What’s That Moving in The Shadows? Three Things to Know
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By Ryan Casey Stephens, FPQP®
Special Contributor
In the spooky spirit of the month, October’s been rough thus far. Interest rates are up from the end of September and our 401(k)s are flat or down. In the shifting shadows around the candles and the jack-o-lanterns, the real estate and mortgage landscapes also seem to be taking strange new shapes around us.
Let’s point a flashlight at the specters in this week’s Three Things to Know.
Brutal Freefall?
Have you noticed the eerie debate brewing about the future of house prices? Media coverage often seems lop-sided, with respected outlets like Business Insider taking advantage of every opportunity to publish gory, click-bait headlines.
Their recent piece penned by Zahra Tayeb warns of a “massive bubble,” “cratering,” and “blatant … signs of stress,” while summarizing the opinions of five market experts. The tone is haunting. But when we peer through the mist, what do the experts see coming our way?
The three experts that quantified their thoughts predict a home value decline of 10 to 15 percent in the next year but don’t scream yet! Remember, the value of many residential properties in Dallas-Fort Worth have risen more than 40 percent in just two years.
Does the decline those experts predict sound like a horror flick to you?
Get to the Points
If you’ve glanced at Closing Disclosure recently, you might have noticed more borrowers paying discount points for rates that still seem startling. With predictions of lower rates on the distant horizon, doesn’t it seem odd to pay for a slightly lower rate now? There’s something bizarre happening, and you might be unaware.
Lenders are aware that hideous market downturns bring lower mortgage rates. Traditionally, investors need to hold a loan for a minimum number of months after closing in order to profit. In fact, as rates dropped from 2020 to 2021, lenders were sternly warning borrowers not to refinance too soon, afraid of paying corporate penalties known as ‘Early Pay Offs’ to investors.
Since many of today’s buyers will almost certainly refinance as soon as rates dip below the 5.5 percent to 6.5 percent range, lenders are now widely requiring points so that those investors get much of their profit upfront. One loan type where this is becoming increasingly spooky are VA loans, which allow veterans to refinance 270 days after closing on their loan with no underwriting and no appraisal requirements.
Will Reports Hold Tricks or Treats?
In this final week before the Halloween weekend, we’re going to be inundated with important data. Two key home price indexes, New Home Sales, Initial and Continuing Jobless Claims, and the Fed’s favorite inflation measure – the PCE will come at us day after day. Rates have been steadily increasing for more than two weeks, so we’ll have to carefully watch for signs the market is going to further worsen.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
