U.S. Housing Market Crash? Not So Fast!

Hello everyone! I hope you all enjoyed a fantastic long Labor Day weekend! As we step into September, we're excited for what promises to be an eventful month in the mortgage and real estate world! We're here to break it all down for you! Let’s get started!

We are posting regular content to Instagram (Nick | Kreg) and Facebook (Nick | Kreg) to help you and your buyers stay informed. Be sure to follow us!

Read time: ~4 minutes

Rates ended FLAT compared to last week, and volatility was HIGH. Rates remain in the mid-6 range for most loan types without paying discount points. Paying discount points can get you in high 5's / low 6’s.

Inflation Poses No Threat to 0.25% Rate Cut!

It's been 404 days since the Fed last adjusted interest rates, which is hard to believe!

During that time, we've seen Britney Spears and Sam Asghari announce their divorce, the World Health Organization declare the end of COVID-19 as a global health emergency, Taylor Swift launch her "Eras Tour," and Lionel Messi sign with Inter Miami. A lot has changed in just over a year!

Now, we’re just two weeks away from the long-awaited Fed meeting where they are finally expected to cut interest rates! The big question is, "by how much?"

Right now, all signs point to a 0.25% rate cut. The PCE inflation report released on Friday came in as expected at 2.5% year-over-year, reinforcing the Fed’s expected move. Had the inflation number been lower, we might have been looking at a potential 0.50% rate cut. However, this "as expected" inflation reading makes a 0.50% cut less likely in the coming weeks.

All Eyes on Fridays Jobs Report!

Typically, when the job market is strong and unemployment is low, people don’t pay much attention to when the next jobs report will be released.

However, with hopes for lower interest rates and signs that the job market may be cooling, the jobs report has become a key indicator for predicting the Federal Reserve's next move.

We’re all chomping at the bit for the Fed to cut rates because lower rates can boost economic activity. Nonetheless, the Fed is hesitant to make cuts too soon while the job market remains strong. If they cut rates too soon, inflation could rise again, leading to more rate hikes in the future. The Fed wants to maintain its credibility and avoid abrupt policy shifts.

That’s why we need to keep a close eye on the upcoming report on Friday, September 6th. If the report shows a significant decline in jobs, we could see mortgage rates drop even further, as it would increase the chances of the Fed cutting rates by 0.50% instead of the expected 0.25%.

As we've mentioned before, it's important to remember that the Fed’s rate cut doesn’t directly impact mortgage rates; rather, it’s the changes in expectations about those rate cuts that typically lead to similar moves in mortgage rates leading up to the Fed's official announcement.

U.S. Housing Crash? Not with the 30-Year Mortgage!

I’ve mentioned this many times: Nick and I are self-proclaimed nerds. One of our interests is exploring the housing market outside the United States. After examining international markets, it becomes clear just how fortunate we are to be part of the U.S. real estate landscape.

The most significant aspect we often take for granted is the traditional 30-year fixed mortgage. The chart below illustrates that the U.S. has the lowest percentage of adjustable-rate mortgages (ARMs) compared to other developed countries.

Why does this matter? ARMs can be risky because their interest rates change at specified intervals. If rates go up, your monthly payments can rise dramatically, resulting in higher overall costs. This unpredictability makes it challenging for borrowers to budget, especially if they intend to remain in their homes for the long term. Being caught with an ARM in a high-rate environment can lead to serious financial consequences quickly!

Due to the stability of the U.S. mortgage market, we have the advantage of watching housing crises develop in other countries before their impacts reach us.

When we start hearing about market crashes in countries like Portugal, Canada, or the United Kingdom, it’s a signal to proceed with caution! This is because, in the event of a global financial crisis, housing markets with the highest percentage of ARMs are likely to be the most affected.

If your mortgage is linked to an ARM that adjusts annually, you’re more susceptible to market fluctuations. Fortunately, with over 90% of Americans holding stable 30-year mortgages, we can rest easy knowing that the next housing crisis in the U.S. is unlikely to stem from these risky loans.

Two Ways We Can Help

1. Let’s collaborate – schedule a zoom meeting

2. Tough deal?  Let us help!

Don’t hesitate to reach out if you need anything at all. Have a wonderful week!