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Market Update - January 26, 2024

Friday, January 26, 2024

This Market Update is written by our Capital Market specialists each week to bring you insight into what's happening in the market and how it may affect mortgage rates and real estate trends.\

Rates are provided by Housing Wire in conjunction with Optimal Blue. Rates are updated in real-time. Optimal Blue data is calculated using actual locked rates with consumers across 42% of all mortgage transactions nationwide. Rates are inclusive of locks that occur below par, at par and therefore consider discounts and rebates.

Market Commentary:

For the week of Jan 19th – Jan 25th, 30-year and 15-year interest rates remained steady. The 30-year fixed-rate has remained within a very narrow range over the last month. Given this stabilization in rates, potential homebuyers with affordability concerns have jumped off the fence and back into the market. Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace.

 

What affects mortgage rates?

Federal Reserve monetary policy: The nation's central bank doesn't set interest rates, but when it adjusts the federal funds rate, mortgages tend to go in the same direction.

Inflation: Mortgage rates tend to increase during high inflation. Lenders usually set higher interest rates on loans to compensate for the loss of purchasing power.

The bond market: Mortgage lenders often use long-term bond yields, like the 10-Year Treasury, as a benchmark to set interest rates on home loans. When yields rise, mortgage rates typically increase.

Geopolitical events: World events, such as elections, pandemics, or economic crises, can also affect home loan rates, particularly when global financial markets face uncertainty.

Other economic factors: The bond market, employment data, investor confidence, and housing market trends – such as supply and demand – can also affect the direction of mortgage rates.

 

Fannie Mae projects that rates will fall going into 2024 and throughout next year. Fannie Mae's rate projections have decreased from 6.48% by the end of 2024 to a revised estimate of around 5.8% or lower as per the chart below:

Fed Watch: Looking ahead, all eyes are now on the upcoming January 31st, Federal Open Market Committee (FOMC) meeting. According to the CME Group, 0.00% of forecasters predict an increase in interest rates, while 97.4% predict rates will remain the same. 2.6% of forecasters expect rates to decrease.

Market Review:

Per Black Knight's Production Metrics, the breakdown of mortgage production volume is as follows: 83.24% for purchase transactions, 12.16% for cash-out refinances, and 4.61% for rate and term refinances.

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