyers, significantly higher than the rest of the U.S. population (34%). A new survey conducted by realtor.com® and the National Association for Hispanic Real Estate Professionals found an increasing presence of Hispanics in the housing market, and the organizations predict that number will continue to grow. Latinos are predicted to account for 70% of new homeowners over the next 20 years, the study shows. “Insights into Latino home buying will be critical to understanding how to sustain growth in the housing market,” says Gary Acosta, co-founder and CEO of NAHREP. Homeownership is an important tool for building generational wealth, and many Latinos want to pass a home on to their children. Seventy-three percent of survey respondents say they plan to pass a home on to their children someday. Hispanic buyers also consider factoring in their extended family as they search for the right home. Seventeen percent of respondents say they want to buy a home that can accommodate extended family. Twenty-three percent of respondents said they are or would be the first generation in their family to own a home. “There are significant barriers to entry [for homeownership], especially in today’s high-priced and fast-moving housing market,” says George Ratiu, manager of economic research at realtor.com®. “There are a number of programs available to help first-time buyers break into the market, but many people either don’t know that these programs exist or don’t know where to start in finding one that works for their situation.” Source: Realtor.com

ICE Mortgage Technology, released its 2022 Borrower Insights Survey, showing the COVID pandemic transformed the home buying market – permanently and drastically changing the way borrowers use technology and what they expect from a lender. “They are relocating to find more space and to work remotely,” the survey said. “And after two years of video conferencing, nearly three-quarters think an online mortgage process is easier than an in-person process.” Findings of the December 2021 survey of 2,000 Americans – 1,000 borrowers and 1,000 renters – describe a changed society in which the pandemic has accelerated work and technology trends already underway. They also describe the impact of a new generation of home buyers. Of note to lenders, the findings indicate that, since adapting to a new way of life due to COVID and the rapid emergence of virtual experiences and remote working, borrowers expect the same digital experience when purchasing a home. “What we’ve learned over the last two years is our lives will never go back to the way they were,” said Joe Tyrrell, President of ICE Mortgage Technology. “Borrowers are more accustomed to ordering everything online from groceries to appliances to automobiles. It’s no surprise that when asked, they prefer to go virtual with home buying as well. As an industry, we need to continue to deploy digital offerings – but not at the expense of relationships, which are still an important factor in choosing a lender.” The survey also found that, among those who secured their mortgage during the past two years – that is, during the pandemic – a significant number (38%) cited the need for more space. Plus, the “great resignation” seems to be driving the “great relocation.” Both borrowers and renters alike are willing to be on the move, looking for different or more rewarding work or chasing work that’s available. Source: The Mortgage Bankers Association