Three Things to Know About How Lower Interest Rates Will be a Bright Spot This Summer
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By Ryan Casey Stephens, FPQP®
Special Contributor
Afternoon high temperatures are on the rise, plants everywhere are in full bloom, school is wrapping up, and summer break is just around the corner. If you think it sounds like I’ve got sunshine in my eyes, you’re not wrong. After months of frustrating headlines, the real estate industry finally received some welcome news last week. Now the path toward lower interest rates looks bright, and I’m nearly ready to breathe again.
Our recovery obviously won’t be simple, but the most important thing is to remember that we will recover. Curious why I’m feeling so good? I’m happy to break it down in this week’s Three Things to Know.
Everything We Hoped For
If you’ve been following along with my previous columns, you’ll likely remember last week was supposed to be a big deal. Three important reports came in back-to-back: the Consumer Price Index, Producer Price Index, and Jobless Claims. The right combination of results would signal the start of interest rates dropping and some much-needed relief. We’ve been burned by these reports in the past, though, so it wasn’t a sure bet. So, what happened?
We received exactly what we wanted. The CPI and PPI both revealed cooler-than-expected inflation, and Initial Jobless Claims were higher than anticipated. It was a magic combination. Lower inflation signaled that the Fed’s hikes are working, and higher jobless claims gave them a glimpse at the employment recession they’re desiring. Wednesday and Thursday were kind to mortgage bonds, and though Friday was hairy, we should take heart that this may be the start of better times for lower interest rates.
First Thing to Know:
In the short term mortgage rates might continue to be volatile, but make no mistake — the door to lower rates has been opened with last week’s data.
The Run Toward Lower Interest Rates Should Continue
It’s not enough to rest on one good month of reports, of course. In order to claw our way back to sub-6 percent rates, we’ll need to see inflation drop repeatedly throughout the summer. While we might be looking forward to hot afternoons by the pool, the keyword for inflation must be ‘cool.’
Fortunately, there are reasons to keep the faith. Used car prices are finally beginning to drop, which will aid next month’s CPI report in a way it failed to last week. Consumer spending on hotels and restaurants is also on the way down — a sign that consumers are feeling the pinch of the Fed’s rate hikes. Tons of consumer goods are seeing price drops, and shelter inflation is much lower than last year.
Second Thing to Know:
The fight against inflation is like a snowball rolling down a hill. The more prices ease, the more dramatic the improvement looks when compared with last year. That improvement should lead to more positive sentiment on Wall Street, more support for mortgage bonds, and lower mortgage rates.
Welcome Relief to Confused Homebuyers
Take a moment and click here to revisit my Third Thing to Know from April 11.
The Federal Housing Finance Administration made waves earlier this year when it enacted new credit score-based pricing. Those new fees, which were pushed by national media as punishing well-qualified buyers to help poorly-qualified consumers, caused tremendous confusion. In fact, the ire was so great that the FHFA announced last week it elected to postpone implementing some additional LLPAs until the fall.
The postponed pricing would have levied additional penalties on consumers at a time when rates are barely-tolerable. Lenders would also have been forced to play a game of twister when building loans, constantly trying to figure out which combination of down payment and credit scores would provide the lowest interest rate. Thankfully, the FHFA has seen the error of its ways and decided not to release the DTI-based pricing. A collective, industry-wide sigh of relief is being heard across the nation.
Third Thing to Know:
While the credit-based changes are frustratingly still in effect, I feel increased optimism with the FHFA rescinding the debt-to-income pricing. North Texas home buyers are already struggling to cope with high interest rates, and implementing additional fees in a time like this would only have sown more distrust and confusion.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
