When it comes to mortgages, most people focus on the obvious questions:

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Let’s get one thing straight: just because you don’t have a traditional 9-to-5 job with a W-2 doesn’t mean homeownership is out of reach.

• Your 1099s from the past one or two years
• Bank statements showing consistent deposits
• Profit & loss statements
• Business income summaries

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Buying a home is one of the biggest financial decisions you’ll ever make. But what if you could save over $100,000 just by asking one simple question when getting pre-approved for a mortgage?

• Identify hidden fees some lenders may charge.
• Compare interest rates and loan terms to find the best deal.
• Negotiate with lenders to secure better rates and lower costs.

• Pay down credit card balances to lower your credit utilization.
• Make on-time payments for all bills and loans.
• Avoid opening new credit lines before applying for a mortgage.

The post How One Simple Question Can Save You Over $100,000 on Your First Home appeared first on Christie Mitsumura Blue Seas Team.

The most recent rate hike brings the Fed’s target funds rate (the rate which banks borrower from the Fed and each other) to a range of 3-3.25%, a full 3% higher than 0-.25% range we saw prior to inflation kicking in late last year.

This also moves the “prime rate” (a very important metric to the overall economy) up to 6.25%, also 3% higher than last year’s lows as the prime rate, unlike mortgage rates, does more in direct proportion to the fed funds rate.

What does this mean for mortgages and home financing?

The Fed’s moves are closely watched by mortgage bond traders (and mortgage bonds, or mortgage backed securities, are what directly influence our rates), and just as important as the Fed’s move on rates is their commentary after announcing their rate decision.  The market reaction to this Fed move was mortgage interest rates moving initially higher (opposite to the market reaction of the last Fed rate hike of the same amount back in June!), as the market’s seem to doubt the Fed’s ability to reign in stubborn inflation.

Historically, though, Fed funds rate increases are usually followed (sometimes quickly) by recession, which historically has brought rates back down to earth.  While no one has a crystal ball, with pending recession grabbing more headlines, it seems like history may repeat itself, but that remains to be seen as the Fed’s rate hike will typically take a few months to be absorbed and show it’s impacts in the broader economy.

What Does The Fed Rate Hike Mean For the Broader Economy?

With a Fed rate hike, the ‘prime’ rate increases, and many household financial products are tied to prime, most often credit cards and home equity lines of credit (HELOCs).  So these products will get more expensive and will likely be the biggest direct impact households will immediately see & feel.

Higher borrower costs tend to mean less borrowing and a slowdown to the broader economy, so over time the Fed rate hikes should reduce inflation, which is a good thing!  The negative side of the equation is that while reducing inflation, the economy usually slows and often ends up in recession.  With inflation hitting so many households in the wallet this year, though, the Fed’s primary concern is to reign in inflation and lower costs for US households.  If their actions do cause a recession and a spike in unemployment numbers, their focus will shift, but for now, we can expect the Fed funds rate to continue to increase and remain at higher levels until we start seeing inflation numbers come down.

Is Housing a Concern?

Housing is certainly seeing a shift in 2022 from the insanity of quickly appreciating values in 2020-2021, but inventory is still below historical levels, so the market has some room to absorb reduced demand without a huge impact.  Again, while no one has a crystal ball, the numbers seem to support strength in the housing market, even if we do see a slowing in appreciation or some slight depreciation in some markets.  The greater concern for the housing market is interest rates, which have hurt affordability in housing, as even with rising prices, low rates can keep housing payments down.  If we see rates drop as inflation comes down, it could bring more home buyers to market.

The Fed has states they plan to continue to raise rates until inflation shows sustained improvements, and they have made fighting inflation their primary focus for the short term.  What the overall impacts will be and the direction of the economy as a result of their actions remain to be seen, we’ll be sure to provide up to date info on the state of housing, rates, and how the Fed’s actions are impacting our markets.

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For mortgage rates

There’s a common misconception that the Fed raising rates with a Fed rate hike leads to higher mortgage rates, but it’s important to understand what drives mortgage rates.  The price of mortgage backed securities (MBS) are the only thing that directly move mortgage rates, and MBS often see an improvement (improving rates, aka bringing them down) when there’s a Fed rate hike.  Today was no exception.  The reason for this is that the Fed rate hike is a measure implemented to slow down the economy and to fight inflation.  High inflation is a major cause of increasing mortgage rates (and is one of a few reasons we’ve seen mortgage rates go up so much in 2022!), so the Fed’s actions should theoretically reduce inflation, helping mortgage bonds, and thus lowering mortgage rates.

In fact, since the Fed’s last rate hike in June, mortgage bonds have improved substantially, and mortgage rates have come down from their highs.

For other debts

Some debts are directly impacted by a Fed rate hike.  Home equity lines of credit (HELOCs), for example, are often tied to the prime rate, which moves in step with the Fed funds rate.  Because the prime rate goes up and down with each Fed rate hike, HELOC rates will move as well, and for that reason, rates on HELOCs will immediately go higher on the Fed announcement.  Other debts tied to the prime rate will do the same.  For this reason, consumers can expect their credit card payments to increase as most credit cards have their interest rates tied to prime.

