Rates Finally Trending Downward👌

Hello everyone! I hope you all had a fantastic Mother’s Day celebrating the amazing women in our lives! Now, let's dive into some important updates from the mortgage world this week.

Read time: ~3 minutes

Rates ended LOWER compared to last week, and volatility was HIGH. Rates are in the low-7 range for most loan types without paying discount points. Paying discount points can get you in high 6’s.

Rates Finally Trending Downward👌

It's been tough to find good news about mortgage rates lately, as they’ve consistently trended upwards. But this past week, we finally saw a bit of relief — rates have dropped slightly for the first time in over a month. It's a small win, but a welcome one!

The minor dip of about 0.125% in rates came on the heels of last Thursday's Jobless Claims report. The report, which measures the number of people filing for unemployment benefits for the first time, showed an unexpected increase to 231,000 claims—21,000 above projections. This is the highest figure we've seen since August 2023, hinting that the economy might be starting to feel the strain.

This uptick in job losses suggests that the Fed's strategy of maintaining higher rates to cool the economy might be taking effect, potentially leading to further easing of mortgage rates.

New Developments in Home Equity Access 💰

When it comes to leveraging your home equity, the options are typically limited to either a Cash-Out refinance or a Home Equity Line of Credit (HELOC). With a Cash-Out refinance, you would need to close out your existing mortgage and start a new one, often at a higher interest rate than what was available during the COVID pandemic. On the other hand, a HELOC allows you to keep your first mortgage's low rate intact by taking out a second mortgage on your home. However, the downside is that HELOC rates can be adjustable and higher than first mortgage rates.

Neither of these options is particularly attractive in today's high-interest rate environment. But there's potential good news on the horizon: Freddie Mac, a government entity that backs conventional loans, is proposing to enter the HELOC market. This is a significant development because, currently, neither Fannie Mae nor Freddie Mac back second mortgages or HELOCs. If a borrower defaults on a HELOC, the financial institution that provided it bears all the loss since these products are not backed by Fannie or Freddie. This high risk is a big reason why HELOC rates are adjustable and considerably higher.

Freddie Mac's potential entry into this space could dramatically change the landscape. If Fannie and Freddie begin backing HELOCs, it could lead to increased competition and liquidity in the market, which would likely drive down interest rates on these products. This would be a significant boon for current homeowners looking to tap into their home equity without refinancing their primary mortgage.

However, this move could have mixed effects on the overall housing market. Easier access to home equity could encourage homeowners to stay in their current properties longer, potentially exacerbating the already tight housing supply. This trend could make it even more challenging for new buyers looking to enter the market.

Critical Inflation Report Incoming This Week 📃

Remember the last spike in mortgage rates after the CPI report that was released on April 10th? We’re bracing for another CPI report this Wednesday, May 15th, with inflation currently at 3.5%, still well above the Fed's 2% target. A third consecutive month of rising inflation could send shockwaves through the mortgage market, possibly pushing rates back up to the mid-7% range.

Conversely, any sign of decreasing inflation could ease rates further, potentially moving us away from the 7% mark, and back into the 6’s for most mortgages.

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