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How the Fed’s rate hike will affect the housing market

The Fed’s move to increase interest rates by 75 bps will cool down a housing market that was already losing steam. Here’s what LOs and economists expect…

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The Federal Reserve’s 75 basis point interest rate hike – its largest since 1994 – proves the central bank is laser-focused on slowing inflation, but loan officers and housing economists don’t expect mortgage rates to come down until consumer prices fall.

The federal funds rate doesn’t directly dictate mortgage rates, but it does steer market activity to create higher rates and reduce demand. So far, the short-term fed funds rate that the Fed directly controls has risen by 175 basis points but the 30-year fixed rate mortgage has risen by nearly 300 basis points, said Lawrence Yun, chief economist at the National Association of Realtors (NAR). 

“It’s painful that on the same $300,000 mortgage, the monthly payment rose to $1,800 today from $1,265 in December. Consequently (it) will shrink the buyer pool,” Yun said, adding: “Sales could fall even further with some inventory sitting on the market for more than a month like in the pre-pandemic days.”

The consumer-price index rose 8.6% in May from the same month a year ago, marking the highest reading since December 1981, according to the U.S. Labor Department. With investors asking for higher premiums to invest in assets caused by the expectation of higher U.S. Treasury rates, the 30-year conforming mortgage rate passed the 6% mark on Tuesday, per Black Knight‘s Optimal Blue OBMMI pricing engine. In early January, rates were as low as 3.4%. 

Another factor putting upward pressure on mortgage rates is the “ongoing reduction in the size of the Fed’s balance sheet, including its holdings of the mortgage backed securities (MBS),” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

The purchase of Treasuries and MBS, which ended in March, helped the housing and mortgage markets to expand to new heights. The sharp decline in mortgage rates during the COVID-19 pandemic fueled the U.S. mortgage industry to fund $4.1 trillion in new loans in 2020 and $3.9 trillion in 2021, according to the MBA. In its June report, the MBA forecast total originations at $2.4 trillion in 2022 and $2.3 trillion in 2023.

A less volatile market?

Although the 30-year fixed-rate mortgage surpassed 6%, its highest level since November 2008, some economists expect mortgage rates to go down in the coming weeks. As mortgage rates tend to fluctuate in anticipation of the Fed’s rate moves, “the Fed increase was already ‘baked into’ mortgage rates,” said Holden Lewis, home and mortgage specialist at NerdWallet.

“In other words, mortgage rates are more likely to go up or down before Fed meetings than after Fed meetings. Over the next week or two, we probably won’t see big movements in mortgage rates like we did last week,” Lewis said.

If the Fed can manage concerns that it is moving too fast or too slow while bolstering credibility that they do intend to bring inflation back into the target 2% range within a reasonable period, the recent volatility seen in the stock and financial markets could subside, said Danielle Hale, chief economist at Realtor.com.

Though there is possibility that the Fed comes across as acting without concern for the broader economic impact leading to a new round of vulnerability, “I expect a bit more calm following the June meeting as the Fed seeks to lay out a clear path forward, but there’s both upside and downside risk for mortgage rates,” Hale added. The Fed will meet again in July.

Avoiding volatility in mortgage rates are what some lenders prefer to see more than the Fed’s aggressive monetary policy to better predict the housing market.

“Based on our conversations with clients, we believe many market participants will be pleased with the aggressive approach of the Federal Reserve, as there is some belief the Fed’s decision will more quickly bring stability to the home mortgage interest rate environment,” said Matry Green, principal at mortgage law firm Polunsky Beitel Green

The biggest issue regarding volatility in the mortgage rate environment is the uncertainty around the size of the Fed’s upcoming rate hikes. Federal Reserve chairman Jerome Powell said either a 50 bps or 75 bps increase seems likely at the July meeting, but emphasized the central bank’s decision will depend on incoming data. 

“Any guidance that we give is always going to be subject to things working out about as we expect,” Powell said in a press conference following the rate increase announcement. “I would like to think though that our guidance is still credible, but it’s always going to be conditional on what happens.”

If the Fed’s monetary policies fail to slow down inflation, mortgage rates towards 7% or higher could be on the horizon, as seen from the inflationary environment of the 1980s, said Robert Heck, vice president of mortgage at online mortgage broker Morty

“We aren’t close to being there yet, but it’s also not impossible and inflation data will be the market driver of the summer and the remainder of the year.”

A cool down in an overheated housing market 

What remains clear for industry observers is that higher mortgage rates will cool down the housing market. “This means that affordability will deteriorate further and dampen some of the demand,” said Selma Hepp, deputy chief economist for CoreLogic, adding the higher rate will bring more inventory into the housing market. 

Existing home sales dropped 2.4% in April from March to 5.61 million, according to Realtor.com. A total of 591,000 new homes were sold in April, falling 16.6% from March, which was the lowest level in two years. 

Christian Dicker, senior loan officer at Motto Mortgage, said he expects fewer people to qualify for a mortgage in the rising rate environment. After revisiting one of his client’s pre-approvals from last year, he had to call to scale down the $300,000 mortgage to about $260,000. 

“It’s about the payment. If the interest rates go up, and the payment gets too high, then they don’t qualify anymore.”

Fewer buyers in the industry means margin compression for lenders, which are relying heavily on purchase mortgages coming off a refi boom. Purchase locks, which are not as rate-sensitive as refinancings, accounted for 82% of the entire share of rate locks in May, according to Black Knight. As a result, brokerages and mortgage lenders have been cutting staff to cut costs in a greatly reduced volume compared to the pandemic. 

There’s still demand for homes, loan officers told HousingWire. “I think that homes are still going to sell,” said Coley Carden, vice president of residential lending at Winchester Co-Operative Bank. “It’s a question of what loan product you are willing to go into to make your purchase affordable.” 

The post How the Fed’s rate hike will affect the housing market appeared first on HousingWire.

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Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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Government

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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