December 17, 2024 – The Last Fed Meeting

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Economic Commentary

No, the Federal Reserve is not being disbanded. But it is the last meeting of the Federal Reserve for the year – barring some sort of emergency which takes place in the next two weeks. The Fed has a lot to consider for this meeting. Two weeks ago, we had a strong jobs report, which indicated that the economy was continuing to expand. Then last week we had the inflation readings for November. The Consumer Price Index came in up 0.3% from the previous month and 2.7% year-over-year. The core value minus the volatile food and energy components were up 0.3% monthly and 3.3% annually.

The producer price index came in comparable to the retail inflation report. Overall, these numbers showed that progress on combating inflation has stalled at a level close, but still higher than the Fed’s targets. The additional variable the Fed will be considering is the fact that new economic policies such as higher tariffs could be implemented in January with the incoming Administration. These tariffs could raise the prices of some essential goods, complicating the inflation picture.

The Fed has lowered rates in their last two meetings. The markets seem to be debating whether the Fed will add one more rate decrease before the year ends, or will they wait until they see the impacts of any new economic policies. Regardless of their decision, we have seen that the Fed lowering short-term rates does not automatically translate into lower long-term interest rates, such as the cost of mortgages. When the Fed lowered rates at their last meeting, there was no such downward movement. On the other hand, perhaps the removal of uncertainty over the election results during the past several months may make the Fed more confident about acting and the markets could follow. We should know early tomorrow afternoon.

Weekly Interest Rate Overview

According to Freddie Mac, last week mortgage rates decreased for the third consecutive week. This week is the Fed’s last scheduled meeting for the year, and the markets continue to predict another short-term rate decrease. 30-year fixed rates decreased to 6.60% from 6.69% from the week before. In addition, 15-year loans decreased to 5.84%. A year ago, 30-year fixed rates averaged 6.95%, 0.35% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage decreased for the third consecutive week. The combination of mortgage rate declines, firm consumer income growth and a bullish stock market have increased homebuyer demand in recent weeks. While the outlook for the housing market is improving, the improvement is limited given that homebuyers continue to face stiff affordability headwinds.” 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

Industry Briefs:  The S&P CoreLogic Case-Shiller Index found that U.S. home prices recorded a 3.9% annual gain in September, a slight deceleration from the previous rate…VantageScore released its October CreditGauge, finding overall credit balances hit a new metric record for the fourth straight month…Realtor.com reported that across the top 50 major metro areas, October median asking rent stood at $1,720. That’s down $23 from September and $40 from the peak hit in August 2022…Pending home sales increased in October–the third consecutive month of increases–the National Association of Realtors reported…Activity involving conforming jumbos outpaced originations of non-agency jumbo mortgages during the third quarter of 2024, according to a ranking by Inside Mortgage Finance. Some $59.0 billion of non-agency jumbos were originated in the third quarter, up 3.5% from the previous quarter. Conforming-jumbo securitization grew 20.3% to $15.88 billion in the third quarter…The Consumer Financial Protection Bureau issued a proposed rule to apply safeguards under the Fair Credit Reporting Act to data brokers. The regulator said the rule would stop data brokers from selling sensitive personal data to “scammers, stalkers and spies.” … Home prices rose just 0.02% in October, CoreLogic reported in its U.S. Home Price Insights report. CoreLogic said prices rose by 3.4% on an annual basis during October and are projected to slow to 2.4% by the same time next year…The Federal Housing Administration (FHA) published Mortgagee Letter 2024-24, Modernization of Engagement with Borrowers in Default, which updates the requirements for mortgagees to meet with borrowers in default; and allows mortgagees to satisfy the meeting requirement by giving them the ability to use alternative communication methods to discuss available loss mitigation options with borrowers and to help them keep them in their homes…Individual Chapter 7 bankruptcy filings were up 14% year-over-year this November according to bankruptcy data provider Epiq AACER. However, total and consumer bankruptcies both fell 15% from the month prior.

