October 1, 2024 – The Final Stretch

Economic Commentary

It is the final quarter of the year. And quite a year it has already been. Mortgage rates moved back near all-time highs in the spring only to start falling in the summer. The National Association of Realtors signed a consent agreement which will change the way that real estate agents will go about their business. The war in Ukraine continued to rage while the Middle East again became a hot bed of tragic events. The real estate market continued to slow even as the listing shortage and housing price gains eased, but the price of homes continued to move upward.

On the political front, the last quarter of the year will be a whirlwind with only one month to go before we elect a new President. Adding to the uniqueness of 2024, we have already had an assassination attempt (actually two) and the incumbent bowing out weeks before the convention. The balance of power in the House and Senate are also up for grabs in what has become a very divided electorate. Who knows what surprises the next month will bring.

Meanwhile, there is a slew of economic data to add into the 2024 equation before we call an end to a very exciting year. This week we will start with the September jobs report—a particularly interesting data point at this juncture. The job market has led the economic recovery from the pandemic for the past four years. It was expected that the pace of job growth would slow down at some point. That point seems to have taken hold in the latter part of this year. This progression has helped facilitate progress on the inflation front. But we can’t afford for the job market to slow too much if the economy is going to successfully experience a soft landing.

Weekly Interest Rate Overview

The Markets. Freddie Mac reported that mortgage rates fell slightly last week to their lowest level in two years. However, rates rose moderately after the survey period ended.  30-year fixed rates fell one tick to 6.08% from 6.09% from the week before. In addition, 15-year loans increased slightly to 5.16%. A year ago, 30-year fixed rates averaged 7.31%, over 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Although this week’s decline was slight, the 30-year fixed-rate mortgage trended down to its lowest level in two years. Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment. Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks.” 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

Interest rate drops have made August the most affordable month since February, as home price growth cooled to a 12-month low, according to the September 2024 ICE Mortgage Monitor Report. Declining mortgage rates have brought home affordability to its best level since February and boosted refinance incentive for many recent-vintage mortgages. With 30-year conforming rates down 60 bps from just over 7% in May, the principal and interest payment on the average-priced home purchase is $145 less per month than just three months ago. The share of income needed to make payments on that home (34.3%) is still 10 pp above its 30-year average and ICE Market Trends data shows recent record highs in down payments and credit scores. Spurred by rate declines, purchase loan demand had two of its best weeks since March, but remains noticeably below the levels seen earlier this year and in 2023 when rates were at comparable levels. The ICE Home Price Index for July showed the annual rate of home price growth slipping to +3.6% from +4.1% in June, marking the slowest pace in 12 months on rising inventory and still-soft demand. Source: Morning Star

Mortgage-rate shopping for your best deal can be a contradiction. The more you shop, the better chance your FICO credit scores drop, effectively punishing you for trying to save money. And not only can you end up with a higher mortgage rate, but it may also mean the difference between loan approval and denial. So how much is your FICO score affected each time you shop a mortgage rate? “The range is usually two to seven points”, said Geri Detweiler, director of consumer education at credit.com. She also said lenders’ FICO scoring models vary widely in terms of how multiple inquiries count as one inquiry for a certain time period. She explained it could be all mortgage lender inquiries within 15, 30 or 45 days count as one. It just depends on the scoring model the lender is using. To make your head spin a little more, Anthony Sprauve, senior consumer credit specialist at FICO.com, confirmed that there are 49 versions of credit-scoring software on the market. There is no way for you to know which of the 49 versions your lender is using, or, if it’s a more liberal scoring model. And you don’t know if they count multiple mortgage inquiries over 15 days or 45 days. Improved consumer protection for mortgage shoppers is on the mind of Rep. Maxine Waters, D-Ca. She said she will introduce the Fair Credit Reporting Improvement Act of 2025 to Congress in January. Among other things, the legislation would encourage consumers to shop for the best terms and conditions when seeking to obtain a mortgage (and other types of credit), by treating multiple hard inquiries by a creditor as a single inquiry within a reasonable 120-day time period. “I’m optimistic. We’re stepping outside the box”, Waters said when asked about this legislation passing. Source: Jeff Lazerson for USA Today

More than three-quarters of U.S. adults believe that the Social Security program — which provides monthly benefit payments to Americans starting as early as age 62 — needs an “overhaul,” as it continues to face challenges to its solvency with no sign of political will or compromise to address it. This is according to the 11th edition of the Nationwide Retirement Institute’s annual Social Security survey. Seventy-nine percent of all respondents agreed with the statement that “the Social Security program needs to change,” with 49% of respondents “strongly” agreeing and 30% of respondents “somewhat” agreeing. The survey also found stronger overall feelings on this statement from Generation X and millennial respondents, with these generations being more likely to strongly agree with the statement compared to baby boomers. Nearly three-quarters of all respondents (72%) also largely agreed with the statement that “I worry about the Social Security program running out of funding in my lifetime.” The breakout between “strongly” and “somewhat” agreeing was 34% and 38%, respectively. “Women are more likely than men to agree they worry about Social Security program running out of funding in their lifetime,” the survey found, with women and men agreeing at rates of 75% and 69%, respectively. But only 23% of all respondents agreed with the statement that “I will not get a dime of the Social Security benefits I have earned,” indicating that respondents believe the program will continue despite its fiscal challenges. But the generational divide on this statement was just as stark. “Gen Z, Millennials and Gen Xers are more likely than those age 60-65 to agree that they will not get a dime of the Social Security benefits they have earned,” the survey said. The data showed that only 14% of baby boomers agreed with this statement, compared with 41% of Gen Zers, 36% of millennials and 26% of Gen Xers. In terms of how to solve the program’s challenges, 47% of respondents stated that raising taxes on higher earners to increase the program’s funding was the most direct path to stabilizing the program. Forty percent of respondents want to see a reduction in the taxation of the benefits themselves, while 34% think employers should bear a higher tax burden to fund the program more fully. Source: HousingWire