October 29, 2024 – Not in a Straight Line

Economic Commentary

If there is one feature of the markets you can always count on, it is the attribute of non-lineal progression. What does that mean? In plain English, it means that the markets do not rise or fall in a straight line or in accordance with a certain set path. For example, when mortgage rates rose from a low of 3.00% three years ago to a high of 7.75% one year ago, there were four time periods in which rates actually fell, even though they were on the way up.

Similarly, now that mortgage rates are falling, they are not falling in a straight line. Rates fell from 7.75% to just over 6.00% over the past year, but they rose significantly this spring and also have risen since hitting their low in mid-September. This does not mean that rates have stopped falling or that the trend has reversed. It is really a normal occurrence which might be caused by typical market variations or intervening variables such as the strong jobs report released earlier in October. Of course, there can always be intervening variables that are even stronger such as world-wide tensions. Certainly, there have been plenty of those this year.

Speaking of variables, the next two weeks are likely to have plenty of those.  First, we will have the third quarter economic growth advanced estimate (GDP) released this Wednesday.  Thursday we will see data on personal income and spending, along with the Fed’s favorite inflation indicator. The week will end with the October jobs report.  Of course, the election is Tuesday of next week, followed by a meeting of the Federal Reserve which starts the very next day.  All we can say is that you should hold on, because the next week or two could be a very wild ride! 

Weekly Interest Rate Overview

The Markets. Freddie Mac reported that mortgage rates continued to rise last week as the economy continues to show unexpected strength. With major data and the election approaching, the volatility has increased as well. 30-year fixed rates rose to 6.54% from 6.44% from the week before. In addition, 15-year loans increased to 5.71%. A year ago, 30-year fixed rates averaged 7.79%, more than 1.00% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The continued strength in the economy drove mortgage rates higher once again this week. Over the last few years, there has been a tension between a downbeat economic narrative and incoming economic data stronger than that narrative. This has led to higher-than-normal volatility in mortgage rates, despite a strengthening economy.”  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

Real estate industry participants believe that mortgage rates dropping below 6% will get housing markets moving again, but there’s growing evidence that the recent decline in rates is already doing so. Redfin’s Homebuyer Demand Index — which measures homebuyer requests for agent services like home tours — was up 9% month over month at the end of September, hitting its highest level since April. Mortgage rate lock-in activity was also double what it was a month earlier. While mortgage rates haven’t moved down since the Federal Reserve’s recent half-point interest rate cut, the news of the cut reached a lot of people who didn’t know mortgage rates had already dropped. “There’s no doubt demand has picked up since the Fed’s interest-rate cut,” Phoenix-area agent Max Shadle said in a statement. “I’m seeing much more traffic at my listings. Falling rates are an incentive for homeowners to sell, too, because they know demand is coming back and they feel less locked in by their relatively low rate. But many people still have an ultra-low mortgage rate from a few years ago, and they’re not quite ready to let go.” Redfin is also observing a change in home sales. According to its data, pending sales increased on a year-over-year basis in 27 of the 50 most populous metro areas. At the national level, pending sales turned flat after nine straight months of declines. Redfin’s report tracks with a number of others that show positive signs of homebuyer demand. According to Altos Research data, pending home sales rose 6.4% year-over-year at the end of September, bucking a seasonal trend in which sales start to recede in the fall. The Mortgage Bankers Association (MBA) reported that mortgage applications hit their highest level in more than two years as fall commenced. Source: HousingWire

New rules on buying and selling homes are in play, now that a settlement from a class-action lawsuit has taken effect. In March, the National Association of Realtors agreed to a $418 million settlement in an antitrust lawsuit where a federal jury found the organization and several large real-estate brokerages had conspired to artificially inflate agent commissions on the sale and purchase of real estate. In a statement at the time of the verdict, the NAR denied wrongdoing. The settlement took effect on August 17. Prior to the settlement, the NAR’s multiple listing service, or MLS, used at a local level across areas in the U.S., facilitated the compensation rates for both a buyer’s and seller’s agents. At the time of listing a property, the home seller negotiated with the listing agent what the compensation would be for a buyer’s agent, which appeared on the MLS. Now, as a result of the settlement, the commission rates are officially removed from the MLS and home sellers are no longer obligated to offer commission for both the buyer and seller agents. “Now, the buyer chooses how much the buyer’s agent makes, the sellers choose how much the seller’s agents make,” Glenn Kelman, CEO of online real estate brokerage firm Redfin, told CNBC. “It’s a new competitive ballgame.” Any confusion around the new practices among agents and consumers will likely be temporary, said Kerry Melcher, head of real estate at Opendoor. Here’s what to know. Potential homebuyers might come across inconsistencies in the market as real estate agents grow accustomed to the new rules.

Before August 17, if you called five buyer agents for the same inquiry related to buying a home, “four out of five times,” you would get the same answer, said real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida. “Now, maybe two out of five times, you’re going to get the same answer,” Cobreiro said. That’s because real estate agents are receiving different instructions from their brokerage firm on how to implement the NAR settlement changes, and it’s translating into confusion among consumers, she said. Meanwhile on the listing side, real estate agents are educating home sellers on the benefits of offering commission to the buyer’s agent even if it’s not a set amount or percentage, Cobreiro explained. For instance, offering a commission can create more competition for agents wanting to show their property, which increases the sales price, she said. “Explaining those benefits of still offering commission despite the fact that the commission is not mandatory is part of the job that now I’m seeing listing agents do,” said Cobreiro. The buyer-broker agreement is a contract between a real estate agent and a homebuyer that specifies the terms of their working relationship, said Cobreiro — the goal of which is to identify a house for the buyer to purchase. If the client buys a property that meets the criteria in the agreement within the specified timeframe, the agent is entitled to the commission for that purchase, Cobreiro said. “The purpose of this form is telling the buyers they are responsible for their own commission on the buyer’s side,” she said. If the seller does not offer commission, the buyer would be responsible for whatever commission was listed on that buyer broker agreement, Cobreiro said. Buyers must get comfortable with what buyer-broker agreement forms look like and be prepared to ask questions about the language and terms, Melcher said. “The forms are designed to be read by buyers and for buyers to understand them,” she said. Source: CNBC