Existing home sales are now expected to rise only 4 percent next year from a 2024 pace that is on track for a nearly 30-year low, according to the November 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. The downward revision to the existing home sales outlook, which was previously forecast to rise 11 percent in 2025, is the result of significant upward movement in mortgage rates and other long-duration bonds in recent weeks. Whereas previously the ESR Group had expected mortgage rates to dip below 6 percent in early 2025, the revised forecast now shows mortgage rates ending 2025 at 6.3 percent and remaining above 6 percent through 2026. The ESR Group does expect a significant improvement in existing home sales of around 17 percent in its inaugural 2026 forecast, as affordability conditions improve, the lock-in effect weakens, and pent-up demand to move materializes. Furthermore, the ESR Group continues to expect new home sales to improve on already-robust levels in both 2025 and 2026, as homebuilders continue to offer buyers incentives to move existing inventories. The ESR Group’s economic growth outlook is little changed this month, with minor upward revisions to near-term growth in personal consumption. Its 2026 GDP forecast sees the economy continuing to grow near its long-run trend rate of about 2.2 percent. The ESR Group now expects core inflation, for which further progress has largely stalled in recent months, to remain elevated in the near term. This is offset somewhat by the expectation for lower oil prices due to recent movements in oil markets and a softer global demand outlook, which will likely work to keep topline inflation measures below core inflation through 2025. The ESR Group expects core inflation to return to the Fed’s 2 percent target by the second quarter of 2026, but it now expects somewhat less monetary policy easing in 2025 than previously forecasted. “Long-run interest rates have moved upward over the past couple months following a string of continued strong economic data and disappointing inflation readings,” said Mark Palim, Fannie Mae Senior Vice President and Chief Economist. “To the extent that the recent run-up in rates has been driven by market expectations of stronger economic growth, we think this bodes well for the labor market outlook and home purchase demand. However, we expect inventories of homes added to the market, and therefore sales of existing homes, to remain subdued through next year, as the higher mortgage rate environment is likely to strengthen the ongoing lock-in effect. How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon.” Source: Fannie Mae


It is unsurprising that the National Flood Insurance Program (NFIP) is yet again up for renewal. But after seven years of short-term extensions, the housing and insurance industries are pressing for change. “We are hopeful that the new Congress will reauthorize the program for long term and also include certain reforms,” said Austin Perez, the National Association of Realtors’ senior policy representative on insurance. “But one of the big things that we’ve been doing is just making sure that while the longer-term reauthorization package is being worked on, is that we are advocating for Congress to not allow the program to lapse.” Created by Congress via the National Flood Insurance Act of 1968, the NFIP has received 31 short-term extensions since its last long-term reauthorization expired in 2017. The program, which is administered by the Federal Emergency Management Agency (FEMA), is a public-private partnership between the federal government, the property and casualty insurance industry, states, local officials, lending institutions and property owners. Under the “write your own” program, the 50-plus private insurers that are part of the NFIP can write flood insurance policies for homeowners and buyers who are in need of flood insurance. Funds to cover some claims are borrowed from the Department of the Treasury. The program is available in more than 22,000 communities nationwide, but to be part of the NFIP, communities must adopt and enforce regulations to reduce flood damage. Since its inception, the program has received more than 2.6 million claims, and it currently protects about 4.6 million properties. In 2023 alone, the NFIP received 21,000-plus claims, totaling roughly $1 billion in claim payments. A main reason why the NFIP covers so many properties is that loans backed by the government-sponsored enterprises (GSEs) are required to have flood insurance. If the NFIP lapses, transactions involving GSE-backed loans can still close as the requirement for flood insurance is suspended until the NFIP is reauthorized. Additionally, private insurers that are part of the NFIP are still able to process and pay claims on flood insurance policies as long as the funds to pay these claims are still available. “Many people think that real estate transactions will be disrupted during a lapse of the NFIP, but the truth is, most transactions go through,” Perez said. “The real issue, though, is that properties in flood-prone areas might be sold without flood insurance, which puts buyers at risk.” Source: HousingWire

The Consumer Financial Protection Bureau’s proposed rule to streamline loss-mitigation procedures for residential mortgages could negatively impact the secondary market, according to the Structured Finance Association. The CFPB in July proposed to amend Regulation X to require servicers to enter borrowers into a loss-mitigation review cycle as soon as they request relief. While the borrower is in the review process, servicers wouldn’t be able to pursue foreclosure or impose certain fees until all other relief options are exhausted or the borrower ceases communication with the servicer. In a comment letter, SFA said the proposed rule would allow for “a loss-mitigation review cycle to continue so long as the borrower was eligible for non-retention home disposition options like a short sale and deed in lieu of foreclosure, eligibility for which can continue indefinitely under many current investor guidelines.” As a result, the trade group added, servicers would incur uncompensated expenses for a lengthy period. SFA warned this would decrease the value of mortgage servicing rights, leading to a substantial negative impact on the secondary mortgage market. Source: Inside Mortgage Finance

