New possibilities emerge for brokers amid sunnier outlook
Confidence appears to be strengthening among hopeful homebuyers that the worst could be over when it comes to high interest rates and the overall housing market outlook.
Fannie Mae said this week that its Home Purchase Sentiment Index (HPSI), a gauge of homebuyers’ optimism across the country, had hit its highest level for more than two years amid growing indications that mortgage rates will fall further through the rest of this year and 2025.
Forty-two per cent (42%) of consumers surveyed in September expect rates to decline in the next 12 months, an all-time high, while just 27% believe they’ll start to rise again – and mortgage professionals across the country are keeping a close eye on that shifting outlook.
Michelle Dugan (pictured top), owner at MS Lending in Mississippi, told Mortgage Professional America that rate drops in recent weeks meant her team was taking a proactive approach to its client database. “We’re definitely reaching out to all of our borrowers that had held off from moving forward on purchases because of rates,” she said.
“Some of them, when we had initial conversations, were approaching 8%. And now we can call them back and say, ‘Hey, we can get you into the low sixes,’ and some of them [even lower], depending on what it is.”
After some of the doom and gloom that pervaded the market amid soaring mortgage rates and borrowing costs in 2022 and 2023, those are “fun” conversations to have, Dugan said, as clients realize the tide is turning.
Hope is coming into view on the purchase side – and the refinance picture also looks to be improving, with year-over-year refinance activity spiking despite a slight recent dip.
Little clarity remains over eventual landing spot for mortgage rates
The main questions facing borrowers on refis, according to Dugan, are how far rates are likely to drop in the future and whether it makes sense to hold off for now in the hope of securing a lower rate down the line.
Rates slid steadily over the summer as the prospect of a Federal Reserve rate cut loomed into view, although they’ve rebounded slightly in recent weeks – with the average 30-year fixed mortgage rate currently sitting at 6.14%, up from 6.08% two weeks prior.
The potential for “significant upwards adjustment” in 10-year bond yields in the months ahead means mortgage rates could also be on the way up in the medium term, according to former Treasury secretary Larry Summers.
Mortgage Bankers Association (MBA) president and chief executive officer Bob Broeksmit, meanwhile, said the recent rebound in mortgage rates – which pushed them to their highest level since August – meant sizable further drops were unlikely. “After several weeks of lower rates and rising applications, activity has now decreased for two consecutive weeks,” he pointed out.
“Despite the recent rate volatility, MBA expects mortgage rates to fluctuate in the 6-6.5% range for the next several months.”
By how much will the Federal Reserve cut in its next decision?
The Federal Reserve is unlikely to follow its oversized September rate cut with a similar move at its next meeting. A stubbornly strong labor market and higher-than-expected inflation figure for last month mean markets view another 50-basis-point cut as virtually out of the question – and Chair Jerome Powell has also signaled that observers shouldn’t expect those bigger reductions to become the norm.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, noted that the strong labor market might lead the Fed to consider smaller interest rate cuts in November.https://t.co/rC2s7joudc
— Mortgage Professional America Magazine (@MPAMagazineUS) October 8, 2024
That means the central bank’s likeliest move in its next rate deliberations remains a more standard reduction of 25 basis points.
Dugan said an uncertain immediate outlook for rates meant refinancing advice depended on each client’s individual circumstances. “On the people that can save a lot of money right now, we’re telling them to do it – but we don’t know [whether] our rates are going to continue to come down,” she said.
“It’s just kind of evaluating where that sweet spot is [for] every borrower that wants to refinance. Some borrowers just want to get that earnest money back out of their account, skip a payment and save $20 a month. Some borrowers have a metric in their own mind that they want to reach. We’re reaching out and having the conversations and doing both.”
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