Inflation's Impact and the Investor Rush

Weekly Mortgage Update 04/29

Author

Michael Cassano
April 29, 2024

Hello everyone! This week brings significant developments in the economic and mortgage sectors, so let's dive right into the details!

Read time: ~3 minutes

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

Once again, inflation and Federal Reserve policies are at the heart of rate movements, and this past week was no exception. The release of the quarterly PCE Inflation report last Thursday sent mortgage rates soaring to their highest points of 2024, reaching up to 7.50%. The report indicated a significant rise in inflation, which has shaken confidence in the Federal Reserve's ability to reduce it to their 2% target.

Key Takeaway: With inflation exceeding expectations, any potential Fed rate cuts seem increasingly delayed. We're likely to see continued high interest rates, with figures in the 7% range becoming more commonplace until there's a notable decrease in inflation and economic softening.

Investor Impact on Home Ownership😩 

Alarmingly, the share of homes owned by primary residents has fallen below 60%. The growing presence of investment firms in residential real estate is a troubling trend that needs our attention. Major players like Blackrock, American Homes 4 Rent, and Vanguard are increasingly buying up properties, limiting the average American’s chances of home ownership.

These corporations are using their vast resources to dominate the market, making it tough for everyday people to compete, especially with rising costs such as interest rates, property taxes, and insurance premiums. The current mortgage rate environment does little to deter these large investors who predominantly use cash to secure their purchases.

This shift in the housing market dynamics is concerning, and it's worth considering the long-term impact before advising sellers to accept offers from these large entities. Once a property is sold to a large corporation, it might never be available to individual homeowners again.

Anticipations for Fed Week 👀 

Remember the optimism at the start of the year about potential rate cuts? This week’s Fed meeting was initially expected to be the beginning of rate reductions. However, recent data showing a spike in inflation metrics such as PCE, PPI, and CPI has shifted expectations dramatically.

We're bracing for significant discussions at this meeting, especially with Jerome Powell expected to address the recent inflation increases—the first such rise since September 2023. While we hope for clarity on the Fed’s future actions, Powell is likely to maintain his usual cautious stance, emphasizing the need for inflation to approach the 2% target before considering rate reductions

Key Takeaway: Prepare for familiar themes in Powell’s remarks without concrete plans for rate cuts. The focus remains on managing inflation back to target levels.

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Don’t hesitate to reach out if you need anything! Hope you all have a great week!!