Executives at mortgage lenders anticipate a minimum 20% increase in credit reporting costs in 2025 compared to 2024. And the soaring costs will hit as lenders try to dig out from multiple years of financial losses and mass layoffs. In early November, Fair Isaac Corp. (FICO), the company behind the widely used consumer credit-risk assessment methodology, announced an increase in its wholesale royalty for mortgage originations from $3.50 to $4.95 per score. However, this is just one among many credit reporting costs for lenders, who must also absorb additional fees from credit bureaus and tri-merge resellers applied downstream. Lenders told HousingWire that they have yet to see price increases from credit providers, as confirmations from the credit bureaus are expected in the coming weeks. However, in planning for 2025, many lenders have already started factoring in higher credit report costs based on initial discussions with vendors. To start, FICO’s wholesale price hike translates to an additional $1.45 per score—equating to $4.35 per borrower and $8.70 per joint application for a tri-bureau credit report, the industry standard. Michael Metz, operations manager at Arizona-based lender V.I.P Mortgage, which has 330 sponsored loan officers across 39 active branches, expects that most credit bureaus will raise their prices as well. “By the time it’s all added in, we’ll see an increase of about $18-20 per borrower,” Metz said. This adds to the current level of $80-$100 for the tri-merge credit report and score bundle, based on FICO’s estimates. “FICO set the stage for the pricing increase with their 40% increase this year. I think we’ll see most credit bureaus take that opportunity to do similar swings.” Metz said. “With pending legislation banning trigger leads, they’ll need to go conservative and make up the revenue – anticipating it passes – and increasing the pricing now to make up for that loss of revenue.” Source: HousingWire

The value gap between homes owned by Hispanics and those owned by non-Hispanic whites is the narrowest ever observed, according to a new report by Zillow. Zillow found that Hispanic-owned homes are currently worth 11.9% less than the average home owned by non-Hispanic white households. That figure is down from 12.1% in 2023. The gap has been much wider in the recent past, reaching 18% in 2012, in the wake of the global financial crisis in 2008, which impacted minority communities more than white communities and set back progress to reduce the home value gap. The home value gap fell in more than two-thirds of the nation’s largest 100 metropolitan areas during the past year. Black homeowners face a greater value gap than Hispanic homeowners, according to Zillow. The report found that the average home value gap between Black homeowners and non-Hispanic white homeowners was 17.7%. While that gulf narrowed during the past year by 0.2%, it is wider today than it was in 2022 (17.2%) and prior to the financial crisis in 2007 (16.3%). Despite the improvements in valuation, homeownership for Hispanic families can still be a struggle. According to Zillow’s recent Consumer Housing Trends report, Hispanics represent 18% of prospective homebuyers, but only 13% of successful purchasers. They also tend to face higher mortgage fees when purchasing a home, with payments averaging $2,812 compared to the national average of $2,072. Hispanics borrowers, additionally, face higher denial rates, with 18.8% being denied, compared to 10% of non-Hispanic white borrowers. This is often because of elevated debt-to-income ratios, which account for 38% of denials. “Homeownership stands as a cornerstone for building wealth, yet systemic barriers have unfairly hindered many people of color from acquiring homes valued comparably to those of their white counterparts,” wrote Treh Manhertz, Zillow senior economic research scientist, in the report. “Efforts to improve access to down payment assistance, credit-building programs, zoning reforms, and affordable housing construction and preservation in desirable areas are key initiatives to help this progress continue.” Source: Scotsman Guide

Despite general support for affordable housing initiatives, Fannie Mae’s National Housing Survey reveals that opinions differ sharply when it comes to building new homes in consumers’ own neighborhoods. The survey, conducted by Fannie Mae’s Economic & Strategic Research (ESR) Group, revealed a divide between renters and homeowners, with renters showing much greater willingness to accept denser housing types, such as apartments, townhomes, and condos, compared to single-family homes that many homeowners prefer. “Since the pandemic, consumers have dealt with several years of elevated home prices and sharply rising mortgage rates, which have led to an extraordinarily challenging home purchase market,” said Fannie Mae ESR group economist Eric Brescia and Kevin Tillman, market research lead associate. Consequently, many Americans now view affordable housing as harder to find. Seventy-three percent (73%) of renters support building more affordable housing in their neighborhoods, compared to just 44% of homeowners, reflecting renters’ greater openness to housing solutions that may ease local affordability issues. The survey also showed that most consumers (82%) are in favor of adding some form of new housing, yet when asked specifically about changes to zoning codes to increase housing density, support declines among homeowners, with only 37% favoring such measures compared to 63% of renters. The ESR Group said that consumers’ mixed sentiments on housing affordability and construction could make it challenging for policymakers and homebuilders to agree on reforms and proposed developments, especially since zoning changes and increased density are often critical components of affordability strategies. “Consumers clearly understand the need for greater affordability, but most don’t support the development of housing types in their own neighborhood that most experts believe would have the greatest positive impact on affordability,” the author wrote in a perspectives blog. Source: Mortgage Professional America

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