For the broader economy

Fed rate hikes historically precede periods of recession.  The Fed’s action reduces inflation, but it also makes borrowing costs of financial institutions more expensive.  This tends to slow down borrowing and spending, which in turn slows down the economy.  In today’s marketplace the Fed has made it clear that fighting inflation is their #1 objecting, and the broader economy, while of concern, is being focused on less than reigning in stubborn, persistent inflation that was once thought to be “transitory”.

The Fed rate hike has many implications, but it’s very important to know that the Fed is NOT raising mortgage rates, and in fact, their actions typically lead to lower rates.  That’s important to understand today, because with mortgage rates spiking in early 2022, we’ve seen an increase in inventory on the market as many buyers have been forced to the sidelines.  Interest rates coming down could present a great opportunity for many buyers who now have less competition in the market and more inventory to choose from.  The Fed has also made it clear that their expectation is for more rate hikes throughout 2022 and beyond, so if the markets behave as expected, we may see some great opportunities with lower rates in the mortgage space in the months ahead.

The post The Lastest Fed Hike appeared first on Christie Mitsumura Blue Seas Team.

Will Inflation Go Down?

Inflation is typically analyzed within 2 economic reports – the CPI (consumer price index) and PPI (producer price index).  Both gauge inflation, but PPI excludes volatile energy and food prices.  Each report is analyzed for month-over-month changes, and these month-over-month changes are added together over a 12 months cycle to determine an annual rate, which is usually the metric shared when discussing “inflation”.  For example, if we started with 0% inflation, and each month for the next 12 months, there was a monthly increase of 1%, inflation at the end of that year would be 12%.  This is important because current inflation is important, but it’s equally important to recall the months current readings are being compared to (each month replaces the same month’s reading from the previous year).

It’s important to understand how inflation is calculated to have an idea of when it may go down.  For example, summer of 2021 saw a small dip in inflation, and with inflation currently on the higher end of the spectrum, lower 2021 numbers will likely be replaced by higher numbers for the same months in 2022, making it unlikely that inflation will see a dip this summer.  However, because of the Fed’s rate hikes (an attempt to reign in inflation by making borrowing more expensive) and the fact that inflation was high in the fall months of 2021, it’s very possible we’ll see inflation numbers start to get some relief in the fall.  You can see how inflation has ebbed and flowed in the chart below, so when you see inflation numbers in future months, you can see the month’s being replaced, too, to determine overall inflation.

This helps to answer the question “when” inflation might go down.  Assuming the Fed can reign in some inflation with their rate hike plan, and also assuming supply chains begin to normalize, you can see above inflation numbers were at a recent low in July-August 2021, so while month-over-month readings in 2022 are replacing these relatively low numbers, year over year inflation is likely to remain high.  Once new numbers begin replacing the higher numbers of late-2021 and early-2022, that year-over-year number, or the annual inflation often presented in headlines, may see some relief.

How does this relate to your mortgage or home buying plans?

A phrase we like to use is “you date your mortgage, you marry your house”.  Since inflation has a relationship with mortgage rates (all else being equal, higher inflation = higher mortgage rates and vice versa), it means mortgage rates may be set to remain on the higher end this summer, with some relief in the not so distant future!  For home buyers, higher rates have pushed some buyers out of the market, and with increases in home inventory in many markets, there may be a great buying opportunity.  And while no one wants a higher rate, if you consider most higher rates equate to higher payments in the ‘hundreds’ of dollars, the reduction in buyer competition and increases in home inventory may mean offers on homes don’t need to be ‘tens of thousands’ over list price as we’ve seen in many markets over the past 2 years.  And if & when rates dip, today’s home buyers may have a refinance opportunity to reduce their payment.

For anyone trying to time the market, it’s a tough task – when we look at charts, data, and history, it’s easy enough to make predictions, but there is still uncertainty over the supply chain, COVID-related issues in many export-heavy countries, and geopolitical issues that are tough to predict.  Our advice is that if you’d like to buy a home and you can afford the payment, it’s a good time to buy!  I recommend contacting a ME before you begin your home search so you’re prepared and informed of the current market, and can be in the best possible position to begin to enjoy the benefits of home ownership!

The post Will Inflation Go Down? appeared first on Christie Mitsumura Blue Seas Team.

There is often a lot of confusion around the Fed Rate Hike and how it actually affects the mortgage market, so we hope to clear up some of the common misconceptions.

1. No, mortgage rates do not go up when the Fed Rate Hike happens

Mortgage rates are influenced by many things, but one of the biggest factors in the percentage rate offered to mortgage applicants is inflation.  When inflation is high (as it has been for all of 2022 thus far), mortgage rates are higher.  When inflation is reduced, mortgage rates usually come down with it.  Since the Fed rate hike is intended to reduce inflation, the result is often reduced mortgage interest rates, though sometimes it takes time for rates to come down a noticeable amount.  Today, however, the mortgage bond markets gained huge ground upon the Fed rate hike announcement and commentary, so improvements in rates were felt almost immediately for mortgage applicants.

