Rate Cuts, Home Sales, and NAR Changes

Weekly Mortgage Update 07/29/2024

Author

Michael Cassano
July 29, 2024

Hello everyone! As we head into August, the effects of the NAR settlement are about to unfold, potentially stirring up some market volatility. Rest assured, my team and I are here to support you through this transition and ensure you stay ahead of the curve.

Let’s break down the latest news and insights to keep you prepared and proactive!

Read time: ~4 minutes

Rates ended LOWER compared to last week, and volatility was HIGH. Rates are in the high 6’s for most loan types without paying discount points. Paying discount points can get you in the mid to low 6’s.

Price Cuts and More Listings: The New Housing Reality?

There are growing signs that the housing market is cooling down, signaling a potential shift towards a more balanced market, giving buyers more leverage during negotiations.

The frenzy of appraisal gaps, bidding wars, and waived home inspections may finally be slowing down. Good riddance!

Existing home sales continued to decline in June, dropping by 5.4% to an annualized rate of 3.89 million units. To put this in perspective, the annualized rate was over 4.50 million units in March 2023.

The months of supply (MOS) metric is showing significant improvement. In July, it reached 3.6 MOS. A balanced housing market typically has between 4-5 MOS. Last year, we were between 2.5 and 3.0 MOS. Are you noticing more homes popping up for sale in your neighborhood and staying on the market longer? My wife and I certainly are in our community.

Additionally, sellers are starting to get nervous, leading to price cuts at a record pace for June. Almost 1 in 5 sellers (19.8%) reduced their asking price. While this isn't the peak (21.7% in October 2022), it is the highest rate for June on record. Active listings are up 12.8% from last year.

Key Takeaway: The shift in power back to buyers is a welcomed and overdue change. Buyers have been at a disadvantage for too long. Although there's a lag, we should start seeing some improvement in affordability as homes with reduced prices get sold, bringing down the median sales price.

The Next Refinance Boom: Home Equity Loans on the Rise 🏡

Remember when mortgage rates were in the 2% a few years back? That period triggered one of the most significant refinance booms in history. However, with mortgage rates expected to fall again in the coming years, the next wave of refinancing is likely to look quite different.

Instead of focusing on rate and term refinances, we should anticipate a surge in home equity loans.

In June, the Federal Housing Finance Agency initiated a small pilot program with Freddie Mac to purchase second mortgages, such as home equity loans, from lenders. This move allows homeowners to retain their low-rate first mortgages while tapping into the equity they've built over the past few years through a second loan.

Currently, U.S. homeowners hold around $32 trillion in home equity. This substantial equity can be used to pay off high-interest credit card debt, tackle inflation-related expenses, or fund those long-delayed home renovations.

Key Takeaway: The home equity market, traditionally limited to a few banks, could see significant growth if the government increases liquidity. This expansion would enable more lenders to offer home equity loans, allowing homeowners to access their equity without losing their low-interest first mortgages. 🙌

Adapting to the NAR Settlement Changes

Big changes are on the horizon with the NAR settlement starting to take effect. By August 17th, the MLS will remove offers of compensation from the portal and allow negotiations off-MLS. Additionally, buyers represented by a member of the MLS will need to sign a written agreement before touring a home. Some MLS databases are even starting to implement these changes ahead of schedule.

Change is never easy, and states like Colorado are already pushing back against the requirement for buyer contracts before home tours. This shift is causing ripples throughout the industry.

From the lender’s perspective, the effects are already being felt. Just last week, a colleague of mine encountered a situation where the seller, OpenDoor, was only covering 2.25% of the buyer’s agent commission. The remaining 0.75% had to be covered by the buyer, which required us to pivot to a down payment assistance loan to help manage the out-of-pocket expenses. Fortunately, everything was clearly communicated before submitting the offer, so the buyer knew what to expect.

Key Takeaway: Over-communication is crucial in this new landscape. Buyers, sellers, agents, and lenders need to stay on the same page and spell out every detail in contracts. Buyer/broker agreements should be shared with lenders as early as possible to avoid any surprises.

HUGE Week Ahead for Rates- Prepare for Volatility 😬

Buckle up, everyone! This week promises to be a wild ride for the markets. We've been gearing up for this crucial week, and it’s packed with key data points that could bring significant volatility to mortgage rates. Here's a breakdown of what to watch for as we look for more signs that might lead to near-term rate cuts by the Federal Reserve:

  • Tuesday: Job openings report (previous: 8.1M)

  • Wednesday: ADP employment data (expected: 168K, previous: 150K), Federal Reserve interest-rate decision, and Powell's press conference.

  • Thursday: Initial jobless claims (expected: 233K, previous: 235K)

  • Friday: U.S. employment report (expected: 190K, previous: 206K) and U.S. unemployment rate (expected: 4.1%, previous: 4.1%)

Stay tuned, as the outcome of these reports and decisions could cause quite a stir in the mortgage world!

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