2. Other debts will get more expensive, immediately.

The “prime rate” is tied directly to the Fed funds rate, and many of the most common types of debt are tied to prime.  Credit cards and home equity lines of credit are two of the most common debt vehicles that do go up and down based on the Fed movements, so with the latest Fed rate hike, it can be expected that credit cards and home equity line of credit rates will see an identical .75 percent increase in their cost.  Since more fed rate hikes are expected throughout 2022 as the Fed continues to fight inflation, it can be expected that this revolving debt will continue to get more expensive on a monthly basis for anyone carrying this type of debt.

3.  Does a Fed rate hike mean recession?

Recession has been a hot headline recently, and for good reason.  Many economic indicators currently point toward the US being in or heading toward a recession, however Fed rate hikes don’t necessarily mean recession.  It’s important to note though, that rate hikes usually lead into recession.  The reason is that higher rates cool off a hot economy by making borrowing more expensive.  When borrowing is more expensive, there tends to be a ripple effect in the economy that often hits the job market (leading to increases in unemployment), and slows inflation, cooling the GDP and often leading into consecutive quarters of negative economic growth, which is the technical indicator of recession.  Since we don’t know we’re in recession until we have 2 consecutive quarters of negative GDP, it’s impossible to say if we’re in a recession or will be soon, but it’s likely the Fed rate hike (and subsequent rate hikes) could point toward recession sooner than later.

4.  Does the Fed rate hike impact other rates and payments?

Through the same ripple effect, the Fed’s actions indirectly affect many aspects of the economy, but what the Fed funds rate actually is, is nothing more than the rate banks borrow from each other and from the Fed.  When banks are borrowing for free or nearly free, as we’ve seen over the past several years, it allows them to offer lower rates and still profit.  When their borrowing costs go up, to maintain the same margins of profit, the rates they offer consumers also have to increase, which is why borrowing becomes more expensive almost across the board.  Mortgage rates are somewhat of an exception because of the impact Fed rate hikes have on inflation that we noted above.

5.  How low will mortgage rates go?

No one has a crystal ball when it comes to mortgage rates, but historically in times of a Fed rate hike, and moreso in times of recession, interest rates decline.  2022 has brought some of the steepest increases we’ve ever seen in terms of how quickly rates have risen, and it remains to be seen if a decline could be just as steep, especially considering the weird market conditions related to COVID-19 that brought us the historically low rates of 2020 and 2021.  If you’re considering applying for a loan, your best bet is to talk with a MasonMac loan officer to determine which options are presently available, and what type of loan product and rate best fits your financial needs!

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Yesterday, March 16, 2022, was the date of the first Fed rate hike in 3 years, and is the first of an expected 7 total for the year 2022.  This rate hike is an effort to fight off the inflation once deemed “transitory” but has proven to be a larger than initially anticipated problem.  There is a lot of confusion around the Fed’s rate decisions and movements, because their moves do have a direct impact on some loan products, with more indirect impacts in other areas.  One area that has an indirect impact is mortgage rates.

First, it’s important to understand what does have a direct impact on mortgage rates.  The sale of mortgage backed securities, or MBS (investment vehicles that include many loans bundled together), are what drive mortgage rates up and down.  When the price of MBS increases, mortgage rates associated with those securities go down.  When the price of MBS declines, interest rates go up (rates rise to attract more investment money).  The Federal Funds Rate, or the Fed rate, is simply the rate set by the Fed at which banks borrower from the Fed.  It is not a rate paid by consumers.

Some things impacted directly by the Fed funds rate are financial products tied to the ‘prime rate’ – since the prime rate correlates with the Fed funds rate, when the Fed makes rate decisions, it has a direct impact on products like Home Equity Lines of Credit (HELOCs) and credit cards, since both are tied to the prime rate.  Mortgage rates, however, being driven by MBS, are influenced by a variety of factors.  One of the biggest impacts to mortgage rates comes from inflation.  In an inflationary environment, we see interest rates increase (as we’ve seen since the start of 2022).  Since the Fed increases rates as a way to fight inflation, it frequently occurs that when the Fed raises their funds rate, mortgage rates actually go down as an immediate result.

With the Fed funds rate increasing, money becomes more expensive for banks, and the impact is often felt in market liquidity.  Due to a variety of reasons, a Fed rate hike is often a precursor to a recessionary environment, another financial environment that is usually tied to a reduction in mortgage rates.  So often, while the impact is not directly related, when the Fed raises the Fed funds rate, mortgage rates often trend downward.  You can see in this chart that after the Fed has increased the Fed funds rate historically, it’s generally been followed by a dip in 30 year fixed mortgage rates, and many times has also been a precursor for recession.

There are many factors that influence mortgage rates, and while the Fed funds rate direction has an indirect impact, it is only a piece of the puzzle when it comes to the direction of rates short- and long-term.  While it’s a near certainty that rates on things like HELOCs and credit card rates will increase in 2022 along with the Fed funds rate, the direction of mortgage rates will be subject to many other factors, including recession numbers, the overall economic picture, geopolitical affairs, and other markets (such as the stock market) competing for investor dollars.

Curious about where rates currently sit and what options may exist for your mortgage?  Reach out to your MasonMac loan officer today for up to date information on current rates!

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